Interim / Quarterly Report • Aug 11, 2023
Interim / Quarterly Report
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Half Yearly Financial Report 2023
Santander UK plc and its subsidiaries (collectively called Santander UK or the Santander UK group) operate primarily in the UK and are part of Banco Santander (comprising Banco Santander SA and its subsidiaries). Santander UK plc is regulated by the UK Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) and certain other companies within the Santander UK group are regulated by the FCA.
This Half Yearly Financial Report contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See 'Forward-looking statements' in the Shareholder information section.
| CEO review | 2 |
|---|---|
| Financial overview | 3 |
| Directors' responsibilities statement | 7 |
| Risk review | 8 |
| Financial statements | 44 |
| Shareholder information | 68 |
Shareholder information
"We maintained our focus on supporting our customers during the first half of the year, working to provide products and services to meet their needs in the current climate. We know that the ongoing volatility in the mortgage market and continuing inflationary pressures are creating challenges, and we encourage anyone facing difficulties to get in touch as soon as possible. We are pleased to be supporting the UK Government's new Mortgage Charter, in addition to the measures we have already put in place.
"While the wider economy has continued to be unsettled we have maintained our prudent approach to risk, while taking a sensible approach to managing our mortgage book. Our Corporate and Commercial Banking business has performed strongly, with our Navigator platform helping to increase the number of customers expanding internationally. Our new Edge Up current account and simplified range of savings products paying up to 5% interest have demonstrated our commitment to providing value and we intend to continue this with the adoption of Consumer Duty.
"These results reflect our prudent approach in an economically uncertain environment which is set to remain for the rest of 2023, impacting consumer spending and the housing market. However, the UK labour market remains strong and our customers have continued to show resilience. We will continue to prioritise providing them with the best support we can."
Mike Regnier
Chief Executive Officer
Shareholder information
"These good results reflect the hard work of all our people across the bank in what has been a challenging first half of 2023. Our strategy has helped us to deliver strong liquidity, funding and capital, and our prudent balance sheet management leaves us well positioned in what remains an uncertain operating environment."
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Net interest income | 2,361 | 2,120 |
| Non-interest income(1) | 233 | 270 |
| Total operating income | 2,594 | 2,390 |
| Operating expenses before credit impairment charges, provisions and charges | (1,219) | (1,172) |
| Credit impairment charges | (105) | (118) |
| Provisions for other liabilities and charges | (148) | (118) |
| Total operating credit impairment charges, provisions and charges | (253) | (236) |
| Profit before tax | 1,122 | 982 |
| Tax on profit | (308) | (232) |
| Profit after tax | 814 | 750 |
| Attributable to: | ||
| Equity holders of the parent | 814 | 750 |
| Profit after tax | 814 | 750 |
A more detailed Consolidated Income Statement is contained in the Condensed Consolidated Interim Financial Statements.
Profit before tax up 14%.
Net interest income up 11% largely due to the impact of higher base rate.
Shareholder information
The segmental information in this Half Yearly Financial Report reflects the reporting structure in place at the reporting date in accordance with the segmental information in Note 2 to the Condensed Consolidated Interim Financial Statements.
| Retail Banking | Consumer Finance |
Corporate & Commercial Banking |
Corporate Centre |
Total | |
|---|---|---|---|---|---|
| 30 June 2023 | £m | £m | £m | £m | £m |
| Net interest income | 1,865 | 79 | 405 | 12 | 2,361 |
| Non-interest income/(expense)(1) | 88 | 100 | 67 | (22) | 233 |
| Total operating income/(expense) | 1,953 | 179 | 472 | (10) | 2,594 |
| Operating expenses before credit impairment charges, provisions and charges | (912) | (73) | (170) | (64) | (1,219) |
| Credit impairment charges | (55) | (14) | (36) | — | (105) |
| Provisions for other liabilities and charges | (106) | (3) | 4 | (43) | (148) |
| Total operating credit impairment charges, provisions and charges | (161) | (17) | (32) | (43) | (253) |
| Profit/(loss) before tax | 880 | 89 | 270 | (117) | 1,122 |
| 30 June 2022 (Restated)(2) | |||||
|---|---|---|---|---|---|
| Net interest income | 1,784 | 92 | 241 | 3 | 2,120 |
| Non-interest income/(expense)(1) | 116 | 101 | 70 | (17) | 270 |
| Total operating income/(expense) | 1,900 | 193 | 311 | (14) | 2,390 |
| Operating expenses before credit impairment charges, provisions and charges | (831) | (73) | (181) | (87) | (1,172) |
| Credit impairment (charges)/write-backs | (126) | (13) | 20 | 1 | (118) |
| Provisions for other liabilities and charges | (101) | — | (2) | (15) | (118) |
| Total operating credit impairment charges, provisions and charges | (227) | (13) | 18 | (14) | (236) |
| Profit/(loss) before tax | 842 | 107 | 148 | (115) | 982 |
(1) Comprises 'Net fee and commission income' and 'Other operating income'.
(2) See Note 2 to the Condensed Consolidated Interim Financial Statements.
Shareholder information
This section analyses customer loans and customer deposits at a consolidated level and by business segment. The customer balances below, and the total assets as presented in the Consolidated Balance Sheet. The Credit risk review disclosures exclude Joint ventures, as they carry low credit risk and therefore have an immaterial ECL, and Other items, mainly accrued interest that we have not yet charged to the customer's account, and cash collateral. A reconciliation between the customer balances below and the total assets as presented in the Condensed Consolidated Balance Sheet is set out in the Risk review.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £bn | £bn | |
| Customer loans | 207.0 | 215.7 |
| Other assets(1) | 70.0 | 69.5 |
| Total assets | 277.0 | 285.2 |
| Customer deposits | 183.9 | 189.9 |
| Total wholesale funding | 59.7 | 62.9 |
| Other liabilities | 18.8 | 18.0 |
| Total liabilities | 262.4 | 270.8 |
| Shareholders' equity | 14.6 | 14.4 |
| Total liabilities and equity | 277.0 | 285.2 |
(1) At 30 June 2023, included £49m (2022: £49m) of property assets classified as held for sale.
Further analysis of credit risk on customer loans is set out in the Credit risk section of the Risk review.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £bn | £bn | |
| Retail Banking | 183.3 | 191.8 |
| - Mortgages | 176.1 | 184.3 |
| - Other (Business Banking and unsecured lending) | 7.2 | 7.5 |
| Consumer Finance | 5.3 | 5.4 |
| CCB | 18.4 | 18.5 |
| Total | 207.0 | 215.7 |
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £bn | £bn | |
| Retail Banking | 155.7 | 161.8 |
| - Current accounts | 71.4 | 76.6 |
| - Savings accounts | 67.4 | 67.0 |
| - Business banking accounts | 11.2 | 12.2 |
| - Other retail products | 5.7 | 6.0 |
| CCB | 23.5 | 24.8 |
| Corporate Centre | 4.7 | 3.3 |
| Total | 183.9 | 189.9 |
Shareholder information
| 30 June 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| £bn | % | £bn | % | |
| Capital | ||||
| CET1 capital | 11.0 | 15.6 | 10.8 | 15.4 |
| Total qualifying regulatory capital | 14.4 | 20.4 | 14.3 | 20.4 |
| RWA | 70.7 | 70.1 |
| 30 June 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| £bn | % | £bn | % | |
| Total wholesale funding and AT1 | 61.7 | 64.9 | ||
| of which TFSME | 21.0 | 25.0 | ||
| of which with a residual maturity of less than one year | 13.0 | 11.0 | ||
| LCR | 47.0 | 154 | 46.3 | 157 |
A description of our principal risks and uncertainties for the remaining six months of the financial year is set out in the Risk governance section of the Risk review, mainly in Top risks and Emerging risks as well as a discussion of how the relevant risks and uncertainties have changed since our 2022 Annual Report was published.
