TIDM93RD TIDMTTM
RNS Number : 4170R
Co-Operative Bank Finance PLC (The)
01 March 2023
Nick Slape (CEO) and Louise Britnell (CFO) will host a video conference on 01 March 2023 at
9am (UK time) to present the full year 2022 results followed by a Q&A session.
To access the call please visit https://www.co-operativebank.co.uk/about-us/investor-relations
/
Additional materials are also available at this address.
BASIS OF PRESENTATION
The Co-operative Bank Holdings Limited is the immediate parent company of The Co-operative
Bank Finance p.l.c. and the ultimate parent company of The Co-operative Bank p.l.c. In the
following pages the term 'Group' refers to The Co-operative Bank Holdings Limited and its
subsidiaries. The term 'Finance Group' refers to The Co-operative Bank Finance p.l.c. and
its subsidiaries. The term 'Bank' refers to The Co-operative Bank p.l.c. and its subsidiaries
which are consolidated within the Finance Group and then ultimately the Group. Unless otherwise
stated, information presented for the Group equally applies to the Bank and the Finance Group.
Underlying basis: The statutory results are adjusted to remove certain items that do not
promote an understanding of historical or future trends of earnings or cash flows, which therefore
allows a more meaningful comparison of the Group's underlying performance.
Alternative performance measures: The Group uses a number of alternative performance measures,
including underlying profit or loss, in the discussion of its business performance and financial
position.
2022 Annual Report and Accounts
01 March 2023
The Co-operative Bank ('the Bank') is pleased to provide an
update on its performance in the twelve months ended 31 December
2022:
-- Profit before tax of GBP132.6m and underlying profit of
GBP136.0m; an increase of GBP101.5m and GBP95.0m vs FY 21
-- Low cost funding model on a secured balance sheet; a low
level of arrears across a high quality mortgage portfolio
-- De-risking of Pace pension scheme; the Pace Trustee completed
a full "buy-in" of the Bank section of Pace
-- Strong capital underpinning financial performance;
significant opportunity for capital optimisation
-- Market leader in ESG; 'most ethical Bank UK 2022' awarded by
Capital Finance International (CFI), and market leading
Sustainalytics ratings
-- Delivered our 2022 commitments; positive momentum as we move into 2023
Nick Slape, Chief Executive Officer, said:
"I am extremely proud of what we have achieved during our 150th
year. The Bank has not only delivered a significant improvement in
profitability to GBP132.6m (FY 21: GBP31.1m), but has also achieved
several notable milestones, such as the successful issuance of
GBP250m of senior unsecured debt in March 2022, full compliance
with its capital requirements including all buffers one year ahead
of plan and the de-risking of the Pace defined benefit pension
scheme.
Our IT simplification programme is progressing well with the
successful launch of two new savings products, with the final one
due to launch in Q1, which will complete the re-platforming of the
savings books. We will fully in-house our mortgage servicing
capabilities by the first quarter of this year.
While the macro-economic environment remains challenging, we
continue to work hard to ensure that both our customers and
colleagues feel supported.
Looking to the future, we are focussed on delivering both growth
and attractive, sustainable returns for our shareholders. Our
capital position gives us the scope for optimisation as well as
continued investment in our group and returns of capital to
shareholders.
I would like to take the opportunity again to thank our
colleagues and customers for their support."
FINANCIAL PERFORMANCE UPDATE
INCOME STATEMENT (GBPm)
12 months ended 31 December
-----------------------------
2022 2021
Net interest income 458.3 323.9
Other operating income 41.1 37.6
================================== ============== =============
Total income 499.4 361.5
Operating expenditure (372.7) (346.1)
Impairment (6.4) (1.1)
Non-operating income 12.3 16.8
================================== ============== =============
Profit before tax 132.6 31.1
Taxation (110.5) 166.2
================================== ============== =============
Profit after tax 22.1 197.3
================================== ============== =============
Adjustments to profit before tax
Exceptional project expenditure 12.4 28.8
Other exceptional (gains) (9.0) (18.9)
---------------------------------- -------------- -------------
Underlying profit before tax 136.0 41.0
================================== ============== =============
Key ratios:
Net interest margin (bps) (1) 166 125
Adjusted RoTE (%) (2) 13.7 4.7
Cost:income ratio (%) (3) 72.8 91.5
Asset quality ratio (bps) (4) 3.1 0.5
---------------------------------- -------------- -------------
1. Annualised net interest income over average interest earning
assets
2. Underlying profit minus current tax over CET1 resources
3. Total statutory expenditure over total statutory income
(excludes impairment)
4. Annualised impairment charge over average customer assets
PERFORMANCE HIGHLIGHTS
Profit before tax of GBP132.6m and underlying profit of
GBP136.0m
Total income, which includes net interest income and other
operating income, has increased by 38% in comparison to the twelve
months ended 31 December 2021 to GBP499.4m (FY 21: GBP361.5m).
Net interest income has increased by 41% to GBP458.3m (FY 21:
GBP323.9m) and net interest margin (NIM) has increased by 41 basis
points (bps) from 125bps to 166bps, reflecting improving deposit
margins following increases in the base rate to 3.5%.
Operating expenditure has increased by 8% to GBP372.7m (FY 21:
GBP346.1m), reflecting higher staff costs following actions taken
by the Bank to support colleagues with the rising cost of living
and the impact of recruitment within our call centres. Non-staff
costs have increased by GBP14.5m (7.3%) to GBP214.5m following
higher marketing spend in 2022, a higher rate of fraud and 2021
benefits relating to releases of provisions for branch closures and
PPI.
Project costs of GBP37.8m (FY 21: GBP38.1m) were driven
primarily by the mortgage and savings systems simplification
programme. Our statutory cost:income ratio has improved in the
period to 72.8% from 91.5%, due to the actions taken to grow income
outweighing the acceleration of the transformation spend and
inflationary pressures.
Net impairment charge of GBP6.4m (FY 21: GBP1.1m) reflects a
deterioration in the Bank's macro-economic forecasts along with
adjustments for affordability across secured and unsecured
portfolios as a result of cost of living pressures. This is
partially offset by the net impact of Covid provision releases and
reflects the ongoing monitoring of customer arrears data in the
post-pandemic period.
We have reported a GBP12.3m non-operating exceptional gain (FY
21: GBP16.8m) which includes the profit on sale of a small legacy
loan book in the first quarter of the year, as well as the
revaluation and partial sale of our Visa shareholding.
Income tax charge of GBP110.5m
The Group's continuing profitability has resulted in a current
tax charge of GBP5.7m (2021: GBPnil) and confidence in sustainable
future profits has allowed the Group to recognise further deferred
tax assets to shelter future taxable profits.
The pension "buy-in" has resulted in a reduction in deferred tax
liabilities (GBP110.6m) which has led to a decrease in the
offsetting deferred tax assets and a charge to the income statement
of GBP58.4m
The UK rate of corporation tax will increase from 19% to 25%
with effect from 1 April 2023 and because this legislative change
had been enacted, the increase was reflected in the Group's
deferred tax balances at 31 December 2021. In February 2022,
further legislation was enacted to reduce the banking surcharge
from 8% to 3%, and to increase the threshold below which it is not
chargeable to GBP100m (previously GBP25m) from 1 April 2023. The
impact is a reduction in the value of deferred tax assets, and a
GBP43.3m charge to the income statement.
Low cost funding model on a secured balance sheet
Total assets have reduced by 4% compared with 31 December 2021
with legacy assets reducing by 13% to GBP0.6bn. Retail secured
balances have only increased slightly to GBP19.6bn as we have
actively managed new business volumes to preserve Bank margins.
Mortgage pipeline is c.GBP1.7bn (FY 21: GBP1.2bn).
Total liabilities have reduced by 3% to GBP26.8bn over the
period (FY 21: GBP27.6bn). Customer deposit balances across both
retail and SME segments have reduced to GBP20.0bn (FY 21:
GBP21.1bn), following some marginal unwind of excess balances built
up over the pandemic. The Bank maintains a very strong LCR position
of 265.3%.
The asset quality ratio (AQR) in total across retail, SME and
legacy customer lending remains low, reflecting the Bank's low-risk
lending profile. AQR for the Bank as a whole as at 31 December 2022
reflects a charge of 3.1bps (FY 21: 0.5bps). The average core
mortgage book loan-to-value (LTV) remains low at 53.5% (FY 21:
56.8%). Secured accounts that are greater than three months in
arrears represented 0.13% of total accounts as at 31 December 2022
(FY 21: 0.13%).
De-risking of Pace pension scheme
Pace, the pension trustee, has completed a full "buy-in"
transaction of the Bank Section, through which a bulk annuity
insurance policy has been purchased, covering all liabilities
required to meet future defined benefit pensions for the Bank
Section and delivering greater security to its members. The
insurance policy was purchased using existing assets held within
Bank Section, without the need for the Bank to make any additional
contributions. The impact is capital neutral as the related amounts
were previously deducted via regulatory adjustments.
The Bank views the "buy-in" as a positive development and is
supportive of the Trustee's approach, which aligns to the Bank's
own strategic objectives through elimination of the primary
investment and longevity risks that the Bank Section is exposed
to.
Strong capital underpinning financial performance
CET1 ratio has reduced from 20.7% to 19.8% and remains well
above the regulatory minimum of 13.3%. CET1 ratio reduction is
driven by the impact of regulatory adjustments for PS11/20 and
software intangibles. PS11/20 covers changes to the modelling of
secured credit risk, in particular in relation to the assessment of
probability of default and loss given default, with an
implementation date of 1 January 2022. Organic CET1 ratio
generation year-to-date totals 350bps before the impact of the
regulatory adjustments, reflecting profit for the period.
Total MREL-qualifying resources have grown by GBP290.4m,
predominantly due to the successful GBP250m MREL issuance under our
inaugural Green, Social and Sustainability Framework, which was
completed in April 2022. Based on an implied end-state requirement
(using the FY 22 reported balance sheet) of 29.6% including CRD IV
buffers, we have surplus MREL resources.
Risk-weighted assets (RWAs) totalled GBP4.8bn (FY 21: GBP4.4bn).
With a stable balance sheet the majority of the movement is a
result of the impact of regulatory adjustments for PS11/20.
We are now fully compliant with capital requirements plus all
buffers on a sustainable basis one year ahead of schedule. This is
the first time the Bank has been sustainably capital compliant
since 2013 and represents a significant landmark in terms of the
Bank's future resilience and stability.
Market leader in ESG
Environmental and social issues have always mattered to us and
because we embed this throughout all of our corporate governance,
we have been recognised as the UK's best ESG-rated high street bank
with a market-leading score of 8.3 from Sustainalytics, a leading
independent provider of ESG and corporate governance ratings. We
were also pleased to be recognised by other ESG agencies such as
MSCI who rated us AAA which was upgraded from A in 2021. In
addition, we announced in the fourth quarter that we have been
awarded the Most Ethical Bank - UK 2022 by CFI.
Earlier in the year we announced the sixth iteration of our
customer-led Ethical Policy which has been in place for 30 years.
More information can be found on our website via the following link
https://www.co-operativebank.co.uk/values-and-ethics/ . This
refreshed policy is shaped by c.50,000 responses to our recent
Value and Ethics Poll and guides how we do business.
We've been operationally beyond net carbon neutral for 15 years
and have both continued to send zero waste to landfill, and
increased the amount of waste we recycle. We remain c ommitted to
tackling the climate-nature emergency and are proud industry
ambassadors of Zero Hour, the campaign for the Climate and
Ecological Bill.
We have also launched one of the biggest, boldest, most
disruptive brand campaigns in our history - "The Bank you can hold
to account" as we look to highlight to consumers the difference
that they can make to the world simply through who they bank with.
With values and ethics at our core and a refreshed and unique
customer-led Ethical Policy, we are committed to using our
customers' money to do good for the planet, people and
communities.
Outlook
During 2022 we delivered improved financial performance and
continued to invest in the Bank. Our financial outlook for 2023 is
as follows:
-- Bank net interest margin of approximately 180bps; reflecting
additional base rate rises driving margin widening.
-- Total statutory costs of approximately GBP420m; further
investment in our brand and systems alongside inflationary
pressures.
-- Asset quality ratio of less than 5bps; arrears remain low and stable across all portfolios.
-- Customer assets of c.GBP22bn; margin improvement during 2023.
-- Return on tangible equity of approximately 10%; profitability
and improved performance drives shareholder value.
-- Our new capital management framework including dividend
policy will enable a more efficient level of capital resources and
allow us to make the required investment in our business to grow
and provide capital returns to our shareholders over the long
term.
