TIDMNBS TIDMNAWI
RNS Number : 5484W
Nationwide Building Society
10 February 2017
Nationwide Building Society
Interim Management Statement
Q3 2016/17
10 February 2017
Nationwide Building Society today publishes its Interim
Management Statement covering the period from 5 April 2016 to 31
December 2016 ("Q3 2016/17").
Nationwide Building Society Chief Executive, Joe Garner,
said:
"Our performance in the third quarter reflects a continuation of
our strong trading performance announced at the half year. In a
period of sustained economic uncertainty our commitment to serve
our members remains steadfast and true to our core purpose. We
continue to take conscious decisions to support our members,
delivering market-leading service and highly competitive products,
which has led to a financial performance in line with our
expectations.
"More people are choosing Nationwide Building Society for their
everyday banking needs. We opened 570,000(1) new current accounts
in the first nine months of the year, taking us to a 7.4%(2) market
share of main standard and packaged accounts. We have also been
gainers in current account switching, attracting 17.1% of total
switchers.
"We continue to be ranked number one for customer service
amongst our high street peer group, with a lead of 6.0%(3) ,
reflecting the importance we place on putting our members
first.
"Looking forward, our financial strength and focus on providing
the very best in customer service means we are well placed to
continue to support our members."
Nationwide Building Society Finance Director, Mark Rennison,
said:
"We have continued to trade strongly during the third quarter of
the year, building on the success of the first six months. Our
trading performance in the nine months to 31 December 2016
demonstrates our commitment to support members during these
uncertain economic times to buy homes and save for the future.
Gross mortgage lending has increased in the period by 11.0% to
GBP26.2 billion, a market share of 14.3% and member deposit
balances have increased by GBP6.4 billion(4) , a 10.2% market share
of balance growth.
"Our profit performance has reduced in line with our
expectations and reflects in part the continued margin pressure due
to the prevailing low interest rate environment and the conscious
decisions we have taken to support our members. Statutory profit
before tax in the nine months is GBP946 million, a decrease of 16%
on the same period last year.
"Our capital and liquidity ratios remain strong, underpinning
the security we provide to all our members."
(1) Number of new current accounts includes basic bank
accounts.
(2) Based on market data as at November 2016 (comparative based
on market data as at February 2016).
(3) (c) GfK 2016, Financial Research Survey (FRS), 3 months
ending 31 December 2016 vs 30 September 2016, proportion of
extremely/very satisfied customers minus proportion of
extremely/very/fairly dissatisfied customers summed across current
account, mortgage and savings, high street peer group defined as
providers with main current account market share >6% (Barclays,
Halifax, HSBC, Lloyds Bank (inc C&G), NatWest and
Santander).
(4) Member deposits include current account credit balances.
Trading performance
9 months ended 9 months ended
31 December 31 December
2016 2015
GBPbn % GBPbn %
------------------------------------------- ---------- ----- ---------- -----
Gross residential mortgage lending/market
share 26.2 14.3 23.6 13.5
Net residential mortgage lending/market
share 8.2 29.3 6.7 22.3
Member deposits balance movement(4)
/market share 6.4 10.2 4.9 9.3
---------- -----
Number of new current accounts opened(1) 570,000 419,000
------------------------------------------- ---------- ----- ---------- -----
At 31 December At 4 April
2016 2016
GBPbn % GBPbn %
---------- -----
Residential lending balances(5) 170.5 162.1
Member deposit balances(4) 145.1 138.7
Current account stock market share(2) 7.4 7.1
------------------------------------------- ---------- ----- ---------- -----
We have continued to help more members get onto or move up the
housing ladder in the last nine months. Gross mortgage lending for
the nine months to 31 December 2016 was up 11.0% on the comparative
period at GBP26.2 billion, representing a market share of 14.3%.
Gross mortgage lending includes GBP22.5 billion of prime
residential mortgages (Q3 2015/16: GBP19.0 billion) and GBP3.7
billion of buy to let (BTL) lending (Q3 2015/16: GBP4.6 billion).
Our strong performance reflects competitive products and
propositions, with our best rates provided exclusively to our
existing mortgage members.
Net mortgage lending of GBP8.2 billion (Q3 2015/16: GBP6.7
billion) includes GBP0.9 billion of BTL lending (Q3 2015/16: GBP2.2
billion). Following the underwriting criteria changes made earlier
in the year for BTL lending and the increase in stamp duty
impacting the BTL market, the flow of advances slowed. This,
combined with higher maturities compared to the same period last
year, has resulted in a decrease in net BTL lending.
Mortgage lending has largely been supported by strong retail
funding flows with member balances growing by GBP6.4 billion(4) in
the period, resulting in a market share of balance growth of 10.2%
(Q3 2015/16: 9.3%). Member deposits increased as we continue to
support members, protecting our savings rates where possible in the
current low base rate environment.