In addition to the financial information prepared under IFRS, this Half Yearly Financial Report contains non-IFRS financial measures that constitute APMs, as defined in ESMA guidelines. The financial measures contained in this Half Yearly Financial Report that qualify as APMs have been calculated using the financial information of the Santander UK group but are not defined or detailed in the applicable financial information framework or under IFRS.
We use these APMs when planning, monitoring and evaluating our performance. We consider these APMs to be useful metrics for management and investors to facilitate operating performance comparisons from period to period. Whilst we believe that these APMs are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for IFRS measures.
There have been no changes to the Santander UK group's other non-IFRS measures as set out in our 2022 Annual Report.
Shareholder information
The Directors confirm that to the best of their knowledge these Condensed Consolidated Interim Financial Statements have been prepared in accordance with International Accounting Standard IAS 34, 'Interim Financial Reporting', as issued by the International Accounting Standards Board (IASB) and adopted in the UK, and that the half-year management report herein includes a fair review of the information required by Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority (FCA), namely:
– An indication of important events that have occurred during the six months ended 30 June 2023 and their impact on the Condensed Consolidated Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year, and
– Material related party transactions in the six months ended 30 June 2023 and any material changes in the related party transactions described in the last Annual Report.
By Order of the Board
Mike Regnier
Chief Executive Officer 10 August 2023
Financial statements Shareholder information
| Risk governance | 9 |
|---|---|
| Credit risk | 10 |
| Santander UK group level | 17 |
| Retail Banking | 27 |
| Consumer Finance | 32 |
| Corporate & Commercial Banking | 33 |
| Corporate Centre | 34 |
| Market risk | 35 |
| Liquidity risk | 36 |
| Capital risk | 39 |
| Pension risk | 40 |
| Operational risk & resilience | 41 |
| Conduct and regulatory risk | 42 |
| Financial crime risk | 43 |
Shareholder information
As a financial services provider, managing risk is a core part of our day-to-day activities. To be able to manage our business effectively, it is critical that we understand and control risk in everything we do. We aim to use a prudent approach and advanced risk management techniques to help us deliver robust financial performance, withstand stresses, and build sustainable value for our stakeholders. We aim to keep a predictable medium-low risk profile, consistent with our business model. This is key to achieving our strategic objectives.
Our key risk types help us define the risks to which we are exposed. For definitions of our key risk types, see 'How we define risk' on page 37 of the 2022 Annual Report.
In H123, there were no significant changes to key risk types other than the Operational Risk & Resilience framework was re-named and expanded to become Non-Financial Risk (NFR) framework from July 2023. In addition, the Legal Risk framework will be formally subsumed into the NFR framework in H223, following the restructuring described in the 2022 Annual report.
Several of our risk types also have top and/or emerging risks associated with them. For more, see 'Top and emerging risks' on page 38 of the 2022 Annual Report.
In H123, there were no significant changes in our risk governance and our top and emerging risks, as described in the 2022 Annual Report, except as follows:
In H123, Inflationary and Supply Chain pressures remained a key focus, as the cost of living continues to impact our customers. In response to higher inflation, the Bank of England base rate was increased to 5% in June. There was a further rise of 25bps to 5.25% in August, with the potential for further rate rises in 2023. As a result, many mortgage customers face higher loan repayments. We agreed to support the UK Government's Mortgage Charter to provide more customer support measures. Whilst we did not see any significant deterioration in credit metrics, the challenging macroeconomic pressures are likely to impact later in 2023.
We continue to focus on Conduct and Regulatory risk matters, with significant regulatory engagement across a number of areas. These include cost of living related additional customer support measures, Consumer Duty implementation to ensure good customer outcomes, Regulatory Capital models, and Data Privacy. We are also expecting further reforms. These initiatives place increased capacity and resourcing demands on the business with a related material increase in costs, at a time when we are also implementing a complex change agenda, underpinning our strategic plans.
Our engagement in Financial crime risk management remains high. We continue to enhance our risk management capabilities across data and systems. We are focused on improving our operations and processes to respond to global sanctions regimes, and prepare for new legislation such as the Economic Crime & Corporate Transparency Bill, and good customer outcomes required by the FCA Consumer Duty.
Fraud risk losses remain a material driver of our operational risk loss position, in line with the wider UK financial services industry. In H123, as part of our Fraud Transformation programme, we introduced new fraud prevention tools to enhance our existing controls. We also play a collaborative role in fraud management with industry partners, through UK Finance and Stop Scams UK, alongside our customer awareness campaigns on common fraud scams.
The importance of IT remains at the centre of our activities, and we continue to progress a bank-wide programme to address key risks in our IT estate, including increasing obsolescence, partly due to the fast pace of technological evolution. We expect the programme to deliver risk reduction over a three year period and we closely monitor improvements through our risk governance framework.
We continue to rely extensively on third parties for a range of goods and services, provided by both Banco Santander and external suppliers. In H123, we reassessed our major suppliers against a revised set of controls and implemented new metrics to manage our risk exposure.
Climate Change risk remains of strategic importance, and we continue to enhance our data strategy, integrate relevant risks into our Risk Framework, formulate a risk appetite, and progress related initiatives. We are also assessing whether there are any reporting requirements for Santander UK from the new EU Corporate Sustainability Reporting Directive, and for the 2023 UK Green Finance Strategy.
Macroeconomic and geopolitical risks continue to evolve, with no clear signs of a resolution of the conflict in Ukraine, ongoing broader geopolitical tensions, and an evolving alliance between countries with large and emerging economies. These developments may increase inflationary and supply chain pressures, which impact the UK economy, the financial services industry, and increasing operational resilience risks via cyber attacks. In H123, we experienced no significant data or cyber security incidents, although we responded to a number of third-party incidents. We continue to enhance our threat prevention controls and test our business area recovery plans against a range of scenarios. We also saw another brief period of financial market volatility in H123, with the collapse of Silicon Valley Bank and acquisition of Credit Suisse. These events did not significantly impact our funding and liquidity risk profile.
We considered the likely impact of the recent UK Government announcement on account closures. We are working to ensure we comply with these proposed rules, and it is important to us that customers have access to banking services and they are treated fairly. For more, see 'Financial crime risk review'.
The UK government's continued interest in the banking industry is reflected in the recently published Mortgage Charter, along with an increased FCA focus on savings rates, which may materialise into pressure on retail deposit pricing in H223. The government has also announced action plans with a range of industry regulators to support consumers, as well as the potential for a Savings Charter. We responded to the Bank of England's proposals for a Digital Pound, both bilaterally through UK Finance and directly. We focused our direct response on the risks of deposit intermediation, increased cost of lending, loss of transactional data, and broader loss of ability to build customer relationships through the current account. We also suggested that the proposed holding limits are reduced.