SEGMENTAL PROFIT/(LOSS) (GBPm)
2022 Core Legacy Group
& unallocated
Retail SME Total
Net interest income 397.0 69.3 466.3 (8.0) 458.3
Other operating income 22.7 18.7 41.4 (0.3) 41.1
====================================== ======= ====== ======= ============== =======
Operating income/(expense) 419.7 88.0 507.7 (8.3) 499.4
Operating expenses (288.6) (63.6) (352.2) (20.5) (372.7)
Net credit impairment gains/(losses) (5.2) (1.6) (6.8) 0.4 (6.4)
Non-operating income - - - 12.3 12.3
====================================== ======= ====== ======= ============== =======
Profit before tax 125.9 22.8 148.7 (16.1) 132.6
====================================== ======= ====== ======= ============== =======
2021 Core Legacy & unallocated Group
Re-presented
Retail SME Total
Net interest income 284.8 47.4 332.2 (8.3) 323.9
Other operating income 20.3 16.5 36.8 0.8 37.6
====================================== ======= ====== ======= ==================== =======
Operating income/(expense) 305.1 63.9 369.0 (7.5) 361.5
Operating expenses (259.8) (55.1) (314.9) (31.2) (346.1)
Net credit impairment gains/(losses) 0.9 (1.1) (0.2) (0.9) (1.1)
Non-operating income - - - 16.8 16.8
====================================== ======= ====== ======= ==================== =======
Profit before tax 46.2 7.7 53.9 (22.8) 31.1
====================================== ======= ====== ======= ==================== =======
SEGMENTAL ASSETS AND LIABILITIES (GBPm)
Core
---------------------------
31 December 2022 Retail SME Total Legacy & unallocated Group
----------------- -------- ------- -------- -------------------- --------
Assets 19,841.3 388.2 20,229.5 7,903.3 28,132.8
Liabilities 16,607.8 3,396.8 20,004.6 6,829.2 26,833.8
----------------- -------- ------- -------- -------------------- --------
Core
---------------------------
31 December 2021 Retail SME Total Legacy & unallocated Group
----------------- -------- ------- -------- -------------------- --------
Assets 19,756.0 441.7 20,197.7 9,125.6 29,323.3
Liabilities 17,604.4 3,461.0 21,065.4 6,506.0 27,571.4
----------------- -------- ------- -------- -------------------- --------
SELECTED KEY PERFORMANCE INDICATORS
% (unless otherwise stated) 2022 2021 Change
CET1 ratio 19.8 20.7 (0.9)
Total capital ratio 23.8 25.4 (1.6)
Risk-weighted assets (GBPm) 4,816 4,373 443
Leverage ratio (PRA) (1) 4.0 3.8 0.2
Liquidity coverage ratio (2) 265.3 205.3 60.0
Loan to deposit ratio 104.1 99.1 5.0
Average core mortgage LTV 53.5 56.8 (3.3)
Core mortgage accounts > 3 months in arrears (volume) 0.13 0.13 0.0
NPL as a % of total exposures 0.4 0.3 0.1
======================================================= ===== ===== ======
1. Calculated as per PRA definition, excluding Bank of England reserves
2. Calculated in line with Pillar 3 requirements based on a rolling 12 month average
Investor enquiries:
investorrelations@co-operativebank.co.uk
Gary McDermott, Treasurer and Head of Investor Relations: +44
(0) 7811 599495
Media enquiries:
Sam Cartwright, Maitland/AMO: +44 (0) 7827 254 561
Dan Chadwick, Communications: +44 (0) 7724 701319
Nicki Parry, Communications: +44 (0) 7734 002983
The person responsible for arranging the release of this
announcement on behalf of The Co-operative Bank Finance p.l.c and
The Co-operative Bank p.l.c. is Catherine Green, Company
Secretary.
About The Co-operative Bank
The Co-operative Bank p.l.c. provides a range of banking
products and services to about 2.7m retail customers and c.94k
small and medium sized enterprises ('SME'). The Bank is committed
to values and ethics in line with the principles of the
co-operative movement. The Co-operative Bank is the only high
street bank with a customer-led ethical policy, which gives
customers a say in how their money is used. Launched in 1992, the
policy has been updated on six occasions, with new commitments
added in June 2022 to cover what we do for our planet, people and
the community.
The Co-operative Bank p.l.c. is authorised by the Prudential
Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. The Co-operative
Bank p.l.c. eligible customers are protected by the Financial
Services Compensation Scheme in the UK, in accordance with its
terms.
Note: This announcement contains inside information.
The Co-operative Bank p.l.c. LEI: 213800TLZ6PCLYPSR448
The Co-operative Bank Finance p.l.c. LEI:
213800KNE8ER4N9BLF11
PRIMARY FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
GBPmillion
Year ended 31 December
====================================================================== ========================
2022 2021
====================================================================== =========== ===========
Interest income calculated using the effective interest rate method 581.2 422.7
Other interest and similar income 88.7 11.2
======================================================================= =========== ===========
Interest income and similar income 669.9 433.9
Interest expense and similar charges (211.6) (110.0)
======================================================================= =========== ===========
Net interest income 458.3 323.9
======================================================================= =========== ===========
Fee and commission income 64.4 58.4
Fee and commission expense (32.6) (33.2)
======================================================================= =========== ===========
Net fee and commission income 31.8 25.2
======================================================================= =========== ===========
Income from investments 0.2 0.3
======================================================================= =========== ===========
Other operating income (net) 21.4 28.9
======================================================================= =========== ===========
Operating income 511.7 378.3
======================================================================= =========== ===========
Operating expenses (373.7) (348.7)
Net customer redress release 1.0 2.6
======================================================================= =========== ===========
Total operating expenses (372.7) (346.1)
======================================================================= =========== ===========
Operating profit before net credit impairment losses 139.0 32.2
======================================================================= =========== ===========
Net credit impairment losses (6.4) (1.1)
======================================================================= =========== ===========
Profit before tax 132.6 31.1
======================================================================= =========== ===========
Income tax (110.5) 166.2
======================================================================= =========== ===========
Profit for the financial year 22.1 197.3
======================================================================= =========== ===========
The results above are for the consolidated Group and Bank and
wholly relate to continuing activities. More information regarding
the basis of preparation can be found in the Annual Report and
Accounts, which have been made available on our website.
The profit for the financial year is wholly attributable to
equity shareholders.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
GBPmillion
Year ended 31 December
========================
2022 2021
=============================================================================== ============ ==========
Profit for the financial year 22.1 197.3
=============================================================================== ============ ==========
Items that may be recycled to profit or loss:
Changes in cash flow hedges:
Transfers from equity to income or expense (6.9) (9.2)
Income tax 2.8 1.4
Changes in fair value through other comprehensive income:
Net changes in fair value recognised directly in equity 121.6 30.6
Transfers from equity to income or expense (131.3) (32.8)
Income tax 1.5 0.3
Items that may not subsequently be recycled to profit or loss:
Changes in net retirement benefit asset:
Defined benefit plans (losses)/gains for the year (693.8) 182.7
Income tax 231.1 (92.8)
Other comprehensive (expense)/income for the financial year, net of income tax (475.0) 80.2
=============================================================================== ============ ==========
Total comprehensive (expense)/income for the financial year (452.9) 277.5
=============================================================================== ============ ==========
The results above are for the consolidated Group and Bank. More
information regarding the basis of preparation can be found in the
Annual Report and Accounts, which have been made available on our
website.
CONSOLIDATED BALANCE SHEET
GBPmillion
31 December
2022 31 December 2021
=========== ================
Assets
Cash and balances at central banks 5,270.4 5,696.9
Loans and advances to banks 387.1 191.5
Loans and advances to customers 20,921.9 21,002.1
Fair value adjustments for hedged risk (430.7) (90.5)
Investment securities 942.7 1,201.4
Derivative financial instruments 520.1 248.5
Equity shares 11.1 22.8
Other assets 14.1 12.7
Prepayments 21.4 20.3
Property, plant and equipment 22.8 24.3
Intangible assets 90.0 68.5
Right-of-use assets 33.0 46.9
Current tax assets 1.8 -
Deferred tax assets 167.4 36.8
Net retirement benefit asset 159.7 841.1
================================================================= =========== ================
Total assets 28,132.8 29,323.3
================================================================= =========== ================
Liabilities
Deposits by banks 5,683.4 5,527.6
Customer accounts 20,107.3 21,135.9
Fair value adjustment for hedged risk (34.6) (7.5)
Debt securities in issue 181.9 203.3
Derivative financial instruments 103.5 148.2
Other liabilities 42.8 38.7
Accruals and deferred income 32.5 37.0
Provisions 33.2 33.9
Other borrowed funds 646.9 402.1
Lease liabilities 31.0 44.1
Net retirement benefit liability 5.9 8.1
================================================================= =========== ================
Total liabilities 26,833.8 27,571.4
================================================================= =========== ================
Capital and reserves attributable to the Group's equity holders
Ordinary share capital 0.9 0.9
Share premium account 313.8 313.8
Retained earnings 1,968.1 1,946.0
Other reserves (983.8) (508.8)
Total equity 1,299.0 1,751.9
================================================================= =========== ================
Total liabilities and equity 28,132.8 29,323.3
================================================================= =========== ================
The financial positions above are for the consolidated Group and
Bank. More information regarding the basis of preparation can be
found in the Annual Report and Accounts, which have been made
available on our website.
CONSOLIDATED STATEMENT OF CASH FLOWS
GBPmillion
Year ended 31 December
========================
2022 2021
=========== ===========
Cash flows (used in)/from operating activities:
Profit before tax 132.6 31.1
Adjustments for non cash movements:
Pension scheme adjustments (12.7) (5.6)
Net credit impairment losses 6.4 1.1
Depreciation, amortisation and impairment 35.3 36.6
Other non-cash movements including exchange rate movements 135.6 121.5
Changes in operating assets and liabilities:
Increase in deposits by banks 155.8 3,461.2
Increase in prepayments (1.1) (7.1)
(Decrease)/increase in accruals and deferred income (4.5) 2.0
(Decrease)/increase in customer accounts (1,028.8) 769.2
Decrease in debt securities in issue (21.4) (525.5)
(Increase)/decrease in loans and advances to banks (28.5) 13.6
Decrease/(increase) in loans and advances to customers 32.5 (2,356.6)
Net movement of other assets and other liabilities (28.6) 118.0
Income tax paid (6.8) -
Net cash flows (used in)from operating activities (634.2) 1,659.5
============================================================ =========== ===========
Cash flows from/(used) investing activities:
Purchase of tangible and intangible assets (48.0) (28.9)
Purchase of investment securities (465.7) (873.2)
Proceeds from sale of property and equipment 0.4 1.9
Proceeds from sale of shares and other interests 20.4 2.0
Proceeds from sale and maturity of investment securities 679.0 774.9
Purchase of equity shares (0.8) (0.5)
Dividends received 0.2 0.3
Net cash flows from/(used) investing activities 185.5 (123.5)
============================================================ =========== ===========
Cash flows from/(used in) financing activities:
Proceeds from MREL issuance 248.4 -
Interest paid on Tier 2 notes and senior unsecured debt (44.5) (37.0)
Lease liability principal payments (14.6) (11.0)
Net cash flows from/(used in) financing activities 189.3 (48.0)
============================================================ =========== ===========
Net (decrease)/increase in cash and cash equivalents (259.4) 1,488.0
============================================================ =========== ===========
Cash and cash equivalents at the beginning of the year 5,717.5 4,229.5
============================================================ =========== ===========
Cash and cash equivalents at the end of the year 5,458.1 5,717.5
============================================================ =========== ===========
Comprising of:
=========================================================== =========== ===========
Cash and balances with central banks 5,183.8 5,609.8
Loans and advances to banks 274.3 107.7
============================================================ =========== ===========
5,458.1 5,717.5
=========================================================== =========== ===========
RECONCILIATION OF MOVEMENTS OF LIABILITIES TO CASHFLOWS ARISING
FROM FINANCING ACTIVITIES
GBPmillion
2022 2021
=============== =============== ====== ================ =============== ======
Lease Other borrowed Lease Other borrowed
liabilities funds Total liabilities funds Total
=============== =============== ====== ================ =============== ======
Balance at the beginning of the
year 44.1 402.1 446.2 53.6 408.2 461.8
Changes from financing cashflows
Proceeds from MREL issuance - 248.4 248.4 - - -
Interest paid on Tier 2 notes
and senior unsecured debt - (44.5) (44.5) - (37.0) (37.0)
Lease liability principal
payments (14.6) - (14.6) (11.0) - (11.0)
================================= =============== =============== ====== ================ =============== ======
Total changes from financing cash
flows 29.5 606.0 635.5 42.6 371.2 413.8
================================= =============== =============== ====== ================ =============== ======
Other changes
Interest payable on lease
liabilities and Tier 2 notes 1.2 48.1 49.3 1.7 37.0 38.7
Other non cash movement - (7.2) (7.2) - (6.1) (6.1)
Remeasurements/(derecognition)
of lease liabilities 0.3 - 0.3 (0.2) - (0.2)
================================= =============== =============== ====== ================ =============== ======
Balance at the end of the year 31.0 646.9 677.9 44.1 402.1 446.2
================================= =============== =============== ====== ================ =============== ======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
GBPmillion
Cash Defined
flow Capital Capital benefit
Share Share FVOCI hedging redemption re-organisation pension Retained Total
2022 capital premium reserve reserve reserve reserve reserve earnings equity
At 1 January 2022 0.9 313.8 2.9 14.7 - (1,011.4) 485.0 1,946.0 1,751.9
Total
comprehensive
(expense)/income
for the year - - (8.2) (4.1) - - (462.7) 22.1 (452.9)
At 31 December
2022 0.9 313.8 (5.3) 10.6 - (1,011.4) 22.3 1,968.1 1,299.0
================= ======== ========= ========= ======== ========== =============== ======== ========= =======
Cash Defined
flow Capital Capital benefit
Share Share FVOCI hedging redemption re-organisation pension Retained Total
2021 capital premium reserve reserve reserve reserve reserve earnings equity
At 1 January 2021 0.9 313.8 4.8 22.5 410.0 1,737.5 395.1 (1,410.2) 1,474.4
Total
comprehensive
(expense)/income
for the year - - (1.9) (7.8) - - 89.9 197.3 277.5
Reserve
reorganisation
(1) - - - - (410.0) (2,748.9) - 3,158.9 -
================== ======== ========= ======== ======== ========== =============== ======== ========= =======
At 31 December
2021 0.9 313.8 2.9 14.7 - (1,011.4) 485.0 1,946.0 1,751.9
================== ======== ========= ======== ======== ========== =============== ======== ========= =======
1. Refer to the Annual Report and Accounts for more information,
which have been made available on our website
SELECTED NOTES TO THE FINANCIAL STATEMENTS
All amounts are stated in GBPm unless otherwise indicated.