As well as strong mortgage and savings growth, more people than
ever before are choosing Nationwide Building Society for their
everyday banking, attracted by the breadth, value and quality of
our current account range. In a very competitive market, we
increased our market share of main standard and packaged accounts
stock to 7.4%(2) (4 April 2016: 7.1%). During the period we opened
570,000(1) new current accounts, 36% more than the same period last
year, and were a net beneficiary of the current account switching
service, attracting 17.1% of all switchers. We are proud to have
extended our product range with the launch in August of our first
student current account, FlexStudent, which has seen 11,500
accounts opened in the period to 31 December 2016.
(5) Residential lending balances are stated net of impairment
provisions.
Financial performance
9 months ended 9 months ended
31 December 31 December
2016 2015
GBPm % GBPm %
-------------------------------------- --------- -------- -------- -------
Underlying profit before tax 866 1,129
Statutory profit before tax 946 1,123
Statutory profit after tax 684 852
-------------------------------------- --------- -------- -------- -------
Net interest margin 1.33 1.56
Underlying cost income ratio 57.6 53.1
Statutory cost income ratio 56.1 53.3
-------------------------------------- --------- -------- -------- -------
At 31 December At 4 April
2016 2016
GBPbn % GBPbn %
--------- --------
Total assets 224.9 208.9
Loans and advances to customers 187.0 178.8
--------- --------
Common Equity Tier 1 (CET1) ratio(6) 24.4 23.2
Leverage ratio(6) 4.0 4.2
Modified UK leverage ratio(7) 4.3 4.4
Liquidity coverage ratio 136.3 142.6
Wholesale funding ratio 26.9 24.8
-------------------------------------- --------- -------- -------- -------
Underlying profit represents management's view of underlying
performance and is presented to aid comparability across reporting
periods. For more detail on how we define underlying profit please
see page 5.
Underlying profit before tax for the nine month period ended 31
December 2016 has reduced 23% to GBP866 million, driven by a
reduction in net interest income, growth in underlying costs and an
increase in impairment charges. This has been partially offset by a
gain of GBP100 million from the disposal of our investment in Visa
Europe during the period.
Statutory profit before tax is down 16% to GBP946 million. This
includes GBP68 million (Q3 2015/16: GBP10 million) of derivative
and hedge accounting gains which are excluded from underlying
profit. Profitability for the period continues to be in line with
our expectations and our Financial Performance Framework which
ensures that we balance the value we distribute to members with
ongoing investment and maintenance of our financial strength.
As anticipated, our net interest margin in the period of 1.33%
was lower than the same period last year (Q3 2015/16: 1.56%) due to
the impact of sustained levels of competition in the mortgage
market combined with continued natural attrition of the residential
base mortgage rate (BMR) balances(8) and the impact of medium term
interest rate expectations. We expect that our net interest margin
will modestly decline during the remainder of the year.
The underlying cost income ratio has increased from 53.1% to
57.6%. The movement reflects a reduction in net interest income
combined with incremental expenditure on strategic investment to
enhance efficiency and service for our members and increased
employee costs, including our investment in a 'Living Pension' for
our employees. Whilst sharpening our focus on efficiency, we will
continue to invest where we believe it is right for our
members.
We continue to review compliance with ongoing and emerging
regulatory matters, including consumer credit legislation, and have
recognised a net provision charge of GBP55 million in the nine
month period in respect of potential customer redress. Current
provisions reflect latest experience and the estimated impact of
industry consultation.
(6) The capital ratios provided have been calculated under CRD
IV on an end point basis. The leverage ratio is calculated using
the CRR definition of Tier 1 for the capital amount and the
delegated act definition of the exposure measure.
(7) The modified UK leverage ratio is shown on the basis of
measurement announced by the PRA and excludes central bank reserves
from the leverage exposure measure.
(8) BMR balances relate to our mortgages reserved on or before
29 April 2009 which revert to a rate guaranteed to be no more than
2% above the Bank of England base rate.
Asset quality remains strong, with an average loan to value
(LTV) of loan stock for total residential lending of 55% at the end
of the period, consistent with that reported at the year end. The
average LTV of new lending in the period increased 2% to 71%,
primarily due to our strategy to increase lending to the first time
buyer market.
The number of cases more than three months in arrears as a
percentage of the total book remains broadly consistent with the
position reported at 4 April 2016, being 0.34% for prime lending
and 0.93% for specialist lending.
Whilst the underlying performance of the portfolios remains
stable, we continue to review the appropriateness of provision
assumptions in the current low interest environment and as a result
impairment losses on loans and advances in the nine month period
were GBP111 million (Q3 2015/16: GBP9 million). The lower charge in
the prior period includes a net impairment write back in relation
to the commercial portfolio of GBP34 million.