Financial statements Shareholder information
Credit risk is the risk of loss due to the default or credit quality deterioration of a customer or counterparty to which we provided credit, or for which we assumed a financial obligation.
Credit risk management In H123, there were no significant changes in the way we manage credit risk as described in the 2022 Annual Report.
Credit risk review In this section, we analyse our key credit risk metrics.
Stage 3 ratio of 1.40% (2022: 1.26%).
Loss allowances of £1,017m (2022: £1,005m).
Balance weighted average LTV of 65% (2022: 69%) on new mortgage lending.
We manage credit risk across all our business segments in line with the credit risk lifecycle. We tailor the way we manage risk across the lifecycle to the type of customer. There have been no significant changes in the way we manage credit risk as described in the 2022 Annual Report.
We provide an update on the key changes to the inputs to our ECL model below.
The ECL approach estimates the credit losses arising from defaults in the next 12 months on qualifying exposures, or defaults over the lifetime of the exposure where there is evidence of a Significant Increase in Credit Risk (SICR) since the origination date. The ECL approach takes into account forward-looking data, including a range of possible outcomes, which should be unbiased and probability-weighted to reflect the risk of a loss being incurred even when it is unlikely.
For all our portfolios we use five forward-looking economic scenarios. At 30 June 2023, they consisted of a central base case, one upside scenario and three downside scenarios. We use five scenarios to reflect a wide range of possible outcomes for the UK economy.
In H123, there were no significant changes in our forecasting approach as described in the 2022 Annual Report.
We review the scenarios and associated weights every quarter to ensure they appropriately reflect the current economic circumstances, and UK Government policy which is subject to change in this fluid environment.
In summary, the outlook for the UK economy in 2023 remains challenging with little growth and stubbornly high inflation. The conflict in Ukraine continues with no sign of cessation at present, but commodity prices started to fall which should help to slow inflation and boost the UK's terms of trade. However, robust wage growth remains a risk to core inflation declining quickly towards target.
In the medium-term, the projections assume that current demographic and productivity trends will continue, causing a reduction in the UK's growth potential. For instance, it is likely that the reduction in the UK workforce continues and that this will have a knock-on impact for the economy, particularly if there are shortages of skilled workers in particular sectors. This is reflected in an average annual growth expectation of 1.6%, the OBR's latest estimate of the UK's long run average growth rate. CPI inflation is forecast to remain above the 2% target rate throughout the initial 5-year forecast period.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The economic outlook for 2023 remains uncertain. Inflation is forecast to remain well above the 2% target rate for 2023 putting further pressure on real disposable income.
For our base case, we no longer expect a short recession given that the economy has been more resilient than expected in H123. However, risks around this assumption remain as the full effects of higher interest rates have yet to be felt across the UK economy and as such we keep one quarter of negative growth in the forecast.
The key changes to our base case assumptions in H123 were: (i) the 2023 GDP growth forecast has been revised up in response to stronger growth momentum and more positive PMI data; (ii) the strength of core and services inflation (linked to robust wage growth) means headline CPI no longer drops below the 2% target over the forecast period; (iii) a steeper Bank Rate profile with rates now reaching a peak of 5.50% in Q323, with cuts starting in H224; and (iv) house prices are 7% lower by the end of 2023 with a further decline of 2% by the end of 2024, equivalent to a peak-to-trough fall of 11%.
Based on this revised base case, we have reviewed our suite of scenarios to ensure that they capture the wide range of potential outcomes for the UK economy. These include (i) reflecting persistent above target inflation over the forecast period; (ii) a slower recovery that is more akin to the 'U' shape of past recessions; (iii) labour market frictions due to skills mismatches and a shrinking workforce as some discouraged workers leave altogether (for example older UK-born workers retiring early and longer term sickness levels remaining above pre-pandemic levels); and (iv) the global economy recovering more swiftly from higher inflation.
To reflect these potential outcomes, we decided to continue to use the base case and four additional scenarios, which management considers provides a range wide enough to reflect all the above potential outcomes. However, as the risks remain skewed to the downside, to reflect these outcomes sufficiently, we concluded that only one upside scenario would be needed to reflect the upside risks to the base case. As with the base case, the scenarios are forecast over a fiveyear period and then mean revert over the next three years to the OBR's latest estimate of the UK's long run average growth rate.
The four other scenarios are:
This scenario has a quicker recovery than the Baseline although remains benign. It assumes that inflation falls back more swiftly than in the base case, with a swifter end to the Ukraine conflict which helps to reduce commodity prices further and with second round effects on core inflation feeding through quicker. This allows the Bank of England to cut rates, bringing them back to what is more likely to be the neutral rate, with households using some of the additional levels of saving accrued over the pandemic. This results in higher consumer and business confidence enabling higher levels of spending with savings rates returning to levels consistent with economic growth as real earnings growth returns. House prices fall marginally more than the base case, mainly due to the implied relationship between GDP and HPI used by the Oxford Global Economic Model (OGEM) compared to that used by management to construct the base case.
Downside 1 - This scenario is a bear case to the baseline. It assumes that there is a fall in economic growth and that there is a recession. In this scenario, excess savings are not used to support growth as consumer confidence remains extremely low, with households worried over the prospect of losing their job. House prices fall further than in the base case as more households look to downsize to lower mortgage repayments. With inflation remaining above target, Bank Rate continues to increase as core inflation remains above the baseline view before cuts start as inflation falls back.
Stubborn inflation - This scenario considers the effect on the UK economy of a persistent inflationary environment, where inflation remains above target for much of the forecast period. This persistent inflation is created by a combination of factors, including higher energy costs exacerbated by the conflict in Ukraine and curtailment of oil supply by OPEC countries; continuous wage rises resulting in a spiral effect pushed by increasing numbers of strikes; falling productivity; and continuing supply constraints pushing up input prices. This causes a peak to trough fall in GDP of c-3% and a much higher Bank Rate profile with a peak of 7% to combat persistently higher inflation. House prices fall c.20% which is similar to the Global Financial Crisis (GFC).
Downside 2 - This scenario is similar in severity to a typical stress test scenario. It shows a marked fall in GDP, with unemployment rising to levels consistent with the GFC and house prices falling by almost a third. The scenario also reflects ongoing strike action by various unions pushing for larger pay growth, along with dealing with potential blackouts and the possibility of curtailed working weeks to deal with the energy supply shortage over the winter months. It further assumes that the incidence of major risk events continue to occur exposing risks to countries' fiscal position and the means to respond to such events. For this scenario, an overlay to the unemployment rate was also made to the model output from the OGEM. This was to account for the possibility of a recession of similar magnitude to that of 2008/09 where the unemployment rate peaked at 8.5%.
The downside scenarios capture a range of risks, including continuing weaker investment reflecting the unstable environment; a larger negative impact from the EU trade deal and a continuing and significant mismatch between job vacancies and skills, as well as a smaller labour force.