NOTE 1: SEGMENTAL INFORMATION
The Group provides a wide range of banking services within the
UK. The Executive Committee (ExCo) has been determined to be the
chief operating decision-maker of the Group. The Group's operating
segments reflect its organisational and management structures in
place at the reporting date. ExCo reviews information from internal
reporting based on these segments in order to assess performance
and allocate resources. The segments are differentiated by whether
the customers are individuals or business entities. The operating
costs of all business functions are allocated to the
income-generating businesses. Treasury balances have not been
allocated to segments to maintain clarity on underlying customer
product balances.
The Group previously presented certain exceptional line items as
adjustments to underlying profit at a Group level. Such items have
now been classified as either operating expenses or non-operating
income and aggregated within Legacy & unallocated. Prior period
comparative information has been re-presented.
2022 Core Legacy Group
& unallocated
Retail SME Total
Net interest income 397.0 69.3 466.3 (8.0) 458.3
Other operating income 22.7 18.7 41.4 (0.3) 41.1
====================================== ======= ====== ======= ============== =======
Operating income/(expense) 419.7 88.0 507.7 (8.3) 499.4
Operating expenses (288.6) (63.6) (352.2) (20.5) (372.7)
Net credit impairment (losses)/gains (5.2) (1.6) (6.8) 0.4 (6.4)
Non-operating income - - - 12.3 12.3
====================================== ======= ====== ======= ============== =======
Profit before tax 125.9 22.8 148.7 (16.1) 132.6
====================================== ======= ====== ======= ============== =======
2021 Core Legacy & unallocated Group
Re-presented
Retail SME Total
Net interest income 284.8 47.4 332.2 (8.3) 323.9
Other operating income 20.3 16.5 36.8 0.8 37.6
====================================== ======= ====== ======= ==================== =======
Operating income/(expense) 305.1 63.9 369.0 (7.5) 361.5
Operating expenses (259.8) (55.1) (314.9) (31.2) (346.1)
Net credit impairment gains/(losses) 0.9 (1.1) (0.2) (0.9) (1.1)
Non-operating income - - - 16.8 16.8
====================================== ======= ====== ======= ==================== =======
Profit before tax 46.2 7.7 53.9 (22.8) 31.1
====================================== ======= ====== ======= ==================== =======
The table below represents the reconciliation of the underlying
basis and the segmental note to the consolidated income statement.
The underlying basis is the basis on which information is presented
to the chief operating decision maker and excludes the items below
which are included in the statutory results.
Removal of:
-----------------------------------
IFRS Volatile Strategic Non Underlying
2022 statutory items(1) projects recurring(2) basis
Net interest income 458.3 - - - 458.3
Other operating income 53.4 (8.2) - (4.1) 41.1
=============================== =========== ========== =========== ================ ============
Operating income 511.7 (8.2) - (4.1) 499.4
Operating expenses (373.7) - 12.4 4.3 (357.0)
Net customer redress release 1.0 - - (1.0) -
Net credit impairment losses (6.4) - - - (6.4)
=============================== =========== ========== =========== ================ ============
Profit before tax 132.6 (8.2) 12.4 (0.8) 136.0
=============================== =========== ========== =========== ================ ============
Cost:income ratio (3) 73% 71%
=============================== =========== ========== =========== ================ ============
1. In the period ended 31 December 2022, this comprises gain on shares revaluation.
2. In the period ended 31 December 2022, this comprises gains on
the sale of a small legacy loan book, release of PPI provision and
other exceptional costs.
3. Cost:income ratio is calculated as (operating expenses plus
net customer redress release)/(operating income).
Removal of:
---------------------------------------
IFRS Volatile Strategic Non Underlying
2021 statutory items(1) projects recurring(2) basis
Net interest income 323.9 - - - 323.9
Other operating income 54.4 (2.4) - (14.4) 37.6
==================================== =========== ========== =========== ============== ==============
Operating income 378.3 (2.4) - (14.4) 361.5
Operating expenses (348.7) - 19.0 10.3 (319.4)
Net customer redress release 2.6 - - (2.6) -
Net credit impairment losses (1.1) - - - (1.1)
==================================== =========== ========== =========== ============== ==============
Statutory loss before tax 31.1 (2.4) 19.0 (6.7) 41.0
==================================== =========== ========== =========== ============== ==============
Cost:income ratio (3) 91% 88%
==================================== =========== ========== =========== ============== ==============
1. In the period ended 31 December 2021, this comprises gain on shares revaluation.
2. In the period ended 31 December 2021, this comprises refunds
of historical ATM business rates paid, residual PPI impacts and
other exceptional costs.
3. Cost:income ratio is calculated as (operating expenses plus
net customer redress release)/(operating income).
The table below represents the segmental analysis of assets and
liabilities.
2022 Core Legacy & central items Group
Retail SME Total
Segment assets 19,841.3 388.2 20,229.5 7,903.3 28,132.8
Segment liabilities 16,607.8 3,396.8 20,004.6 6,829.2 26,833.8
2021 Core Legacy & central items Group
Retail SME Total
Segment assets 19,756.0 441.7 20,197.7 9,125.6 29,323.3
Segment liabilities 17,604.4 3,461.0 21,065.4 6,506.0 27,571.4
===================== ======== ======= ======== ====================== ========
NOTE 2: RELATED PARTY TRANSACTIONS
Parent, subsidiary and ultimate controlling party
As at 31 December 2022, the Group had two significant
shareholders: SP Coop Investments Ltd and Anchorage Illiquid
Opportunities Offshore Master V L.P., each holding over 20% of the
B shares of the Holding Company, and therefore considered to be
related parties.
During 2021, certain funds managed by Anchorage Illiquid
Opportunities Offshore Master V L.P and SP Coop Investments Ltd
have sold the entirety of their holdings in the Tier 2 and senior
unsecured debt issued by The Co-operative Bank Finance p.l.c. and
hence during 2022 they did not receive any interest payments in
this respect.
A loan was recognised by Finance Company and Bank Company to
achieve structural subordination of the MREL-qualifying debt (the
"internal MREL"). The terms of the internal MREL are the same as
those of the external MREL-qualifying debt. The total amount due
from Bank Company to Finance Company at 31 December 2022 in this
regard was GBP646.9m (2021: GBP402.1m) including accrued interest.
The interest paid by Bank Company to Finance Company on the
internal MREL instrument was GBP44.5m (2021: GBP37.0m).
Transactions with other related parties
Key management personnel are defined as the Board of Directors
and Executive Committee members.
The related party transactions with key management are disclosed
below:
2022 2021
==== ====
Deposits and investments at the beginning of the year 1.6 0.5
Net movement 0.9 1.1
Deposits and investments at the end of the year 2.5 1.6
======================================================= ==== ====
In addition, there were GBP0.4m (2021: GBP0.1m) relating to
loans to key management personnel, arising in the normal course of
business.
Key management personnel
2022 2021
==== ====
Total remuneration receivable by key management personnel 9.3 8.6
========================================================== ==== ====
In 2022, the total number of key management personnel was 19
(2021: 18). Further information about the remuneration of senior
management personnel and material risk takers is included in the
Directors' remuneration report.
NOTE 3: EVENTS AFTER THE BALANCE SHEET DATE
There are no post balance sheet events to report.
RISK MANAGEMENT
1. RISK MANAGEMENT OBJECTIVES AND POLICIES
1.1 Our approach to risk management
Responsibility for risk management resides at all levels within
the Group and is supported by Board and management level
committees. A three lines of defence model is deployed on the
following basis:
-- 1st line - are responsible for owning and managing all risks
within defined appetites, complying with Risk Policies and Control
Standards, ensuring supporting procedures are documented and
maintained using the Group's Risk and Control Self-Assessment
(RCSA), and are responsible for reporting the performance, losses,
near-misses and status of risks through governance.
-- 2nd line - the risk function acts as the 2nd line of defence
(2LOD). The Risk Framework Owners (RFOs) are responsible for
setting Risk Policies, Control Standards, Group-wide procedures and
risk appetite. RFOs sit within the 2nd line with the exception of
some specialist areas where the RFO sits within 1st line (for
example Legal, Financial Reporting and People risk); the 2nd line
risk function will provide oversight over the RFO activities in
such cases.
-- 3rd line - the internal audit function assesses the adequacy
and effectiveness of the control environment and independently
challenges the overall management of the Risk Management Framework
(RMF).
Significant risks
Levels of consumer fraud continue to be a concern across the
banking industry. Frauds committed against our customers were a
significant contributor to our operational losses during 2022. In
response, we have made significant progress in updating and
implementing new systems to make it harder to defraud our customers
with further implementation of upgrades planned into 2023.
Increased demands around managing consumer fraud and the
migration of customers away from the Group's heritage systems to a
new, improved platform caused Average Speed to Answer (ASA) metrics
to fall outside of internal SLAs. Over the course of 2022 the Group
deployed FTE recruitment and retention strategies, innovative use
of Interactive Voice Response (IVR) and optimisation of fraud
controls to correct this position. We are now confident that we
have the right technology and people in place to meet ASA targets
through 2023.
We have been on a significant journey of simplification,
remediation and improvement in recent years, but as with many other
financial institutions, the Group has instances of end-of-life IT
systems that provide key services: also known as technical debt. As
IT systems continue to move to their end of life, the ability to
recover quickly from IT incidents reduces and exposes the Group to
a widened range of cyber risks; in the context of an evolving
external fraud threat, we acknowledge the potential for heightened
vulnerabilities. To ensure the Group has the capability to manage
change risk effectively and deliver the remediation plan for
technical debt, we have invested heavily in 2022, particularly in
the flagship Simplification programme. Simplification has
experienced some delays in 2022, mainly due to the complexity of
programme deliverables and resourcing issues. Significant time and
effort has therefore been invested into re-planning the programme
within extended Board oversight, in addition to ensuring the right
people are in place, to allow for a safe and successful migration
of customers to the new platform (see Change Risk under section 1.8
below).
The Group remains committed to continuing the progress made so
far into 2023.
The Group welcomes the introduction of the FCA's Consumer Duty
which comes into force in July 2023 for on sale products. This
requirement for firms to act to deliver good outcomes for retail
customers is entirely aligned to our ethical principles. A
significant body of work is underway and will continue over the
coming months, across all elements of the Group to implement a more
outcomes, data-led approach with a continuous cycle of monitoring
to enable the Group to identify where things are not operating as
expected for customers and to act quickly to minimise the risk of
harm.
Key credit risks relate to the rising cost of living, the
associated affordability pressures for our customers and the risk
of material credit losses to the Group. Macroeconomic uncertainty
and geopolitical events (triggered to a large extent and
exacerbated by the ongoing conflict in Ukraine) have impacted many
economies around the world that are still recovering from the
effects of the COVID-19 pandemic. In the UK, the economic effects
have materialised in the form of a 4-decades-high level of
inflation and multiple Bank of England base rate increases. This
has resulted in both individuals and UK based businesses facing
overall higher day-to-day costs equating to a challenging climate
for both UK retail and SME banking customers.