We are participating in the Bank of England's Term Funding
Scheme which provides cash secured against eligible collateral with
a flexible four year maturity. As at 31 December 2016 we had drawn
GBP2.0 billion of funding from the Scheme, with a further GBP1.5
billion drawn since that date.
The Group's capital position has remained strong, with
consolidated CET1 and leverage ratios as at 31 December 2016 of
24.4% and 4.0% respectively (4 April 2016: 23.2% and 4.2%
respectively)(6) . The leverage ratio decreased due to a higher
pension deficit as profits have broadly offset the increase in
leverage exposure. Further information on our capital position can
be found in Appendix 1.
The Group's modified UK leverage ratio(7) , on the basis of
measurement announced by the Prudential Regulation Authority (PRA)
in August 2016, was 4.3% at 31 December 2016 (4 April 2016:
4.4%).
The Basel Committee on Banking Supervision is expected to
publish a package on the remaining Basel III reforms in 2017. These
include revisions to the standardised approach for credit and
operational risks and the Internal Rating Based (IRB) framework.
The revised standardised approach is expected to be used as a basis
for a floor for minimum capital requirements, although the
calibration of this has not yet been published. In addition, a PRA
consultation on residential risk weights, proposing revised
expectations for IRB models, was published in July 2016. These
proposals and reforms will lead to higher risk weights in the
medium to long term. Whilst final proposals are not yet available,
our current view is that these will not lead to a material increase
in capital requirements for the Group as we expect the UK leverage
ratio framework to remain our binding requirement.
The results of the 2016 Concurrent Stress Test (CST) announced
on 30 November 2016 further demonstrate the financial strength and
resilience of the Group. The scenario combined the more severe
domestic elements of CST 2014 and global elements of CST 2015, and
the results show that we would remain profitable and in excess of
the PRA prescribed hurdle rates in each year of such a stress with
a low point CET1 ratio of 15.6% after the application of management
actions.
Outlook
The UK economy grew at a respectable pace in 2016. However,
consistent with the Bank of England view, our expectation is that
UK economic growth will slow over the next two years.
The longer term impacts of the EU referendum vote on the UK
economy will depend on a range of factors, not least the time it
takes to reach trading agreements with EU and non-EU economies and
the effectiveness of other actions for improving UK trade
prospects.
Measures announced by the Monetary Policy Committee in August,
including a reduction in base rate to 0.25%, will provide support
for economic activity. A rise in inflation in the quarters ahead is
expected to prove transitory and is unlikely to prevent
policymakers implementing further stimulus if required. Interest
rates are likely to remain at historically low levels for a
prolonged period in order to support economic activity.
The sustained low interest rate environment combined with
competition in core markets will continue to put pressure on
margins and profit. Notwithstanding this, our positive trading
performance, strong capital position, high quality balance sheet
and lead on customer satisfaction mean we are well placed to
deliver long term value to our members and to continue to support
the UK housing market.
Additional information
The financial information on which this Interim Management
Statement is based is unaudited and has been prepared in accordance
with Nationwide Building Society's previously stated accounting
policies described in the Annual Report and Accounts 2016.
For further information please contact:
Investor queries: Sarah Gardiner, 0845 6029053 or 07720 426180,
sarah.gardiner@nationwide.co.uk
Media contact: Sara Batchelor, 01793 657770 or 07785 344137, sara.batchelor@nationwide.co.uk
Alan Oliver, 01793 655287, alanm.oliver@nationwide.co.uk
Underlying profit
Statutory profit before tax has been adjusted for a number of
items, consistent with prior periods, to derive an underlying
profit before tax figure. The purpose of this measure is to reflect
management's view of the Group's underlying performance and to
assist with like for like comparisons of performance across
periods. Underlying profit is not designed to measure sustainable
levels of profitability as that potentially requires exclusion of
non-recurring items even though they are closely related to (or
even a direct consequence of) the Group's core business
activities.
Forward looking statements
Certain statements in this document are forward looking with
respect to plans, goals and expectations relating to the future
financial position, business performance and results of Nationwide
Building Society. Although Nationwide Building Society believes
that the expectations reflected in these forward looking statements
are reasonable it can give no assurance that these expectations
will prove to be an accurate reflection of actual results. By their
nature, all forward looking statements involve risk and uncertainty
because they relate to future events and circumstances that are
beyond the control of Nationwide Building Society including,
amongst other things, UK domestic and global economic and business
conditions, market related risks such as fluctuation in interest
rates and exchange rates, inflation/deflation, the impact of
competition, changes in customer preferences, risks concerning
borrower credit quality, delays in implementing proposals, the
timing, impact and other uncertainties of future acquisitions or
other combinations within relevant industries, the policies and
actions of regulatory authorities, the impact of tax or other
legislation and other regulations in the jurisdictions in which
Nationwide Building Society operates. As a result, Nationwide
Building Society's actual future financial condition, business
performance and results may differ materially from the plans, goals
and expectations expressed or implied in these forward looking
statements. Due to such risks and uncertainties Nationwide Building
Society cautions readers not to place undue reliance on such
forward looking statements.