In H123, there were no significant changes in our alternative scenarios as described in the 2022 Annual Report.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| Upside 1 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | ||
|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | ||
| GDP(1) | 2022 (actual) | 4.1 | 4.1 | 4.1 | 4.1 | 4.1 | 4.1 |
| 2023 | 0.3 | 0.1 | (0.2) | (0.5) | (1.6) | (0.2) | |
| 2024 | 1.1 | 0.3 | (0.4) | (1.9) | (3.2) | (0.5) | |
| 2025 | 2.3 | 1.3 | 0.4 | — | 0.1 | 0.9 | |
| 2026 | 2.4 | 1.5 | 0.3 | 0.4 | 1.1 | 1.2 | |
| Peak to trough(2) | — | (0.2) | (1.0) | (2.8) | (5.2) | (1.3) | |
| Bank Rate(1) | 2022 (actual) | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 |
| 2023 | 5.00 | 5.50 | 6.00 | 7.00 | 5.00 | 5.75 | |
| 2024 | 3.75 | 4.75 | 5.25 | 5.50 | 3.00 | 4.68 | |
| 2025 | 2.75 | 3.75 | 4.00 | 4.00 | 2.50 | 3.60 | |
| 2026 | 2.50 | 3.25 | 3.25 | 3.25 | 2.50 | 3.10 | |
| 5 yr Peak | 5.00 | 5.50 | 6.00 | 7.00 | 5.25 | 5.78 | |
| HPI(1) | 2022 (actual) | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 |
| 2023 | (3.6) | (7.0) | (5.8) | (7.5) | (11.8) | (7.1) | |
| 2024 | (4.4) | (2.0) | (7.6) | (10.2) | (12.9) | (5.5) | |
| 2025 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | |
| 2026 | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | |
| Peak to trough(2) | (10.2) | (11.0) | (15.0) | (19.0) | (25.0) | (14.3) | |
| Unemployment(1) | 2022 (actual) | 3.7 | 3.7 | 3.7 | 3.7 | 3.7 | 3.7 |
| 2023 | 4.2 | 4.2 | 4.5 | 4.5 | 6.6 | 4.5 | |
| 2024 | 4.2 | 4.5 | 5.0 | 5.7 | 8.3 | 5.1 | |
| 2025 | 3.9 | 4.4 | 5.4 | 6.1 | 7.7 | 5.1 | |
| 2026 | 3.8 | 4.3 | 5.9 | 6.5 | 7.1 | 5.1 | |
| 5 yr Peak | 4.3 | 4.5 | 6.1 | 6.5 | 8.5 | 5.4 |
(1) GDP is the calendar year annual growth rate, HPI is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
The table below sets out our macroeconomic assumptions for each of the five scenarios at 31 December 2022:
(2) GDP peak taken from GDP level at Q1-23 and HPI peak taken from HPI level at Q3-22.
| Upside 1 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | ||
|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | ||
| GDP(1) | 2021 (actual) | 7.5 | 7.5 | 7.5 | 7.5 | 7.5 | 7.5 |
| 2022 | 4.4 | 4.4 | 4.3 | 4.2 | 3.7 | 4.3 | |
| 2023 | (1.0) | (1.3) | (1.9) | (2.7) | (6.4) | (2.2) | |
| 2024 | 0.8 | 0.5 | (0.3) | (0.9) | (0.7) | — | |
| 2025 | 2.0 | 1.6 | 0.5 | 0.2 | 1.7 | 1.2 | |
| 2026 | 2.0 | 1.5 | 0.4 | 0.6 | 1.5 | 1.2 | |
| Bank Rate(1) | 2021 (actual) | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 |
| 2022 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | |
| 2023 | 3.75 | 4.00 | 3.50 | 6.00 | 3.75 | 4.29 | |
| 2024 | 3.00 | 3.25 | 2.75 | 5.50 | 3.00 | 3.59 | |
| 2025 | 2.50 | 2.75 | 2.50 | 3.50 | 2.75 | 2.85 | |
| 2026 | 2.25 | 2.50 | 2.25 | 3.00 | 2.50 | 2.55 | |
| HPI(1) | 2021 (actual) | 8.7 | 8.7 | 8.7 | 8.7 | 8.7 | 8.7 |
| 2022 | 7.6 | 7.0 | 7.6 | 7.6 | 7.6 | 7.3 | |
| 2023 | (8.8) | (10.0) | (10.0) | (10.9) | (15.8) | (10.7) | |
| 2024 | (4.3) | — | (6.7) | (8.8) | (14.3) | (4.4) | |
| 2025 | 0.6 | 2.0 | (3.1) | (4.9) | (4.1) | (0.8) | |
| 2026 | 4.1 | 3.0 | (0.2) | (0.6) | 4.7 | 2.0 | |
| Unemployment(1) | 2021 (actual) | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 |
| 2022 | 3.7 | 3.8 | 3.7 | 3.7 | 4.4 | 3.8 | |
| 2023 | 4.7 | 4.7 | 5.1 | 5.5 | 8.5 | 5.3 | |
| 2024 | 4.5 | 5.1 | 5.4 | 5.9 | 8.0 | 5.6 | |
| 2025 | 4.5 | 4.5 | 5.8 | 6.4 | 7.4 | 5.4 | |
| 2026 | 4.4 | 4.3 | 6.1 | 6.6 | 6.8 | 5.3 |
(1) GDP is the calendar year annual growth rate, HPI is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
Our macroeconomic assumptions and their evolution throughout the forecast period for 30 June 2023 and 31 December 2022 were:
| Upside 1 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | ||
|---|---|---|---|---|---|---|
| 30 June 2023 | % | % | % | % | % | |
| House price growth | 5-year average increase/decrease | 0.01 | (0.19) | (1.10) | (2.05) | (3.54) |
| Peak/(trough) at (1) | (10.16) | (11.04) | (15.02) | (19.02) | (25.02) | |
| GDP | 5-year average increase/decrease | 1.70 | 0.91 | 0.06 | (0.28) | (0.28) |
| Cumulative growth/(fall) to peak/(trough) (2) | 8.79 | 4.66 | 0.31 | (1.39) | (1.41) | |
| Unemployment rate | 5-year end period | 3.40 | 4.00 | 5.61 | 5.87 | 5.86 |
| Peak/(trough) at (1) | 4.32 | 4.50 | 6.09 | 6.52 | 8.50 | |
| Bank of England bank rate | 5-year end period | 2.50 | 3.00 | 3.00 | 3.00 | 2.50 |
| Peak/(trough) at (1) | 5.00 | 5.50 | 6.00 | 7.00 | 5.25 | |
| 31 December 2022 | % | % | % | % | % | |
| House price growth | 5-year average increase/decrease | (0.73) | (0.62) | (3.79) | (4.69) | (4.82) |
| Peak/(trough) at (1) | (12.79) | (11.19) | (19.00) | (23.12) | (30.69) | |
| GDP | 5-year average increase/decrease | 1.17 | 0.75 | (0.17) | (0.45) | (0.63) |
| Cumulative growth/(fall) to peak/(trough) (2) | 5.98 | 3.80 | (0.84) | (2.23) | (3.12) | |
| Unemployment rate | 5-year end period | 4.17 | 4.28 | 6.09 | 6.40 | 6.23 |
| Peak/(trough) at (1) | 4.72 | 5.10 | 6.12 | 6.64 | 8.50 | |
| Bank of England bank rate | 5-year end period | 2.25 | 2.50 | 2.25 | 3.00 | 2.50 |
| Peak/(trough) at (1) | 3.75 | 4.00 | 3.50 | 6.00 | 4.00 |
(1) For GDP and house price growth it is the peak to trough change within the 5-year period; for the unemployment rate it is the peak; and for Bank Rate it is the peak or trough.