To date, arrears remain low, the Group's portfolios remain
robust and previously strong HPI growth is expected to mitigate
against losses resulting from house price deterioration in a rising
rate environment. However, we understand that the increased risk of
material credit losses and operational readiness to manage the
volumes of customers requiring support will continue to demand
sharp focus going into 2023. To this end, close monitoring of each
portfolio for signs of stress arising through the affordability
stretch is undertaken through specifically developed monitoring and
early warning indicators.
How the conflict in Ukraine affects our risk profile
The Group has no direct and limited indirect exposure to Russia
or Ukraine which minimises the immediate financial impact of the
conflict on the delivery of our strategy. However, the conflict has
impacted our risk profile in the following ways:
-- compliance with financial crime and anti-money laundering
regulation - implementing the complex and evolving sanctions
regimes introduced in response to the conflict, in all business
processes including payments, supplier management and provision of
support to those impacted by the conflict, and
-- the conflict in Ukraine has increased the risk of
cyberattacks from state sponsored groups or individual threat
actors. We continue to invest in cyber defences and address known
vulnerabilities in response to the heightened threat of cyberattack
against UK institutions, infrastructure and our customers.
The conflict has already shown the signs of significant and
long-lasting effects on geopolitics and the global economy,
exacerbating the increases to energy costs and food prices which
has created affordability stress for consumers and business alike.
We will continue to monitor the evolution of the conflict to ensure
we are able to continue to support our customers appropriately.
Key 2022 achievements and looking ahead
In 2022, we undertook an effectiveness review of the Risk
Management Framework (RMF). In recognition that the Group has
reduced and simplified its operations significantly over the last
five years, there were a number of changes proposed to ensure the
RMF is suitable for the organisation's current and future operating
model. This includes rationalisation of the Principal Risk taxonomy
to ensure it is representative of the Group's most significant
risks and more in line with our peers. We believe implementing
these changes safely will enable greater focus on the most material
risks to the Group whilst also allowing for continued embedding of
climate change and operational resilience as thematic risks (for
more detail on how Climate Change Risk is evaluated, managed and
monitored by the Group please see the TCFD report in the Annual
Report and Accounts, which is available on our website).
Whilst 2022 was a challenging year it was also a hugely
successful year in respect of the Group's capital position. In Q4
2022, we received the final results of the Capital Buffers
component of the PRA's Supervisory Review and Evaluation Process
(SREP) for 2022. The SREP outcome means the Group has now attained
full compliance with total capital requirements plus capital
buffers, and expects to maintain compliance with minimum
requirement for own funds and eligible liabilities (MREL) plus
capital buffers on a sustainable basis, following end-state
requirements becoming binding from 1st January 2023.
This is the first time we have been sustainably capital
compliant since 2013 and represents an important milestone in our
turnaround. This demonstrates strong progress in the Group's
improvements to financial stability and stress resilience within a
changing economic environment. In December 2022, we received a 1
notch upgrade to our long term credit rating from Moody's to Ba1
(from Ba2) representing another step towards returning to
investment grade rating. Returning to sustainable capital
compliance was a key driver of this and we look forward to building
on this success further.
Our active management of risk has provided a platform for the
success of the business in 2022 as demonstrated by another year of
resilient financial performance. Although the Group is operating in
a challenging external environment that is expected to persist for
some time, and we remain mindful of the significant challenges of
delivering strategic change successfully (centred around the
Simplification programme), the effectiveness of the Group's fully
embedded RMF provides us with confidence that our risks will be
managed prudently and we will remain sustainably profitable.
1.2 Overview
The Board oversees and approves the Group's RMF and is supported
by the Risk Committee (RC) of the Bank. The RC's purpose is to
review the Group's principal risk categories and risk appetite,
report its conclusions to the Board for approval and oversee the
implementation of the RMF, whilst anticipating changes in business
conditions. The purpose of the RC of the Bank is to review and
challenge the Group's risk appetite and RMF. The Board of the
Holding Company should approve the Holding Company's risk appetite
and risk policy, which shall be aligned to the RMF.
There is a formal structure for identifying, reporting,
monitoring and managing risks. This comprises, at its highest
level, risk appetite statements which are set and approved by the
Board and are supported by granular risk appetite measures across
the principal risk categories. This is underpinned by an RMF which
sets out the high level policy, control standards, roles,
responsibilities, governance and oversight for the management of
all principal risks.
Material risks and issues, whether realised or emerging,
inclusive of those documented in relation to the RMF itself are
described along the lines of principal risks within section
1.8.
1.3 Our Risk Management Framework (RMF)
Further information can be found in the full Annual Report and
Accounts, which has been made available on our website.
1.4 Risk management strategy and appetite
The Board has primary responsibility for identifying the key
business risks faced and approving the risk management strategy
through the setting of risk appetite, which defines the type and
amount of risk the Group is prepared to take both qualitatively and
quantitatively in pursuit of its strategic objectives. In addition,
the Board approves key regulatory submissions including the
Internal Liquidity Adequacy Assessment Process (ILAAP) and the
Internal Capital Adequacy Assessment Process (ICAAP).
Risk appetite is translated into specific key risk appetite
metrics (KRAMs) which are tracked, monitored and reported to the
appropriate risk committees (refer to section 1.7). The risk
appetite framework has been refreshed for 2023 and is now further
aligned to our strategic objectives and imperatives and the KRAMs
will highlight where the Group is outside appetite and the
achievement of the strategy is at risk. In addition a further set
of key risk indicators (KRIs) are in place and reported monthly,
for each of the risk types defined within the RMF.
1.5 Our risk culture
A critical supporting factor of the RMF is the risk culture in
the Group; this is a shared set of values and behaviours that
defines how all colleagues approach the management of risk. This
culture begins at the top of the organisation with the Group's
Executive team who lead by example with consistent and clear
communication of their commitment to managing risk at all levels of
the business. Risk management is included in every colleague's
objectives each year and is embedded within the Group scorecard
against which performance is measured.
The Group has committed to embedding a strong culture of risk
management and provides regular training and opportunities for
colleagues to refresh knowledge on the RMF and opportunities for
leaders to share knowledge and experience in respect of risk
management in their roles. Culture is measured through continued
monitoring of the Risk section of the CEO scorecard, the RMF
dashboard which includes metrics on Risk process adherence through
RMF-focussed 2nd line of defence assurance reviews and through 2nd
line of defence oversight and feedback.
A Group-wide risk culture survey was conducted at the end of
2021 in order to assess the underlying behaviours and attitudes
towards risk at all levels in the organisation. The results of the
survey were extremely positive and pointed to a culture sustained
by an open and honest risk environment, where colleagues are
encouraged and not afraid to do the right thing and understand
their responsibilities with regard to risk. Improvements identified
in specific areas were actioned during 2022 and will continue
during 2023.
We remain fully committed to delivering a challenging change
agenda successfully in 2023. We recognise that the volume of large
change programmes - with particular focus on the Simplification
programme - carry significant execution risks. We have therefore
invested significant time and effort into re-planning the programme
in addition to ensuring the right people are in place to allow for
a safe and successful migration of customers to the new
platform.
1.6 Evolution of the RMF in 2022
We continually seek to enhance and further embed the RMF to
ensure efficient and effective risk ownership and management within
risk appetite, supporting appropriate customer outcomes and the
delivery of its strategic plan (the Plan). The focus during 2022
has been to continue to embed the RMF through changing structures,
responsibilities and Group strategies, to adapt where required
ensuring stability and effectiveness, but also to simplify where
possible without detriment to the management of risk or the risk
culture. The secondary driver was to consider where simplification
could be achieved in order to focus resource on significant and
material risk-related activities.
During the year, a number of initiatives have introduced further
efficiencies to the RMF without any reduction in the effectiveness
of managing risk. This has been possible due to the maturity of the
RMF and the level of embedding that has been achieved:
-- continued training for those new to roles (e.g. Risk
Framework Owners and Risk Managers) with improved mandatory
training and targeted topic-based training, (e.g. Root Cause
Analysis);
-- continued improvements to key operational risk processes, for
example, focus on Root Cause Analysis for the more material Risk
Events and the reduction in frequency of appropriate updates;
-- the improvements to the risk appetite framework;
-- the removal of the gap analysis process for refreshed Control
Standards due to the level of embedding of the RCSA process;
-- the initiation of a review of key controls to improve the
quality and efficiency of key control testing and focus on the most
significant controls that mitigate our key risks; and
-- the risks relating to operational resilience have been
incorporated into the RMF and managed thematically.
In recognition that the Group has reduced and simplified its
operations significantly over the last five years, there were a
number of changes proposed (effective from 1 January 2023) to
ensure the RMF is suitable for the organisation's current and
future operating model. This includes rationalising the Principal
Risk taxonomy to ensure it is representative of the Banks most
significant risks and changes to how risk metrics are constructed
and reported. We will continue to simplify and evolve the RMF in
2023 with a specific focus on continuing with the key control
initiative whilst driving commitment and understanding of risk
management at all levels of the organisation.
1.7 Our risk governance
The Board is the key governance body and is responsible for
strategy, performance and ensuring appropriate and effective risk
management. It has delegated the responsibility for the day-to-day
running of the business to the CEO. The CEO has established the
Executive Committee to assist in the management of the business and
deliver against the approved Plan in an effective and controlled
manner.
The Board has established Board committees and senior management
committees to oversee the RMF, including identifying the key risks
faced and assessing the effectiveness of any risk management
actions.
Each committee in the Group's governance structure is required
to manage and assess risk as part of its terms of reference;
however, a number of these committees are specifically focussed on
risk. Further comment is provided below detailing the specific
areas of risk on which each committee focusses.
Committee Risk focus
========================================================= =========================================================
Board The Board has collective responsibility for the long-term
Chair: Bob Dench success of the Group and the Bank.
Its role is to provide leadership of the Group within a
framework of prudent and effective
controls which enable risk to be assessed and managed. It
sets the values and standards and
ensures the obligations to its shareholders, customers
and other stakeholders are understood
and met. The Board sets the strategy and approves plans
presented by management for the achievement
of the strategic objectives it has set. It determines the
nature and extent of the significant
risks it is willing to take in achieving its strategic
objectives and is responsible for ensuring
maintenance of sound risk management and internal control
systems.
========================================================= =========================================================
Risk Committee (RC) RC is responsible for reviewing and reporting its
Chair: Derek Weir conclusions to the Board on the Bank's risk
appetite and propose for approval by the Board and
oversee the implementation of a Risk Management
Framework, taking a forward-looking perspective and
anticipating changes in business conditions.
========================================================= =========================================================
Executive Risk Oversight Committee (EROC) EROC is responsible for oversight of the risk profile of
Chair: CRO the Group (within the agreed Board
risk appetite). EROC reviews and challenges the risks
associated with the Group's business
strategy, plans and overall management of risks. EROC
achieves some of its objectives through
delegating responsibility to sub-committees: OCROC, MROC,
PROC and CROC. EROC will escalate,
where appropriate, to the Board via the RC.
========================================================= =========================================================
Executive Committee (ExCo) ExCo is responsible for defining and implementing the
Chair: CEO Board-approved strategy successfully
by monitoring and managing delivery against plan and
applying appropriate risk management
actions to emerging risks.
========================================================= =========================================================
Asset and Liability Committee (ALCo) ALCo is primarily responsible for overseeing the
Chair: CFO management of capital, market, earnings,
liquidity and funding risks. Its responsibilities include
identifying, managing and controlling
the balance sheet risks in executing its chosen business
strategy, ensuring the capital and
liquidity position is managed in line with appropriate
policies and that adequate capital
is maintained at all times. In order to closer align the
function of key committees, ALCo
is to become a subcommittee of the Board Risk Committee.
This change will further reinforce
the mitigation of financial risks through embedding a
structure whereby key asset and liability
management decisions are set within a risk governance
setting.
========================================================= =========================================================
Model Risk Oversight Committee (MROC) MROC ensures, on an ongoing basis, that the model rating
Chair: Director of Capital, Impairment and Model systems and material models are operating
Development effectively. This includes providing Executive level
review and challenge of the model risk
and the impact of model risks on the Group's business
model and strategies. MROC also provides
oversight of the Group's IRB permissions, including the
exemptions where the Group applies
the Standardised Approach to calculate Pillar 1 capital
requirements.
========================================================= =========================================================
Credit Risk Oversight Committee (CROC) CROC is responsible for monitoring significant credit
Chair: Director of Credit Risk risks and issues within the entire credit
lifecycle, the controls and management actions being
taken to mitigate them and to hold to
account the Executives responsible for actions. CROC
reviews the credit risk strategy on an
ongoing basis, making recommendations to EROC as
appropriate.