Nationwide Building Society undertakes no obligation to update
any forward looking statements whether as a result of new
information, future events or otherwise.
This document does not constitute or form part of an offer of
securities for sale in the United States. Securities may not be
offered or sold in the United States absent registration or an
exemption from registration. Any public offering to be made in the
United States will be made by means of a prospectus that may be
obtained from the Society and will contain detailed information
about the Society and management as well as financial
statements.
Appendix 1 - Capital position
Capital structure and ratios
Common Equity Tier 1 (CET1) capital resources have increased by
approximately GBP0.3 billion. This is the result of profit in the
period, which was partly offset by a reduction in reserves due to
an increase in the pension deficit. Risk weighted assets (RWAs)
decreased over the period by approximately GBP0.2 billion. These
movements have resulted in a CET1 ratio of 24.4% (4 April 2016:
23.2%).
31 December 4 April
2016 2016
GBPm GBPm
------------------------------------------------ ------------ --------
Common Equity Tier 1 capital before regulatory
adjustments 9,758 9,508
Total regulatory adjustments to Common
Equity Tier 1 (1,404) (1,495)
------------------------------------------------ ------------ --------
Common Equity Tier 1 capital 8,354 8,013
Additional Tier 1 capital before regulatory
adjustments 992 992
Total regulatory adjustments to Additional
Tier 1 capital - -
------------------------------------------------ ------------ --------
Additional Tier 1 capital 992 992
------------------------------------------------ ------------ --------
Total Tier 1 capital 9,346 9,005
------------------------------------------------ ------------ --------
Tier 2 capital before regulatory adjustments 2,641 1,649
Total regulatory adjustments to Tier
2 capital - -
------------------------------------------------ ------------ --------
Tier 2 capital 2,641 1,649
------------------------------------------------ ------------ --------
Total capital 11,987 10,654
------------------------------------------------ ------------ --------
Ratios: % %
------------------------------------------------ ------------ --------
Common Equity Tier 1 24.4 23.2
Tier 1 27.3 26.1
Total capital 35.0 30.9
------------------------------------------------ ------------ --------
Note: Data in the table is reported under CRD IV on an end point
basis, being full implementation with no transitional provisions.
Capital requirements
31 December 2016 4 April 2016
Pillar 1
Pillar 1 Capital
RWAs Capital requirements(9) RWAs requirements(9)
GBPm GBPm GBPm GBPm
----------------------------- ------- ------------------------- ------- -----------------
Credit risk 27,965 2,237 28,575 2,286
Counterparty credit risk 812 65 598 48
Market risk(10) - - - -
Operational risk 4,604 368 4,604 368
Credit valuation adjustment 907 73 698 56
----------------------------- ------- ------------------------- ------- -----------------
Total 34,288 2,743 34,475 2,758
----------------------------- ------- ------------------------- ------- -----------------
Leverage ratio
The Group holds capital to meet a leverage ratio requirement,
with the current regulatory threshold set at 3% as the
countercyclical leverage ratio buffer is currently 0%. The leverage
ratio has decreased to 4.0% (4 April 2016: 4.2%) as a result of a
higher pension deficit as profits have broadly offset the increase
in leverage exposure.
The average leverage ratio for the three months to 31 December
2016 is 4.0%, with an average exposure measure of GBP230,874
million(11) .
31 December 4 April
2016 2016
GBPm GBPm
------------------- ------------ --------
Tier 1 capital 9,346 9,005
Leverage exposure 232,899 213,181
% %
------------------- ------------ --------
Leverage ratio(6) 4.0 4.2
------------------- ------------ --------
The Group's modified UK leverage ratio(7) , on the basis of
measurement announced by the Prudential Regulation Authority (PRA)
in August 2016, was 4.3% at 31 December 2016 (4 April 2016:
4.4%).
(9) The Group also holds capital to meet Pillar 2 and capital
buffer requirements. Details of Pillar 2 requirements as at 4 April
2016 are set out in the Group's Pillar 3 disclosures at
nationwide.co.uk
(10) Market risk has been set to zero as permitted by the CRR as
exposure is below the threshold of 2% of own funds.
(11) The average leverage ratio is calculated using the averages
of Tier 1 capital and total exposure, based on the last day of each
month in the quarter.
This information is provided by RNS
The company news service from the London Stock Exchange
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