(2) This is the cumulative growth for the 5-year period.
Each quarter, we undertake a full review of the scenario weights we apply. We consider the weighting of the economic scenarios as a whole, while ensuring that the scenarios capture the non-linear distribution of losses across a reasonable range. To support our initial assessment of the weighting of a scenario, we undertake a Monte Carlo analysis to ascertain the likelihood of a five-year average GDP forecast growth rate occurring based on the long run historically observed average. Creating a standard distribution bell curve around this long run average allows us to estimate the probability of a given GDP scenario occurring based on past experience and therefore assign a weight to that scenario. However, a key challenge with this approach in a stressed environment like the one seen in 2020 is that extreme GDP forecasts can occur.
The scenario weights we applied for 30 June 2023 and 31 December 2022 were:
| Upside 1 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | |
|---|---|---|---|---|---|---|
| Scenario weights | % | % | % | % | % | % |
| 30 June 2023 | 10 | 50 | 10 | 20 | 10 | 100 |
| 31 December 2022 | 5 | 50 | 15 | 20 | 10 | 100 |
We continue to use the entire historical GDP data set available for the Monte Carlo analysis to smooth out the large GDP data swings seen in the pandemic. For H123, all downside scenarios sit below the 10th percentile suggesting that a lower weight than the base case remains appropriate.
We also need to consider the UK economic and political environment when applying weights. Given the current cost of living crisis, we remain of the view that the risks to UK growth are still biased to the downside and include: a continuation of upside inflation surprises causing inflation to stay above target for longer, raising the cost of living and so reducing consumer demand: continuing weak investment reflecting the uncertain nature of the economic environment; a continuing and significant mismatch between vacancies and skills along with a smaller labour force, which may bring disruption to any recovery in the latter years of the forecast.
All other scenario weights were unchanged from 2022.
In H123, we increased the weight on the Upside scenario by 5% with a corresponding decrease in our Downside 1 to rebalance the overall weighted ECL and to reflect both the change in the fan chart parameters used to determine the Upside and Downside 1 scenarios and the fact that the economic growth outlook has improved slightly since the end of 2022.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
In H123, there were no significant changes to the scope of the JAs that we apply as described in the 2022 Annual Report.
| Homes | Everyday Banking | Consumer | Corporate | ||||
|---|---|---|---|---|---|---|---|
| Mortgages | Credit Cards | Other | Finance | CCB | Centre | Total | |
| 30 June 2023 | £m | £m | £m | £m | £m | £m | £m |
| Modelled ECL | 121 | 119 | 108 | 66 | 204 | — | 618 |
| Individually assessed | 4 | — | — | — | 136 | — | 140 |
| ECL before JAs | 125 | 119 | 108 | 66 | 340 | — | 758 |
| JAs (excluding Affordability and Cost of Living JAs) | |||||||
| Long-term indeterminate arrears | 14 | — | — | — | — | — | 14 |
| 12+ months in arrears | 16 | — | — | — | — | — | 16 |
| UPL loss floor | — | — | 12 | — | — | — | 12 |
| Model underestimation | 32 | 3 | — | — | — | — | 35 |
| Corporate single large exposure | — | — | — | — | 23 | — | 23 |
| Other | 17 | 1 | 6 | 3 | 3 | — | 30 |
| Total JAs (excluding Affordability and Cost of Living JAs) | 79 | 4 | 18 | 3 | 26 | — | 130 |
| Affordability and Cost of Living JAs | |||||||
| Corporate lending to segments affected by supply chain | — | — | — | — | 50 | — | 50 |
| Secured affordability | 21 | — | — | 4 | — | — | 25 |
| Unsecured affordability | — | 23 | 24 | — | — | — | 47 |
| SME debt burden | — | — | 7 | — | — | — | 7 |
| Total Affordability and Cost of Living JAs | 21 | 23 | 31 | 4 | 50 | — | 129 |
| Total JAs | 100 | 27 | 49 | 7 | 76 | — | 259 |
| Total ECL | 225 | 146 | 157 | 73 | 416 | — | 1,017 |
| Homes Everyday Banking |
Consumer | Corporate | |||||
|---|---|---|---|---|---|---|---|
| Mortgages | Credit Cards | Other | Finance | CCB | Centre | Total | |
| 31 December 2022 | £m | £m | £m | £m | £m | £m | £m |
| Modelled ECL | 133 | 112 | 93 | 65 | 194 | — | 597 |
| Individually assessed | — | — | — | — | 112 | — | 112 |
| ECL before JAs | 133 | 112 | 93 | 65 | 306 | — | 709 |
| JAs (excluding Affordability and Cost of Living JAs) | |||||||
| Long-term indeterminate arrears | 13 | — | — | — | — | — | 13 |
| 12+ months in arrears | 22 | — | — | — | — | — | 22 |
| UPL loss floor | — | — | 15 | — | — | — | 15 |
| Model underestimation | 36 | 2 | 19 | — | — | — | 57 |
| Corporate single large exposure | — | — | — | — | 23 | — | 23 |
| Other | 20 | 1 | 10 | 2 | 3 | — | 36 |
| Total JAs (excluding Affordability and Cost of Living JAs) | 91 | 3 | 44 | 2 | 26 | — | 166 |
| Affordability and Cost of Living JAs | |||||||
| Corporate lending to segments affected by supply chain | — | — | — | — | 61 | — | 61 |
| Mortgage affordability | 27 | — | — | — | — | — | 27 |
| Retail Unsecured Affordability | — | 15 | 20 | — | — | — | 35 |
| SME debt burden | — | — | 7 | — | — | — | 7 |
| Total Affordability and Cost of Living JAs | 27 | 15 | 27 | — | 61 | — | 130 |
| Total JAs | 118 | 18 | 71 | 2 | 87 | — | 296 |
| Total ECL | 251 | 130 | 164 | 67 | 393 | — | 1,005 |
JAs reduced from £296m to £259m. The proportion of JAs to total ECL decreased from 29% to 25%. The change in proportion was mainly due to the models reacting to the economic environment and thereby reducing the need for JAs.
In H123, we expanded the scope of the Mortgage Affordability JA to include Consumer Finance (previously included in Other) and renamed it as the Secured Affordability JA. We also renamed the Retail Unsecured Affordability JA as the Unsecured Affordability JA with no change in the scope.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The ECL allowance is sensitive to the methods, assumptions and estimates underlying its calculation. For example, management could have applied different probability weights to the economic scenarios. In addition, the ECL for residential mortgages is significantly affected by the HPI assumptions which determine the valuation of collateral used in the calculations. Had management used different assumptions on probability weights and HPI, a larger or smaller ECL charge would have resulted that could have had a material impact on the ECL allowance and profit before tax. We have incorporated JAs into the sensitivity analysis, and these assumptions are set out below.