========================================================= =========================================================
Operational, Compliance & Financial Crime Risk Oversight OCROC is responsible for monitoring significant
Committee (OCROC) operational risks and issues including significant
Chair: Director of Compliance, Director of Operational conduct, regulatory, product, reputational, fraud and AML
Risk risks and issues, the controls and
management actions being taken to mitigate them and to
hold to account the Executives responsible
for actions. OCROC oversees the current and emerging
operational risk profile, ensuring key
risk exposures are managed within risk appetite and
reported to EROC as appropriate, including
the monitoring of adherence to the RMF alongside a
process for continuous improvement.
========================================================= =========================================================
Pension Risk Oversight Committee (PROC) PROC is responsible for oversight of all aspects of
Chair: Director of Capital, Impairment and Model pension arrangements which the Group either
Development sponsors or participates in, to ensure cost, risk,
capital, investment and employee requirements
are met.
========================================================= =========================================================
1.8 Principal risk categories
The following pages outline the key financial and non-financial
risks as identified by the RMF and approved by the Board as risks
that could result in an adverse effect on the business, operating
results, financial condition, reputation and prospects.
OPERATIONAL RISK
Definition:
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, people and systems or external
events.
Operational risk has 13 sub-risks as part of the Group's RMF.
These sub-risks are included in the commentary below. All sub-risks
are subject to annual review and each risk is managed individually
and in line with the Group's RMF, including having individual risk
framework owners, risk policies and control frameworks
Key themes:
Operational risk levels remain elevated due to high levels of
fraud seen industry wide, and a reliance on both manual processes
and legacy IT systems. The impact on our customers from inflation
and interest rate increases has been closely monitored during 2022
and will remain a key focus throughout 2023. The most significant
operational risk themes are outlined below.
Change risk - There were a number of programmes launched to
safely ensure compliance with regulatory developments and to
implement improvements to the Group's systems over the course of
2022 with a high volume of activities planned across 2023 and
beyond. Whilst these developments represent opportunities to
provide an improved service to our customers, remove system
vulnerabilities and limitations and reduce technical debt, we
recognise that large projects will inevitably carry significant
risks. In light of recent fines in the industry levied by the PRA
and FCA after root cause analysis it is clear how critical
effective planning, robust governance and having the necessary
level of operational resilience in place is to delivering major
change. We have invested significant time and effort into planning
activity to mitigate the risks of non-compliance, late or failed
delivery and to ensure that the intended objectives of these
various programmes are achieved.
Delivering these significant developments is core to the Group's
strategy, particularly the migration of heritage Britannia and WMS
Platform IT infrastructures to a single mainframe for mortgages and
savings (Simplification). In recognition of the strategic
importance of the programme, a temporary Board sub-committee was
set up in December 2021 to oversee and support the management team
to deliver the programme successfully. The Group has experienced
delays in 2022, particularly across the mortgage re-platforming
aspect of the programme, in part due to complexity of programme
deliverables but also due to resourcing issues. We have therefore
invested significant time and effort into completing re-planning
activity during 2022, ensuring the right people are now in place.
Executive and Board sub-committee focus has and will continue to be
applied to the project, with clear accountability on ownership and
delivery. Our regulators are receiving frequent updates and
multiple controls have been put in place to drive visibility,
transparency and accountability of this project to ensure a safe
and successful migration of customers to the new platform.
Completion of this programme will mean a significant reduction to
the Group's operational risk profile and technical debt exposure
during 2023. Robust programme monitoring and oversight of key
developments has been, and will continue to be, in place across all
three lines of defence.
Fraud - Fraud losses continued to be a significant contributing
factor to operational losses in 2022 with impersonation fraud
representing the most significant proportion of the fraud
typologies perpetrated against our customers. Card fraud losses
have greatly reduced since implementation of a PSD2 card not
present solution in September though overall losses for the year
will still be outside tolerance.
We provide targeted education to our customers through all
available channels and introduced a number of preventative measures
during the year including improved scam warnings and customer
messages. The Group is a signatory to the industry 159 fraud
reporting initiative which assists customers who believe that they
may have been or are being targeted by fraudsters and also provides
a direct route to our fraud team.
A behavioural biometrics tool (Trusteer) has been rolled out to
reduce the impact of losses arising from account take over frauds.
Trusteer Release 2 is now alerting with additional step up on
higher risk on-line activity. Although tactical controls have been
implemented in SME the delivery of Detica (SME payment screening)
in H1 2023 will provide further protection against authorised push
payment loss.
Technical debt - As with many other financial institutions, the
Group has instances of end-of-life IT systems that provide key
services. To reduce the associated risks and minimise the impact of
any disruptions, the Group has a strategy to remove the highest
risk legacy systems and has added additional resilience
arrangements to protect IT services until replacement. Funding for
this strategy has been approved for 2023 and is subject to regular
monitoring and reporting against progress.
Cybercrime - As with other technology dependent financial
institutions, the Group and its customers are exposed to both
actual and attempted cyberattacks from parties, with malicious
and/or criminal intent. These risks increase as the Group increases
its reliance on digital products, services, key functions and
distribution channels.
There is greater exposure to cyberattacks where systems are
reliant on legacy technologies, as highlighted in the technology
debt section above. The Group is subject to the risk that a
cyberattack may result in temporary loss of availability of systems
for its colleagues and/or customers and potential disclosure of
confidential information. This can cause business disruption and
legal exposures that may have adverse effects on the Group's
financial condition, operating results, reputation and brand.
To minimise cyber threats, the Group has a Board-approved cyber
strategy that is regularly refreshed. The strategy drives the
annual cyber investment for security tools, processes and
capability to counter the ever-evolving cyber threat landscape in
addition to remediating its legacy IT estate. The most recent
external benchmarking activity has evidenced an improvement
year-on-year in the maturity of the Group's cyber framework, while
acknowledging the risks associated with legacy systems. Where
specific risks arise, bespoke solutions are evaluated and deployed
to minimise exposures to cyber threats until older IT systems are
replaced. In addition, annual testing aligned to the Bank of
England's CBEST cyber assessment framework is completed with
industry-accredited third parties to understand technical control
effectiveness and enhancements.
Third party supplier management - The Group continues to be
dependent on suppliers to support or provide key banking services.
Since the COVID-19 pandemic, we have taken steps to improve the
control environment with no significant disruptions experienced
from suppliers. The Group is now materially compliant with revised
guidelines on outsourcing arrangements that came into force in the
first quarter of 2022. While further improvements are required to
mature controls and risk management over all suppliers, the
Policies and Controls standards as part of the RMF have been
updated to reflect the new requirements, with identified gaps
subject to monitoring and reporting. In addition, an external 3rd
party has been engaged to support management in their assessment of
supplier risk management, aligned to industry best practise and to
deliver further improvements.
We continue to work closely with Capita to ensure a seamless
re-integration of mortgage servicing operations back in-house,
ensuring that resourcing levels are appropriate to support our
customers during a tough economic period. An agreement was reached
with Capita to extend the mortgage services under the existing
contract for three months to 28 February 2023. This extension was
to provide comfort that the Group has appropriate IT, operational
and systems access requirements in place to allow for a safe and
sustainable migration.
Anti-money laundering (AML) - Significant progress has been made
in improving the suspicious activity report (SAR) SLA and AML
resource levels, with appropriate management focus and action being
taken throughout 2022, improving the end of year position.
The migration of customer data feeds from the Group's heritage
Britannia screening system into the implemented NetReveal screening
system was complete in December 2022, this migration will provide
improvements to AML controls and address some of the previous
limitations of legacy AML systems. The Group is managing the risk
through application of manual and system based workarounds. System
upgrades will remain a key Group focus into 2023.
The Group's dedicated regulatory risk team within 2LOD maintain
industry developments via a fully embedded horizon scanning
process. Emerging risk, including regulatory changes, external
regulatory breaches and industry developments remain a key focus of
the Group's 2LOD AML advice and oversight team. The team are
attendees on industry-led working groups, to ensure a consistent
approach to regulatory change is fully understood and aligned to
our industry peers.
We have seen examples in the industry in the final quarter of
2022 where the FCA has demonstrated that they will take appropriate
action where institutions do not undertake necessary measures to
identify, assess, monitor, and manage money laundering risks. The
Group's 2LOD AML advice and oversight team are reviewing the
Group's AML systems and controls to ensure our financial crime
defences remain robust, adequate and effective to mitigate the risk
that the Group is used to facilitate the laundering of the proceeds
of crime, the financing of terrorist or proliferation activity or
to breach financial sanctions legislation.
Conduct risk and compliance - We welcome the FCA Consumer Duty
and the increase in the level of consumer protection it will
introduce. As an ethical bank, we already strive to ensure that we
act in good faith, avoid causing foreseeable harm and support
customers in pursuing their financial objectives. Consumer Duty is
a further opportunity to strengthen and sharpen our conduct
frameworks to evidence that the Group is delivering good
outcomes.
The needs of our customers continue to evolve as they adapt to
living with COVID-19 but face new economic pressures due to the
cost of living. We have continued to react and support our
customers' need for forbearance in light of the increased cost of
living, in full consideration of the FCA's latest guidance for
borrowers. We have also responded to the ever-changing tactics of
fraudsters with technology and process changes to disrupt
transactions, whilst ensuring our customers are treated fairly and
receive good outcomes.
The Group continues to invest in digital channels in line with
customer preferences, but recognises the diverse needs of our
customers. In addition, we have maintained commitment to our other
channels through the relocation of our Nottingham branch to a more
accessible location, and investments in increased contact centre
resource. We continue to operate dedicated phone lines to meet the
needs of our most vulnerable customers, including in year adoption
of the 159 fraud contact initiative.
The changing needs and requirement to support our vulnerable
customers increases annually, with the FCA estimating c.50% of the
UK population exhibit vulnerable characteristics. In response the
Group has invested in digital changes enhancing accessibility and
ease of use. It has also reintroduced the non-repayable emergency
hardship fund for those customers who are in severe need of
support, extended our partnership with Citizens Advice by
introducing digital self-service links and signed up to the
industry Financial Abuse Code.
In October 2018, Mortgage Agency Services Number Five Limited
(MAS 5), a subsidiary of the Group, received a complaint from a
mortgage customer regarding changes made to MAS 5's standard
variable rate between 2009 and 2012. An application for a judicial
review of FOS's jurisdiction decision, on the grounds that the
Group considered this part of the complaint to be time-barred, was
dismissed in July 2022. The Group remains satisfied that these
historical variations were applied fairly and in accordance with
the terms and conditions of the mortgage contract. Until such a
time as the FOS communicates to the Group its final decision on the
merits of the complaint, it is not possible to predict the scope
and ultimate outcome on the Group. No provision is held in respect
of this matter - further information can be found in the full
Annual Report and Accounts, which has been made available on our
website.
The Group appreciates the issues faced by mortgage borrowers who
find themselves trapped, providing targeted communication to
customers and offering a process that assesses re-mortgage
eligibility. The Group continues to engage with industry bodies,
the FCA and political groups to discuss and find solutions to these
issues.
Payments risk - In 2022 there were no material breaches of
payment scheme rules, as the Group implemented key infrastructure
and consumer focussed changes, such as Confirmation of Payee
updates. Payment risk remains a key area of focus and the Group
will continue to invest to improve the Bank's payment systems and
architecture, which continues to evolve to serve the real-time
on-demand requirements of its customers. Preparations for the Bank
of England's (BoE) Real Time Gross Settlement (RTGS) service, which
not only operates CHAPS but is the infrastructure that holds
accounts for banks, building societies and other institutions, are
well underway for initial transition states in 2023.
Operational resilience - Operational resilience was added to the
Risk Management Framework (RMF) as a Thematic Risk in 2022 and is
defined as the risk of the Group suffering operational disruptions
arising from the inability to prevent, adapt, respond to, recover
and learn from previous events. operational resilience events are
expected to occur however the Group's appetite is to have plans in
place that mitigate and/or minimise disruptions, ensuring reduced
harm to customers, maintaining the safety and soundness of the
Group and limiting impacts to the wider financial sector. The Group
has no appetite for any breach of regulation in relation to
operational resilience and will, at all times, seek to achieve and
maintain compliance with all relevant legal and regulatory
requirements.
The Group has, in line with regulatory expectations, completed a
programme of work to identify the Important Business Services
(IBS), set impact tolerances for the maximum tolerable disruption,
map and document the components of each IBS and complete scenario
testing. Where vulnerabilities have been identified, remediation
plans are in place and are being tracked and monitored along with
operational resilience Key Risk Indicators (KRIs). We will continue
to monitor the effectiveness of operational resilience risk
management through RMF activity, dedicated operational resilience
reporting in governance, dedicated assurance reviews completed as
part of the three lines of defence risk management model and a
multi-year scenario testing plan.