The tables below show the ECL allowances that would have arisen had management applied a 100% weight to each economic scenario. The allowances were calculated using a stage allocation appropriate to each scenario and differs from the probability-weighted stage allocation used to determine the ECL allowance shown above. For exposures subject to individual assessment, the distribution of ECL which could reasonably be expected has also been considered, assuming no change in the number of cases subject to individual assessment, and within the context of a potential best to worst case outcome.
| Upside 1 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | |
|---|---|---|---|---|---|---|
| 30 June 2023 | £m | £m | £m | £m | £m | £m |
| Exposure | 300,730 | 300,730 | 300,730 | 300,730 | 300,730 | 300,730 |
| Retail Banking | 207,377 | 207,377 | 207,377 | 207,377 | 207,377 | 207,377 |
| – Homes - Mortgages | 186,443 | 186,443 | 186,443 | 186,443 | 186,443 | 186,443 |
| – EDB - Credit Cards | 12,988 | 12,988 | 12,988 | 12,988 | 12,988 | 12,988 |
| – EDB - Other | 7,946 | 7,946 | 7,946 | 7,946 | 7,946 | 7,946 |
| Consumer Finance | 5,784 | 5,784 | 5,784 | 5,784 | 5,784 | 5,784 |
| CCB | 27,536 | 27,536 | 27,536 | 27,536 | 27,536 | 27,536 |
| Corporate Centre | 60,033 | 60,033 | 60,033 | 60,033 | 60,033 | 60,033 |
| ECL | 902 | 942 | 1,032 | 1,137 | 1,329 | 1,017 |
| Retail Banking | 449 | 476 | 533 | 604 | 750 | 528 |
| – Homes - Mortgages | 168 | 185 | 222 | 278 | 420 | 225 |
| – EDB - Credit Cards | 138 | 141 | 150 | 155 | 155 | 146 |
| – EDB - Other | 143 | 150 | 161 | 171 | 175 | 157 |
| Consumer Finance | 71 | 72 | 71 | 75 | 75 | 73 |
| CCB | 382 | 394 | 428 | 458 | 504 | 416 |
| Corporate Centre | — | — | — | — | — | — |
| % | % | % | % | % | % | |
| Proportion of assets in Stage 2 | 4 | 4 | 5 | 6 | 9 | 6 |
| Retail Banking | 4 | 4 | 5 | 6 | 10 | 7 |
| – Homes - Mortgages | 4 | 4 | 5 | 6 | 10 | 7 |
| – EDB - Credit Cards | 3 | 3 | 3 | 3 | 3 | 3 |
| – EDB - Other | 8 | 8 | 9 | 9 | 9 | 9 |
| Consumer Finance | 6 | 6 | 6 | 6 | 6 | 6 |
| CCB | 12 | 13 | 14 | 18 | 22 | 12 |
| Corporate Centre | — | — | — | — | — | — |
| % | % | % | % | % | % | |
| Proportion of assets in Stage 3 | 1 | 1 | 1 | 1 | 1 | 1 |
| Retail Banking | 1 | 1 | 1 | 1 | 1 | 1 |
| – Homes - Mortgages | 1 | 1 | 1 | 1 | 1 | 1 |
| – EDB - Credit Cards | — | — | — | — | — | — |
| – EDB - Other | 2 | 2 | 2 | 2 | 2 | 2 |
| Consumer Finance | — | — | — | — | — | — |
| CCB | 2 | 2 | 2 | 2 | 2 | 2 |
| Corporate Centre | — | — | — | — | — | — |
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|||
|---|---|---|---|---|---|---|---|---|
| Upside 1 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | |||
| 31 December 2022 | £m | £m | £m | £m | £m | £m | ||
| Exposure | 306,284 | 306,284 | 306,284 | 306,284 | 306,284 | 306,284 | ||
| Retail Banking | 213,557 | 213,557 | 213,557 | 213,557 | 213,557 | 213,557 | ||
| – Homes - Mortgages | 192,346 | 192,346 | 192,346 | 192,346 | 192,346 | 192,346 | ||
| – EDB - Credit Cards | 12,845 | 12,845 | 12,845 | 12,845 | 12,845 | 12,845 | ||
| – EDB - Other | 8,366 | 8,366 | 8,366 | 8,366 | 8,366 | 8,366 | ||
| Consumer Finance | 5,740 | 5,740 | 5,740 | 5,740 | 5,740 | 5,740 | ||
| CCB | 28,277 | 28,277 | 28,277 | 28,277 | 28,277 | 28,277 | ||
| Corporate Centre | 58,710 | 58,710 | 58,710 | 58,710 | 58,710 | 58,710 | ||
| ECL | 930 | 932 | 993 | 1,149 | 1,383 | 1,005 | ||
| Retail Banking | 489 | 497 | 529 | 647 | 830 | 544 | ||
| – Homes - Mortgages | 214 | 218 | 244 | 324 | 501 | 251 | ||
| – EDB - Credit Cards | 122 | 123 | 127 | 140 | 142 | 130 | ||
| – EDB - Other | 153 | 156 | 158 | 183 | 187 | 163 | ||
| Consumer Finance | 65 | 66 | 65 | 68 | 69 | 67 | ||
| CCB | 376 | 369 | 399 | 434 | 484 | 394 | ||
| Corporate Centre | — | — | — | — | — | — | ||
| % | % | % | % | % | % | |||
| Proportion of assets in Stage 2 | 4 | 4 | 5 | 7 | 11 | 7 | ||
| Retail Banking | 4 | 4 | 4 | 6 | 10 | 7 | ||
| – Homes - Mortgages | 4 | 4 | 4 | 6 | 11 | 7 | ||
| – EDB - Credit Cards | 3 | 3 | 3 | 3 | 3 | 3 | ||
| – EDB - Other | 7 | 7 | 7 | 8 | 9 | 8 | ||
| Consumer Finance | 6 | 6 | 6 | 6 | 6 | 6 | ||
| CCB | 8 | 9 | 9 | 14 | 18 | 12 | ||
| Corporate Centre | — | — | — | — | — | — | ||
| % | % | % | % | % | % | |||
| Proportion of assets in Stage 3 | 1 | 1 | 1 | 1 | 1 | 1 | ||
| Retail Banking | 1 | 1 | 1 | 1 | 1 | 1 | ||
| – Homes - Mortgages | 1 | 1 | 1 | 1 | 1 | 1 | ||
| – EDB - Credit Cards | 0 | 0 | 0 | 0 | 0 | 0 | ||
| – EDB - Other | 2 | 2 | 2 | 2 | 2 | 2 | ||
| Consumer Finance | 1 | 1 | 1 | 1 | 1 | 1 | ||
| CCB | 2 | 2 | 2 | 2 | 2 | 2 |
Corporate Centre — — — — — —
Financial statements Shareholder information
SANTANDER UK GROUP LEVEL – CREDIT RISK REVIEW
The tables below show the credit rating of our financial assets to which the impairment requirements in IFRS 9 apply. JAs are incorporated in the balances. For more on the credit rating profiles of key portfolios, see the credit risk review section for each business segment.
The Santander UK risk grade consists of eight grades for non-defaulted exposures ranging from 9 (lowest risk) to 2 (highest risk). For details, including the approximate equivalent credit rating grade used by Standard & Poor's Rating Services, see 'Single credit rating scale' in the 'Santander UK group level - credit risk review' section of the Risk review in the 2022 Annual Report.
| Santander UK risk grade | Loss | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1) | allowance | Total | |
| 30 June 2023 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Exposures - On balance sheet | ||||||||||
| Financial assets at amortised cost: | ||||||||||
| – Loans and advances to customers(2) | 2.6 | 33.6 | 86.4 | 52.8 | 15.2 | 8.6 | 5.5 | 7.3 | (0.9) | 211.1 |
| – Stage 1 | 2.6 | 33.4 | 84.7 | 48.5 | 11.0 | 3.1 | 0.3 | 7.1 | (0.1) | 190.6 |
| – Stage 2 | — | 0.2 | 1.7 | 4.3 | 4.1 | 5.4 | 2.6 | 0.1 | (0.5) | 17.9 |
| – Stage 3 | — | — | — | — | 0.1 | 0.1 | 2.6 | 0.1 | (0.3) | 2.6 |
| Of which mortgages: | 2.5 | 31.3 | 82.8 | 45.3 | 7.1 | 3.8 | 3.3 | — | (0.2) | 175.9 |
| – Stage 1 | 2.5 | 31.1 | 81.1 | 41.3 | 4.0 | 0.4 | 0.1 | — | — | 160.5 |
| – Stage 2 | — | 0.2 | 1.7 | 4.0 | 3.1 | 3.3 | 1.4 | — | (0.1) | 13.6 |
| – Stage 3 | — | — | — | — | — | 0.1 | 1.8 | — | (0.1) | 1.8 |
| ECL - On balance sheet | ||||||||||
| Financial assets at amortised cost: | ||||||||||
| – Loans and advances to customers(2) | — | — | — | 0.1 | 0.1 | 0.2 | 0.5 | — | 0.9 | |
| – Stage 1 | — | — | — | 0.1 | — | — | — | — | 0.1 | |
| – Stage 2 | — | — | — | — | 0.1 | 0.2 | 0.2 | — | 0.5 | |
| – Stage 3 | — | — | — | — | — | — | 0.3 | — | 0.3 | |
| Of which mortgages: | — | — | — | — | — | 0.1 | 0.1 | — | 0.2 | |
| – Stage 1 | — | — | — | — | — | — | — | — | — | |
| – Stage 2 | — | — | — | — | — | 0.1 | — | — | 0.1 | |
| – Stage 3 | — | — | — | — | — | — | 0.1 | — | 0.1 | |
| Santander UK risk grade | Total | |||||||||
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1) | |||
| 30 June 2023 | % | % | % | % | % | % | % | % | % | |
| Coverage ratio - On balance sheet | ||||||||||
| Financial assets at amortised cost: | ||||||||||
| – Loans and advances to customers(2) | — | — | — | 0.2 | 0.7 | 2.3 | 9.1 | — | 0.4 | |
| – Stage 1 | — | — | — | 0.2 | — | — | — | — | 0.1 | |
| – Stage 2 | — | — | — | — | 2.4 | 3.7 | 7.7 | — | 2.8 | |
| – Stage 3 | — | — | — | — | — | — | 11.5 | — | 11.5 | |
| Of which mortgages: | — | — | — | — | — | 2.6 | 3.0 | — | 0.1 |
– Stage 1 — — — — — — — — — – Stage 2 — — — — — 3.0 — — 0.7 – Stage 3 — — — — — — 5.6 — 5.6
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Santander UK risk grade | Loss | ||||||||||
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | (1) Other |
allowance | Total | ||
| 31 December 2022 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | |
| Exposures - On balance sheet | |||||||||||
| Financial assets at amortised cost: | |||||||||||
| – Loans and advances to customers⁽²⁾ | 9.5 | 35.9 | 85.6 | 52.1 | 15.2 | 9.2 | 5.4 | 7.7 | (0.9) | 219.7 | |
| – Stage 1 | 9.5 | 35.6 | 83.9 | 47.9 | 11.1 | 3.9 | 0.5 | 7.3 | (0.1) | 199.6 | |
| – Stage 2 | — | 0.3 | 1.7 | 4.2 | 4.1 | 5.2 | 2.6 | 0.2 | (0.5) | 17.8 | |
| – Stage 3 | — | — | — | — | — | 0.1 | 2.3 | 0.2 | (0.3) | 2.3 | |
| Of which mortgages: | 9.5 | 33.4 | 82.3 | 45.0 | 7.2 | 3.8 | 3.1 | — | (0.2) | 184.1 | |
| – Stage 1 | 9.5 | 33.1 | 80.7 | 41.1 | 4.1 | 0.5 | 0.1 | — | — | 169.1 | |
| – Stage 2 | — | 0.3 | 1.6 | 3.9 | 3.1 | 3.2 | 1.3 | — | (0.1) | 13.3 | |
| – Stage 3 | — | — | — | — | — | 0.1 | 1.7 | — | (0.1) | 1.7 | |
| ECL - On balance sheet | |||||||||||
| Financial assets at amortised cost: | |||||||||||
| – Loans and advances to customers⁽²⁾ | — | — | — | — | 0.2 | 0.2 | 0.5 | — | 0.9 | ||
| – Stage 1 | — | — | — | — | 0.1 | — | — | — | 0.1 | ||
| – Stage 2 | — | — | — | — | 0.1 | 0.2 | 0.2 | — | 0.5 | ||
| – Stage 3 | — | — | — | — | — | — | 0.3 | — | 0.3 | ||
| Of which mortgages: | — | — | — | — | 0.1 | 0.1 | — | — | 0.2 | ||
| – Stage 1 | — | — | — | — | — | — | — | — | — | ||
| – Stage 2 | — | — | — | — | 0.1 | — | — | — | 0.1 | ||
| – Stage 3 | — | — | — | — | — | 0.1 | — | — | 0.1 | ||
| 31 December 2022 | % | % | % | % | % | % | % | % | % | ||
| Coverage ratio - On balance sheet | |||||||||||
| Financial assets at amortised cost: | |||||||||||
| – Loans and advances to customers⁽²⁾ | — | — | — | — | 1.3 | 2.2 | 9.3 | — | 0.4 | ||
| – Stage 1 | — | — | — | — | 0.9 | — | — | — | 0.1 | ||
| – Stage 2 | — | — | — | — | 2.4 | 3.8 | 7.7 | — | 2.8 | ||
| – Stage 3 | — | — | — | — | — | — | 13.0 | — | 13.0 | ||
| Of which mortgages: | — | — | — | — | 1.4 | 2.6 | — | — | 0.1 | ||
| – Stage 1 | — | — | — | — | — | — | — | — | — | ||
| – Stage 2 | — | — | — | — | 3.2 | — | — | — | 0.8 | ||
| – Stage 3 | — | — | — | — | — | 100.0 | — | — | 5.9 |
(1) Includes Joint Ventures and BBLs balances. We use scorecards for these items, rather than rating models.