Top and emerging risks:
Cost of living - The rising cost of living for our customers
continues to require critical focus to ensure that the operational
and loss consequences to the Group are well understood. Analysis
looking at the current affordability position of our mortgage
customers indicates a robust portfolio with a strong LTV position;
however, we recognise that increased affordability issues will
require a greater level of operational readiness to manage the
volume of customers potentially requiring support. In an effort to
support customers we have commenced test and learn activity for
contacting potentially 'at risk' mortgage customers which will
develop over time.
Economic and Geopolitical risk - 2022 was a turbulent year with
the impacts of the ongoing conflict in Ukraine felt globally. The
impact of this instability was realized in the UK in the form of
increased interest rates, and challenges around affordability of
key essentials which was exacerbated by domestic political
uncertainty. Whilst the latter half of Q4 has seen a more stable
domestic position, we will continue to monitor impacts on our
customers resulting from further political disruption. There is
also heightened geopolitical and global economic risk in the event
of a conflict in Taiwan which could create further instability in
the UK.
Regulatory changes:
The Group is committed to delivering a high volume of
significant regulatory changes in 2023 and beyond to enhance
customer protection and outcomes, and strong financial resilience.
Key changes from the PRA, FCA, HMT and the BoE include:
-- FCA Open Banking - FCA's aim to remove the barriers
identified to the continued growth of Open Banking and support
competition and innovation in the sector. The FCA proposes several
changes to the Strong Customer Authentication Regulatory Technical
Standard (SCA-RTS);
-- FCA Consumer Duty - The new Consumer Duty is designed to
increase the current level of consumer protection across the retail
financial services market, including the introduction of a new 12th
Principle, supported by enhanced cross-cutting rules and
outcomes;
-- PRA Consultation Paper (CP) on implementation of the Basel
3.1 standards - The proposals in the CP propose further reforms in
the measurement of risk weighted assets (RWAs). It sets out
proposed changes to improve the measurement of risk in internal
models and standardised approaches, to reduce excessive variability
in the calculation of risk weights, thereby making firms' capital
ratios more consistent and comparable. In addition, the proposals
aim to facilitate effective competition by narrowing the gap
between risk weights calculated under internal models, which are
typically used by the larger firms, and standardised approaches.
The CP also contains revised proposed criteria for determining
which firms would be in scope of the 'strong and simple' prudential
framework that the PRA is developing. The proposed implementation
date for the changes is 1 January 2025, with transitional
arrangements that give firms significant time to adjust to the new
framework;
-- FCA Credit Information Market Study - The FCA launched the
study because it had concerns about the quality of credit
information, strength of competition in the market, and the extent
of consumer engagement and understanding. The regulator's goal is
to improve the quality of credit information, so that lending
decisions better reflect people's underlying financial
circumstances. The Group anticipates further engagement and changes
in processes and reporting with the relevant credit rating
agencies; and
-- Regulatory Reform - In December, the Chancellor of the
Exchequer announced the 'Edinburgh Reforms', set to drive growth
and competitiveness in the financial services sector. These
represent one of the most substantial packages of financial
services regulatory change in recent years, and together with the
Financial Services and Markets Bill, will set the UK regulatory
agenda for many years to come.
The Group recognises that the high volume of regulatory change
carries significant execution risks and represents a significant
resource demand across the business. In 2022, we experienced some
issues in relation to delivering regulatory change on time, missing
the deadline for Card Not Present (CNP) transactions and informing
our regulators that we will miss the FCA Open Banking deadline set
for 2023. We remain fully committed to delivering a challenging
regulatory change agenda successfully in 2023 and have therefore
invested significant time and effort into planning and building the
capability to mitigate the risks of non-compliance or late or
failed delivery.
Mitigating actions:
Ongoing management, oversight and reporting of key risks and
controls by the Group's three lines of defence and the adoption of
a thematic approach to managing operational resilience and climate
change.
Management, oversight and reporting of risk through the Group's
risk governance structure. The management of risk and controls
continues to be reflected within all colleagues' performance
objectives and key measures of performance against the RMF are
included in the Group's scorecard.
Key indicators:
In the current year, 87.2% of net losses arose from external
fraud (2021: 85.3%).
CAPITAL RISK
Definition:
The risk that the Group's regulatory capital resources are
inadequate to cover its regulatory capital requirements.
Key themes:
Capital compliance - From 1 January 2023, the Group's MREL is
set at 2xTCR (end-state requirement), from its transitional
requirement of TCR+GBP400m as at the end of 2022.
In April 2022, the Group successfully completed a GBP250m
MREL-qualifying senior debt issuance (following the GBP200m
issuance completed in Q4 2020 and GBP200m Tier 2 subordinated notes
issuance in 2019), with the majority of these notes placed with
third-party investors. The Group has accrued CET1 resources of
GBP952.4m in 2022, providing it with total MREL-qualifying
resources of GBP1,599.3m. Whilst debt issuances created downward
pressure on net interest income, they represent the continued
strengthening of the Group's MREL position and resilience to
deteriorations in external and/or internal factors.
In October 2022, we notified the market that we expect to
sustainably achieve MREL plus total capital buffers compliance for
the foreseeable future, following the PRA's review of the Group's
Pillar 2 capital requirements in 2022. This was a full year ahead
of schedule, where previously we had committed to returning to
sustainable capital buffers compliance by the end of 2023. This
includes absorbing the impact of the increase in the UK-specific
countercyclical buffer (CCyB) rate from 0% to 1% in December 2022
and the FPC's planned increase from 1% to 2% in June 2023. The
activity undertaken to de-risk the Group over recent years, our
approach to risk management and return to profitability all mean
that the Group is well-positioned to remain compliant with all
capital requirements.
Our structured debt continues to trade well in secondary markets
and in December 2022 we received a 1 notch upgrade to our long term
credit rating from Moody's to Ba1 (from Ba2), positioning the Group
well to execute further capital markets transactions in the future
if necessary. Our shareholders remain supportive of our business
and we remain strongly committed to maintaining full capital
compliance.
Risk weighted assets - Our risk weighted assets (RWAs) at 31
December 2022 total GBP4,816.2m. RWAs reflect our risk adjusted
assets factoring in probability of default, loss given default and
exposure at default. This calculation is used to derive the capital
requirement of the Group. Increases in RWAs are driven either by
increases in the underlying assets or increases in the risk
weighting (or density) assigned to these assets. Significant
changes in RWAs are typically driven by changes in modelling
requirements, for banks that have permission to use the Internal
Ratings Based (IRB) approach. The Group, alongside other IRB
institutions, has faced challenges with respect to the development
of its Secured IRB models to ensure compliance with PS11/20.
From 1 January 2022, the Group raised a model adjustment to
reflect the expected impact of PS11/20 on its Secured RWAs, whilst
model development remained ongoing. This PMA was revised in
December 2022 to reflect progress in the development of compliant
models. The Bank expects to submit its LGD and PD models to the PRA
for approval in H1 2023. The implementation of these models is
expected to drive an increase in RWAs versus live models, although
this increase is reflected in the model adjustment in place as at
31 December 2022.
The macroeconomic environment - Adverse changes in the
macroeconomic environment drive capital risk through increases in
capital requirements and/or reductions in capital resources.
Throughout 2022, we have observed a deterioration in macroeconomic
variables, with record-high inflation peaking at 11.1% in
September, dampened house price growth within the second half of
the year and contractions in GDP as the UK faces into a period of
negative growth. Fiscal volatility, coupled with the ongoing
invasion of Ukraine by Russian forces, has compounded these
conditions and we continue to closely monitor the impacts that all
factors may have on our capital position.
However, continued profitability coupled with the Group's
low-risk balance sheet provide resilient foundations on which to
enter a period of macroeconomic downturn. The issuance of GBP250m
MREL-qualifying senior notes in April 2022 alongside the Group's
return to sustained MREL plus total capital buffers compliance also
minimise the risks to capital adequacy arising from market
uncertainties.
Mitigating actions:
Whilst we now expect to sustain profitability in future periods,
we are reliant on the successful implementation of our strategy,
which is subject to significant oversight and monitoring, including
by the Board. Recognising that our income profile is concentrated
around interest income, we are committed to diversifying our income
streams through 2023 and the life of the financial plan.
The Group has embedded capital risk monitoring across the
organisation and closely manages its current and future capital
position from a TCR, MREL and leverage ratio perspective. Capital
management activities at all levels of the Group are overseen by
the 2nd and 3rd lines of defence. The Group engages with its
regulators to regularly update them on its capital position and we
remain committed to maintaining this engagement following our
return to sustainable capital buffers compliance.
Emerging risks:
Financial regulatory changes - On 30 November 2022, the PRA
released CP16/22 - Implementation of the Basel 3.1 standards. The
PRA has proposed a series of changes to the current approach to
calculating capital requirements to be phased in from 1 January
2025. This represents the most significant changes to the
prudential regulatory capital framework since the implementation of
Basel III in 2014. The Group has reviewed the proposals outlined in
CP16/22 and is currently in the process of completing a full
assessment of the impacts to its capital position, with the
successful implementation of Basel 3.1 being key risk focus for the
Group across 2023 and 2024.
The PRA has also outlined that it intends to consider its
approach to setting Pillar 2 capital requirements in light of the
implementation of Basel 3.1. The PRA will provide further details
as it progresses with its Pillar 2A review (expected in 2024). With
respect to Pillar 2B, consideration will be given as to the impact
of changes in the size of firms' Combined Buffer due to changes in
Pillar 1 RWAs, when setting the PRA Buffer.
The Group has begun a detailed process to assess these impacts
and is engaging with wider industry bodies to consider its
responses during the consultation period, which ends on 31 March
2023. The Group is prepared to implement the proposed changes and
remains cognisant of the magnitude of the development required. The
Group will update the market of potential impacts following the
release of the PRA's final policy statement on the implementation
of Basel 3.1 standards.
Market uncertainty - As noted, material uncertainties remain
with respect to the global macroeconomic environment and the
Russian invasion of Ukraine. We continue to monitor these risks and
will take actions to mitigate risks to our capital position if
conditions deteriorate further.
Target capital ratios:
The Board's view of the ongoing level of CET1 capital required
by the Group in the medium term to maintain and grow the business,
deploy in suitable investment opportunities, meet current and
future regulatory requirements and cover uncertainties is around
15%, subject to the preceding completion of steps to optimise the
Group's capital resources composition in the context of its
regulatory requirements, including issuance of replacement capital
instruments.
This takes into account, amongst other things:
-- The minimum Pillar 1 CET1 capital requirement of 4.5 per cent of risk weighted assets;
-- The Group's individual capital requirement set by the PRA of
5.05%, of which a minimum of 2.84% must be met through CET1
capital;
-- The Group's Capital Requirements Directive IV buffers of 3.5%, in aggregate;
-- The Group's PRA Buffer; and
-- The desire to maintain a stable and sustainable ordinary
dividend policy in the context of underlying profitability from
year-to-year.
Should Additional Tier 1 capital instruments not be issued as
part of the optimisation of capital resources, this medium-term
target CET1% ratio would rise to c.17%.
Key indicators:
CET1 ratio - 2022: 19.8% (2021: 20.7%)
Total capital resources - 2022: GBP1,146.5m (2021:
GBP1,109.0m)
Leverage ratio (PRA) - 2022: 4.0% (2021: 3.8%)
CREDIT RISK
Definition:
Credit risk is the risk to profits and capital that arises from
a customer's failure to meet their legal and contractual payment
obligations. Credit risk applies to retail, SME and treasury.
Key themes:
Managing the profile of lending to new and existing customers is
key to the ongoing management of the Group's exposure to credit
risk. This involves the continual optimisation of its strategies
across all portfolios, using both internal and external customer
performance data, as well as ensuring the appropriate oversight of
their performance.
Retail secured and unsecured portfolios - The Group's strategy
continues to focus on growth in new mortgage business volumes
principally through mortgage intermediaries. Nevertheless, the
Group recognises that it remains heavily reliant on interest income
from its mortgage portfolio and is therefore still committed to
seeking opportunities to diversify its income streams and yield
whilst remaining cognisant of the credit implications of this
approach. The monitoring of the unsecured portfolio is a key risk
focus of the Group, especially given prevailing macroeconomic
conditions. In response to this, the Group has instigated an
unsecured cost of living task force to review key components of
customer management, arrears strategies and processes to ensure
they remain fit for purpose throughout 2023. In addition to this, a
suite of new unsecured stress early warning indicators have been
developed in order to more closely monitor potential changes to the
Group's asset quality.
Key risks in 2022 and moving into 2023 relate to the
macroeconomic impacts from rising inflation and heightened interest
rates; especially for those customers coming off their existing
fixed rates. Unemployment is also likely to increase in 2023, and
all these factors could lead to more customers facing financial
difficulty or falling into arrears. The annual affordability
calculator refresh has incorporated rising costs into the
affordability calculation for new secured and unsecured credit
applications.
Mitigating actions:
Credit risk is managed within an agreed set of risk appetite
measures for each portfolio, which are monitored through a clearly
defined Risk Management Framework. All credit exposure mandates are
approved within a clearly defined credit approval authority
framework.
Whilst the Group's portfolio is low risk and underpinned by
robust credit strategies, the cost of living crisis is impacting
everyone across the UK, and we have undertaken an updated
affordability assessment of our Platform residential secured
portfolio to understand what impact the rising cost of living as
well as rate increases for customers with rate maturities in 2024
and 2025 will have to their household disposable income. This has
enabled us to identify those customers most at risk of falling into
a negative disposable income position and therefore needing
support. Positively, the average level of disposable income for the
current portfolio is GBP1,261 per month and 93% of these customers
have a disposable income estimated to be more than GBP250, based on
their current mortgage rate. Applying a rate shock to customers
with products maturing in the next 2 years, average disposable
income reduces to GBP1,060 per month (maturing in 2023) and
GBP1,036 (maturing in 2024). Customers considered "at risk" based
on their refreshed net disposable income (less than minus GBP100)
have been profiled compared to those not at risk. Additionally, in
cases where such customers had both a disposable income of
<GBP250, and an LTV of >50%, a stage 2 SICR transfer was
applied. Importantly, from a loss perspective, there were no
customers maturing before 2025 with both an LTV higher than 90% and
identified as being "at risk".
The Group also tracks a series of early warning indicators
specifically relating to the cost of living crisis, and whilst
there are currently no concerning trends, there are some areas that
require close monitoring due to normalising spending habits as the
UK comes out of the COVID-19 pandemic.
To support customers facing financial difficulty earlier, the
Group operates a pre-arrears contact strategy to unsecured
customers, with roll out recently begun for secured. 95% LTV
lending has been managed through higher score cut-offs and
restricting flats/maisonettes as acceptable collateral. A
significant proportion of 95% LTV applications are also reviewed by
the Group's underwriting team. The Group's secured portfolio is
slightly less exposed to both river/sea and surface flood risk when
compared to the UK property portfolio as a whole. In addition, the
risk to the Group's secured portfolio from subsidence is also
slightly lower than the UK as a whole.
Emerging risks:
The housing market has continued to remain buoyant in 2022,
however there are signs house price growth is slowing as we go into
2023 and this will be closely monitored.
There is a risk that the cost of living crisis and an increasing
interest rate environment will result in customers being unable to
sustain their credit obligations. To date, the Group's secured and
unsecured assets remain high quality, with arrears volumes
remaining low and stable.
Although our criteria on lending against high rise properties
has meant limited exposure to cladding issues across our mortgage
portfolios, we continue to monitor ongoing developments and to take
actions to mitigate our risks as required.
SME portfolio - The SME portfolio offers significant future
growth potential within chosen sectors, and the focus during 2022
has been on developing the Risk Management Framework to support a
selective growth strategy, combined with continuing to closely
monitor the existing portfolio as customers re-establish their
businesses within a post-COVID-19 environment.
Customers within the SME portfolio that are experiencing
financial difficulties are being supported with tailored
forbearance solutions where appropriate, as they attempt to manage
their businesses during a period of economic instability and
uncertainty. Proactive engagement with customers, including those
with Bounce Back Loan (BBLs) scheme and Coronavirus Business
Interruption Loan Scheme (CBILS) facilities has so far minimised
any material increase in those necessitating recovery action. This
will remain an area of close scrutiny, as a prolonged economic
downturn may mean increased uncertainty around the longer term
viability of SME businesses.
SME customers are having to manage the impact of rising
inflation, higher interest rates and the need to increase wages
against a backdrop of high employment and a shortage of skills in
some sectors. We have further developed the use of internal and
external Early Warning Indicator reports to support close
monitoring and ensure that strategies are in place to identify and
contact 'at risk' customers. Where vulnerability is identified,
adjustments are made, as necessary, to support the best outcome for
the customer.
Mitigating actions:
Credit risk is managed within an agreed set of risk appetite
measures for each portfolio, which are monitored through a clearly
defined Risk Management Framework. All credit exposure mandates are
approved within a clearly defined credit approval authority
framework.
During 2022, there has been an increased focus on affordability
assessments throughout the loan lifecycle and a robust sensitivity
analysis undertaken at origination to account for rising costs and
interest rates. Training has been undertaken in 1st and 2nd line
teams relating to the identification of early warning indicators
that may suggest financial difficulty and also around the
importance of prompt signposting of customers to external sources
of advice.
Emerging risks:
Where SME businesses are not able to pass on the impact of
rising costs to their own customers, it is expected that there will
be an increase in businesses failing. This may be exacerbated by
those government loan scheme customers that have exhausted the Pay
as You Grow solutions that have been available to them. All
attempts at early intervention will continue so that flexibility
may be made available for viable businesses. In this regard,
resourcing levels of business support teams will remain under
review to ensure we are able to meet this increasing challenge in
the year ahead.
Treasury - The Group's treasury portfolio is held primarily for
liquidity management purposes and, in the case of derivatives, for
the purpose of managing market risk. The Group monitors the risk to
earnings and capital arising as a result of any of its treasury
counterparties defaulting on their legal and/or contractual
obligations through its Treasury Credit Risk Policy and Control
Standards.
There have been minimal movements (including credit rating
downgrades) in the low-risk profile of the treasury portfolio
during the year and the Group has not experienced any historical
defaults. The exposures remain predominantly concentrated to
counterparties rated AA- or higher, suggesting a very low
probability of default. The Group's credit monitoring has not
identified any material changes in the creditworthiness of its
treasury counterparties despite recent geopolitical tension,
macroeconomic and market instability manifesting through the early
signs of global recession, although this will continue to be
monitored closely as the impacts may materialise in the medium to
long term.
Mitigating actions:
Credit risk is managed within an agreed set of risk appetite
measures for each portfolio, which are monitored through a clearly
defined Risk Management Framework. All credit exposure mandates are
approved within a clearly defined credit approval authority
framework. Regular monitoring of rating actions, market events and
financial results must be undertaken and counterparties may be
placed on the Watchlist: a list of counterparties that require
additional management focus over and above that provided in the
normal course of business. This could be due to an actual default,
an increased likelihood of default or an event that has the
potential to result in a marked change in risk profile.
Emerging risks:
Current macroeconomic and market instabilities represent a
challenging external environment for all banks, globally. Potential
headwinds to future performance may translate to increased credit
risk in the future. This is particularly relevant to UK banks where
significant market reaction following the government's
controversial mini-budget in October (albeit somewhat calmed since
the immediate fall-out), has fuelled record levels of inflation,
applying further pressure to household finances and the cost-bases
of many businesses which could impact the asset quality of a number
of banks in the UK and cause deterioration in institution credit
quality. Expanding interest margins and strong balance sheets
observed by market commenters are generally expected to counter the
impact of economic slowdown and cushion an expected rise in problem
loans.
Key indicators:
Impairment charge: GBP6.4m (2021: GBP1.1m)
Core mortgage accounts 3 months in arrears (by balance): 0.09%
(2021: 0.09%)
LIQUIDITY AND FUNDING RISK
Definition:
Liquidity and funding risk is the risk that the Group is unable
to meet its obligations as they fall due or can only do so at
excessive cost.
Key themes:
The Group maintained a strong level of liquidity through 2022
against regulatory minimum, but also recognising the potential for
changes in customer profiles and market conditions given the
uncertain economic backdrop. The BoE liquidity support to the
industry through TFSME has provided the Group with an additional
funding source to support its lending activities, funding profile
and liquidity resources.
The Group remains predominantly customer-funded, with strong
retail and SME deposit franchises. Customer behaviour and balances
have remained relatively stable despite emerging cost of living
challenges and rising rate environment. We have responded to base
rate rises by increasing customer rates across our deposit range
(on sale and closed products), ensuring all customers receive
higher interest on their balances.
Wholesale funding comprises secured and unsecured debt issuances
as well as participation in the BoE TFSME. The availability of
TFSME, alongside strong customer deposit performance, has continued
to reduce the Group's wholesale funding activity in 2022, with the
only activity being an MREL transaction to support the Group's
capital resources.
Mitigating actions:
Liquidity and funding risk is managed primarily with respect to
the Group's liquidity risk appetite and liquidity coverage ratio.
The Group prepares an annual Internal Liquidity Adequacy Assessment
Process (ILAAP) to ensure that its liquidity risk framework remains
appropriate and the Group holds sufficient liquidity resources.
The Group holds a portfolio of high-quality liquid assets
(HQLA), alongside contingency funding actions which enable us to
raise or preserve liquidity in adverse conditions, and assets
available for BoE facilities.
Emerging risks:
Whilst the Group's liquidity and funding position is strong, we
recognise that cost of living challenges, rising rate environment
and market volatility relating to broader economic, domestic and
geopolitical factors may impact the level of liquidity and funding
risk in the future. The impact of wholesale market conditions on
the Group's liquidity and funding position is limited as we have
maintained surplus liquidity following use of TFSME in 2021. Given
the strength of its liquidity, the Group plans to make initial
TFSME repayments without reliance on wholesale market intervention,
in turn minimising potential risks to NIMs and the Group's existing
funding base. The Group recognises the potential for uncertainty in
customer behaviour as the economic situation evolves, considering
such risks in its management of liquidity resources.
Key indicators:
Loan to deposit ratio: 104.1% (2021: 99.1%). The Group's loan to
deposit ratio has increased in 2022 as it has continued to support
customer lending and manage its deposit base.
Primary liquidity resources: GBP5,586.9m (2021: GBP5,924.0m).
While the Group has maintained an elevated level of liquidity
through 2022, primary liquidity resources have reduced compared to
2021 where the year end position included TFSME drawings.
Liquidity Coverage Ratio: 265.3% (2021: 205.3%). LCR maintained
significantly above regulatory minimum.
MARKET RISK
Definition:
Market risk is the risk of loss as a result of the value of
assets or liabilities being adversely affected by movements in
market prices, interest rates or exchange rates. .
Key themes:
The Group's business model and market risk framework mean that
its main exposure to market risk is through potential mismatches in
the profiles of customer assets and deposit liabilities. Underlying
economic uncertainties and market volatilities have continued to
present challenging conditions in which to manage the Group's
market risk exposures. Market risks associated with fixed term
mortgages are a continued area of focus, including managing
pipeline risk and monitoring prepayment behaviour. We have
established a new structural hedge in 2022, reflecting that a
proportion of our demand savings balances are evidenced to be
non-sensitive to interest rates. Alongside existing hedge
structures for current accounts and other non-interest bearing
balances, this provides additional natural hedge to mortgage
origination, and a smoother income profile, while acknowledging the
lag effect of the investment profile in the current rising rate
environment.
Mitigating actions:
The Group has a clear market risk framework, with risk limits in
place to monitor and manage exposures and impacts of market
movements. The Group seeks to hedge market risks where appropriate,
including matching of assets and liabilities where appropriate, as
well as use of derivative instruments (interest rate swaps) to
manage remaining exposures. The framework has continued to provide
a robust structure in 2022, adapted to changing conditions and
continued to appropriately manage the Group's overall exposure to
market risk.
Emerging risks:
The Group recognises the potential for further volatility in
market conditions, in response to economic and domestic and
geopolitical conditions. Specific risks to be managed include
customer behaviours across lending products, (particularly with
respect to customer repayment options on Bounce Back Loans),
mortgage prepayment rates, as well as mortgage market conditions
and pipeline risk as mortgage markets and performance respond to
underlying economic conditions, higher base rate expectations and
rate volatility.
The impact of severe events due to changing climate patterns or
rapid shifts in climate change-related regulation around the world
has the potential to cause sharp adjustments to market prices as
well as interest rates and exchange rates. Increased market risk as
well as operational risk could also arise as a result of disruption
to business services, supply chains and transport links.
Key indicators:
PV01: measures the sensitivity of future cash flows to a one
basis point shift in interest rates. More information is available
in our Annual Report and Accounts, which is available on our
website.
MODEL RISK
Definition:
Model risk is the potential for adverse consequences caused by
models. Model risk can lead to financial loss, regulatory penalty
or fine, poor business or strategic decision-making, incorrect
financial reporting, damage to a bank's reputation or adverse
customer outcomes.
Key themes and emerging risks:
The Group has permission to adopt the IRB approach for the
majority of its exposures, which provides a significant capital
benefit to the organisation relative to the Standardised Approach.
A robust IRB attestation is completed annually to ensure permission
is retained. The Group maintains an active dialogue with the PRA
regarding adapting the secured models in line with regulatory
expectations of PS11/20. Capital risk implications of major
regulatory changes are covered in the capital risk section above.
The model remediation programme, instigated in 2022, remains in
place with submission of revised models to the PRA anticipated by
end of March 2023.
Retail current account and credit card IRB models were
implemented in 2022 with new developments for these models planned
with PRA submission in 2024, in line with the IRB roadmap wave 4
Basel 3.1 implementation.
The COVID-19 pandemic presented unprecedented conditions that
proved challenging to model accurately, particularly in the case of
the Group's IFRS 9 models. The Group relied on the use of model
adjustments to reflect these challenges. Defaults are expected to
increase as the UK enters a prolonged recession and the cost of
living crisis continues to manifest; as such the Group continues to
rely on post model adjustments (PMAs) to mitigate these risks,
reflecting concerns to specific sectors and to address model
limitations in the high inflationary environment. Development of
second generation IFRS 9 models remains an important priority.
Finally, as part of our close consideration of climate change
risks as part of our ongoing strategic planning exercises
(described in more detail in the Annual Report and Accounts, which
is available on our website) the Group now maintains a modelled
solution for assessing these risks across its largest portfolio in
retail secured. This model is used to assess the impacts of climate
change scenarios on credit losses, capturing both physical and
transition climate risks and used for ongoing assessment in ICAAP
cycles which informs future financial planning and risk
monitoring.
Mitigating actions:
The Group operates a robust model governance framework,
including independent model validation of all models, including new
models, as well as ongoing monitoring of model performance and
periodic risk appetite and policy refreshes.
The Group commits to providing Executive level review and
challenge of model risk through its Model Risk Oversight Committee
(MROC) which ensures that the model rating systems and material
models are operating effectively and the impact of model risks on
the Group's business model and strategies is assessed regularly.
This also includes oversight of the Group's IRB permissions,
including the exemptions where the Group applies the Standardised
Approach to calculate Pillar 1 capital requirements.
The Group has in place a mechanism to determine PMAs to adjust
impairment stock where it is determined that direct model outputs
do not adequately reflect all risks within a portfolio, or subset
of a portfolio. To mitigate the risk of capital requirements
underestimation as a result of non-compliant IRB models, the Group
applies PMAs where necessary.
Emerging risks:
In 2022 the PRA published CP16/22 which lays out the proposal
that firms should implement an enhanced Model Risk Management
Framework. Whilst the Group is well placed for compliance with the
majority of the consultation paper, some refinement of the Group's
Model Risk management will be required. Particular focus will be
given to the change to the definition of models and hence greater
emphasis on the Group's currently defined non-models.
Key indicators:
A range of indicators continue to be used to assess this
principal risk. These include, but are not limited to, the number
of models that are not IRB compliant, the volume of models rated
with a 'Red' RAG status in terms of model performance or rated 'Not
Fit for Purpose' following periodic model review.
PENSION RISK
Definition:
Pension risk is defined as the risk to Group capital and company
funds from exposure to defined benefit scheme liabilities (to the
extent that liabilities are not covered by scheme assets),
associated funding commitments and risks inherent in the valuation
of scheme liabilities. Uncertainty in the estimated size of the
liabilities and volatility in future investment returns from the
assets may cause volatility in the pension fund funding level.
Key themes and emerging risks:
The Group is the Principal Employer of the Bank section of The
Co-operative Pension Scheme (Pace) and the Britannia Pension Scheme
(BPS). Both schemes remain in surplus on an accounting basis and
were also determined to be in surplus on the statutory funding
basis at the time of their last completed triennial valuations, as
at 2019 and 2020 respectively. We continue to assess the funding
and accounting positions of both schemes, with a particular focus
on any potential erosion of capital resources due to additional
funding requirements.
Risks to the Group arise from the valuation of each scheme on
each of the statutory funding and low risk target (a secondary
funding measure for Pace) bases, a deterioration in which could
give rise to additional cash contributions into the schemes in the
future, and the accounting basis, which could give rise to
immediate erosion of CET1 resources if the schemes were determined
to be in deficit on the accounting basis.
Risks may arise if actual experience differs from the
assumptions employed in valuations on each basis, in particular as
a result of changes to market and economic conditions and longer
lives of members. Risks may also arise due to volatility in the
valuation of scheme investments. The Group remains cognisant of the
potential future impact of climate-related physical or transition
risks on pension asset valuations.
There is also a risk that the Group's covenant weakens,
potentially resulting in a perceived deterioration in scheme
funding and a request from the trustees for additional cash
contributions.
In September 2022, the Government announced its 'Growth Plan
2022', which was intended to tackle rising energy costs, bring down
inflation and help businesses and households. Market reaction to
the announcement led to a sudden and significant rise in interest
rates and collateral calls on Liability Driven Investment (LDI)
funds, which typically include derivatives. The significant levels
of de-risking that the trustees have implemented, in consultation
with the Bank, in recent years meant that both Pace and BPS had
relatively low levels of leverage, segregated LDI mandates and
liquidity available within their LDI funds and across their wider
investment portfolios. This meant that the schemes demonstrated
resilience and were able to withstand the pressures faced without
reduction in the level of hedging or funding level of either
scheme.
Mitigating actions:
In December 2022, the Pace Trustee completed a full "buy-in"
transaction with Rothesay Life Plc, as specialist UK insurer, to
insure scheme benefits through a bulk annuity insurance policy.
Through this transaction, and in conjunction with a pre-existing
partial "buy-in" with Pension Insurance Corporation plc (PIC)
completed in April 2020, this means that the Bank Section of Pace,
and by extension the Bank as Principal Employer, is fully insured
against the primary investment and longevity risks it is exposed
to.
The majority of the BPS' inflation and interest rate risks are
hedged through the scheme's LDI strategy, minimising the overall
volatility in the scheme. The BPS Trustee monitors leverage and
collateral headroom in its segregated LDI portfolio, together with
sources of liquidity in its wider portfolio, to ensure the scheme
funding level can remain resilient in the face of rising interest
rates.
The Group regularly monitors and stresses its pension scheme
assets to understand potential for adverse impact of
volatilities.
The scheme trustees are responsible for managing pension assets
and do so in line with their Responsible Investment policies,
taking advice from appointed investment consultants and investment
managers. Whilst pension assets are exposed to general market
conditions including interest rates, inflation and credit spreads,
which could deteriorate under longer-term climate stress, the
low-risk liability driven investment strategy, with high levels of
interest rate and inflation protection (in BPS) and insurance
assets (in Pace), are considered to go some way to mitigating the
overall risk to the funding levels of the schemes posed by climate
change.
Key indicators:
The schemes are both in a surplus position on an accounting and
applicable funding bases. More information is available in our
Annual Report and Accounts, which is available on our website.
REPUTATIONAL RISK
Definition:
Reputational risk is the risk of damage to the Group's
reputation, or to the way The Co-operative Bank brand or image is
perceived by its internal or external stakeholders as a result of
its conduct, performance, the impact of operational failures, or
other external issues.
Key themes:
It is critical to the success of our Plan that reputational
risks are identified, managed and mitigated. We continued to
maintain a strong 'customer first' culture in 2022 and responding
to our customers' needs during the cost of living crisis.
Our Ethical Policy defines how we act as a business, the causes
we support and the ways we use (and won't use) our customers'
money. We continue to seek the views of our customers via the
Ethical Policy which was updated this year, in conjunction with the
Bank celebrating 150 years of ethical banking. This latest update
to our Ethical Policy reflects the priorities of our changing world
and is structured around our customers concerns for our planet, for
people and for our communities.
This year also saw the launch of our new advertisement campaign
"The Bank you can hold to account", which was positively received.
With values and ethics at our core and a unique customer-led
Ethical Policy, we are committed to using our customers' money to
do good for the planet, people and communities.
Our unwavering commitment to co-operative values and ethics and
our unique customer-led Ethical Policy have established us as a
leading ambassador in environmental and social issues today. We
have been recognised as the UK's best ESG rated high street bank by
leading ESG analytics experts, Sustainalytics - our renewed ESG
risk rating was 8.3, compared to 9.2 last year. In addition, we
have also received an MSCI ESG rating of AAA (improved from an A
rating), which reinforces our strong ESG position, and an improved
ESG rating from rating agency ISS, who have now awarded us with
their 'Prime' ESG label. This means that our tradeable bonds and
shares now fall under their 'Responsible Investment' category. We
will continue to champion the commitments to our Ethical Policy and
drive our credentials within the developing ESG frameworks in
2023.
The Group continues to use the 'co-operative' name as we
continue to concentrate on the strong and constructive relationship
with Co-operative UK. The Group demonstrates its commitment to the
co-operative values through our partnership with The Hive which
began in 2016 and the programme has already helped over 1,000 new
and existing co-operatives and groups. Through our partnership, we
are helping to build a resilient and successful co-operative
economy. We have invested GBP2m into this programme since our
partnership began and this has led to positive feedback from
Co-operatives UK. The Group can experience media coverage and
social media content relating to matters such as speculation
relating to the Group's ownership, call wait times in the contact
centre and digital outages. The Group continues to focus on the
successful delivery of the Plan and supporting our customers.
Mitigating actions:
An active dialogue has been maintained with all key stakeholders
throughout the year. The Group continues to invest in channel
offerings, including enhancing digital capabilities allowing
customers to bank more flexibly and at their own convenience.
Investing in technology to improve resilience has remained a focus,
whilst utilising multiple communication channels to keep customers
informed during outages.
Emerging risks:
Given the high level of scrutiny regarding financial
institutions' treatment of customer and business conduct from
regulatory bodies, the media and politicians, from time to time the
Group may be exposed to conduct issues, legal proceedings and
regulatory investigations that could give rise to reputational
risk. Where appropriate, the Group discloses such exposures as
contingent liabilities (f urther information can be found in the
full Annual Report and Accounts, which has been made available on
our website).
Key indicators:
A range of indicators continue to be used to assess changes in
this principal risk. These include, but are not limited to, the
number and nature of reputational risks, social media sentiment and
adverse Ombudsman decisions made against the Group.
END
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements with
respect to the business, strategy and plans of The Co-operative
Bank Holdings Limited and its subsidiaries ("the Group"),
(including its updated long-term forecast) and its current targets,
goals and expectations relating to its future financial condition
and performance, developments and/or prospects. Forward-looking
statements sometimes can be identified by the use of words such as
'may', 'will', 'seek', 'continue', 'aim', 'anticipate', 'target',
'projected', 'expect', 'estimate', 'intend', 'plan', 'goal',
'believe', 'achieve', 'predict', 'should' or in each case, by their
negative or other variations or comparable terminology, or by
discussion of strategy, plans, objectives, goals, future events or
intentions.
Examples of such forward-looking statements include, without
limitation, statements regarding the future financial position of
the Group and its commitment to its plan and other statements that
are not historical facts, including statements about the Group or
its directors' and/or management's beliefs and expectations. Any
such forward-looking statements are not a reliable indicator of
future performance, as they may involve significant stated or
implied assumptions and subjective judgements, which may or may not
prove to be correct. There can be no assurance that any of the
matters set out in forward-looking statements are attainable, will
actually occur, will be realised, or are complete or accurate. Past
performance is not necessarily indicative of future results.
Differences between past performance and actual results may be
material and adverse.
For these reasons, recipients should not place reliance on, and
are cautioned about relying on, forward-looking statements as
actual achievements, financial condition, results or performance
measures could differ materially from those contained in the
forward-looking statement. By their nature, forward-looking
statements involve known and unknown risks, uncertainties and
contingencies because they are based on current plans, estimates,
targets, projections, views and assumptions and are subject to
inherent risks, uncertainties and other factors both external and
internal relating to the Group's plan, strategy or operations, many
of which are beyond the control of the Group, which may result in
it not being able to achieve the current targets, predictions,
expectations and other anticipated outcomes expressed or implied by
these forward-looking statements. In addition, certain of these
disclosures are dependent on choices relying on key model
characteristics and assumptions and are subject to various
limitations, including assumptions and estimates made by
management. No representations or warranties, expressed or implied,
are given by or on behalf of the Group as to the achievement or
reasonableness of any projections, estimates, forecasts, targets,
prospects or returns contained herein. Accordingly, undue reliance
should not be placed on forward-looking statements.
Any forward-looking statements made in this document speak only
as of the date of this document and it should not be assumed that
these statements have been or will be revised or updated in the
light of new information or future events and circumstances arising
after today. The Group expressly disclaims any obligation or
undertaking to provide or release publicly any updates or revisions
to any forward-looking statements contained in this document as a
result of new information or to reflect any change in the
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based,
except as required under applicable law or regulation.
This information is provided by RNS, the news service of the
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of this information may apply. For further information, please
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END
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