(2) Includes interest we have charged to the customer's account and accrued interest we have not charged to the account yet.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| Customer Loans | 6 month | Loan Loss | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Total | Stage 1 | Stage 2 | Stage 3(3) | Gross write-offs |
Allowances | ||||
| 30 June 2023 | £bn | £bn | % | £bn | % | £bn | % | £m | £m |
| Retail Banking | 183.3 | 166.5 | 90.8 | 14.7 | 8.0 | 2.1 | 1.20 | 70 | 488 |
| – Homes - Mortgages | 176.1 | 160.5 | 91.2 | 13.7 | 7.8 | 1.9 | 1.11 | 6 | 222 |
| – EDB - Credit Cards | 2.6 | 2.2 | 84.6 | 0.4 | 14.0 | — | 2.48 | 23 | 134 |
| – EDB - Other(1) | 4.6 | 3.8 | 81.0 | 0.6 | 15.1 | 0.2 | 3.98 | 41 | 132 |
| Consumer Finance(2) | 5.3 | 4.9 | 92.7 | 0.4 | 6.8 | — | 0.49 | 11 | 73 |
| CCB | 18.4 | 14.3 | 77.9 | 3.4 | 18.6 | 0.7 | 3.66 | 16 | 379 |
| Corporate Centre | — | — | — | — | — | — | — | — | — |
| Total Drawn | 207.0 | 185.7 | 89.7 | 18.5 | 8.9 | 2.8 | 1.40 | 97 | 940 |
| Retail Banking | 24.1 | 23.5 | — | 0.5 | — | 0.1 | — | — | 40 |
| – Homes - Mortgages | 10.4 | 10.2 | — | 0.1 | — | 0.1 | — | — | 3 |
| – EDB - Credit Cards | 10.4 | 10.2 | — | 0.2 | — | — | — | — | 12 |
| – EDB - Other(1) | 3.3 | 3.1 | — | 0.2 | — | — | — | — | 25 |
| Consumer Finance(2) | 0.5 | 0.5 | — | — | — | — | — | — | — |
| CCB | 9.1 | 8.6 | — | 0.5 | — | — | — | — | 37 |
| Corporate Centre | — | — | — | — | — | — | — | — | — |
| Total Undrawn | 33.7 | 32.6 | — | 1.0 | — | 0.1 | — | — | 77 |
| Total | 240.7 | 218.3 | — | 19.5 | — | 2.9 | — | 97 | 1,017 |
| Customer Loans | 12 month | Loan Loss | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Total | Stage 1 | Stage 2 | Stage 3(3) | Gross write offs |
Allowances | ||||
| 31 December 2022 | £bn | £bn | % | £bn | % | £bn | % | £m | £m |
| Retail Banking | 191.8 | 175.4 | 91.4 | 14.4 | 7.5 | 2.0 | 1.10 | 113 | 502 |
| – Homes - Mortgages | 184.3 | 169.1 | 91.7 | 13.4 | 7.3 | 1.8 | 1.00 | 3 | 248 |
| – EDB - Credit Cards | 2.5 | 2.1 | 85.7 | 0.3 | 12.9 | 0.1 | 2.53 | 40 | 120 |
| – EDB - Other (1) | 5.0 | 4.2 | 82.8 | 0.7 | 13.0 | 0.1 | 4.30 | 70 | 134 |
| Consumer Finance(2) | 5.4 | 5.0 | 93.0 | 0.4 | 6.5 | — | 0.54 | 19 | 67 |
| CCB | 18.5 | 14.5 | 78.3 | 3.5 | 18.8 | 0.5 | 3.08 | 24 | 362 |
| Corporate Centre | — | — | — | — | — | — | — | — | — |
| Total Drawn | 215.7 | 194.9 | 90.4 | 18.3 | 8.5 | 2.5 | 1.26 | 156 | 931 |
| Retail Banking | 21.7 | 21.1 | — | 0.5 | — | 0.1 | — | — | 42 |
| – Homes - Mortgages | 8.0 | 7.9 | — | 0.1 | — | — | — | — | 3 |
| – EDB - Credit Cards | 10.2 | 10.1 | — | 0.1 | — | — | — | — | 10 |
| – EDB - Other (1) | 3.5 | 3.1 | — | 0.3 | — | 0.1 | — | — | 29 |
| Consumer Finance(2) | 0.4 | 0.4 | — | — | — | — | — | — | — |
| CCB | 9.7 | 9.3 | — | 0.4 | — | — | — | — | 32 |
| Corporate Centre | — | — | — | — | — | — | — | — | — |
| Total Undrawn | 31.8 | 30.8 | — | 0.9 | — | 0.1 | — | — | 74 |
| Total | 247.5 | 225.7 | — | 19.2 | — | 2.6 | — | 156 | 1,005 |
(1) EDB - Other includes £2.2bn of BBLS lending (£2.0bn is BBLS with 100% Government Guarantee), £2.0bn unsecured personal loans and £0.4bn overdrafts.
(2) Consumer Finance - 87% (H122: 84%) of lending is collateralised on the vehicle.
(3) Stage 3 ratio is the sum of Stage 3 drawn and Stage 3 undrawn assets divided by the sum of total drawn assets and Stage 3 undrawn assets.
| 30 June 2023 | 31 December 2022 | ||
|---|---|---|---|
| Arrears over 90 days past due | % | % | |
| Mortgages | 0.69 | 0.62 | |
| Credit Cards | 0.48 | 0.49 | |
| UPL | 0.64 | 0.61 | |
| Overdrafts | 2.26 | 2.24 | |
| Business Banking | 2.81 | 3.47 | |
| Consumer Finance | 0.38 | 0.44 |
In H123, there was a slight increase in arrears over 90 days past due in mortgages, UPL and overdrafts. Mortgage arrears remain well below their pre-Covid-19 average: mortgage arrears were 1.31% calculated as the average of the nine years ended 31 December 2019.
For more on the credit performance of our key portfolios by business segment, see the credit risk review section for each business segment.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
Total on-balance sheet exposures at 30 June 2023 comprised £207.0bn of customer loans, loans and advances to banks of £1.2bn, £12.1bn of sovereign assets measured at amortised cost £7.1bn of assets measured at FVOCI, and £39.6bn of cash and balances at central banks.
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| 30 June 2023 | £m | £m | £m | £m |
| Exposures | ||||
| On-balance sheet | ||||
| Retail Banking | 166,446 | 14,712 | 2,143 | 183,301 |
| – Homes - Mortgages | 160,507 | 13,650 | 1,929 | 176,086 |
| – EDB - Credit Cards | 2,230 | 369 | 38 | 2,637 |
| – EDB - Other | 3,709 | 693 | 176 | 4,578 |
| Consumer Finance | 4,933 | 360 | 26 | 5,319 |
| CCB | 14,312 | 3,424 | 631 | 18,367 |
| Corporate Centre | 60,033 | — | — | 60,033 |
| Total on-balance sheet | 245,724 | 18,496 | 2,800 | 267,020 |
| Off-balance sheet | ||||
| Retail Banking(1) | 23,502 | 519 | 55 | 24,076 |
| – Homes - Mortgages(1) | 10,215 | 121 | 21 | 10,357 |
| – EDB - Credit Cards | 10,172 | 151 | 28 | 10,351 |
| – EDB - Other | 3,115 | 247 | 6 | 3,368 |
| Consumer Finance | 465 | — | — | 465 |
| CCB | 8,663 | 463 | 43 | 9,169 |
| Corporate Centre Total off-balance sheet(2) |
— | — | — | — |
| 32,630 | 982 | 98 | 33,710 | |
| Total exposures | 278,354 | 19,478 | 2,898 | 300,730 |
| ECL | ||||
| On-balance sheet | ||||
| Retail Banking | 51 | 278 | 159 | 488 |
| – Homes - Mortgages | 20 | 101 | 101 | 222 |
| – EDB - Credit Cards | 15 | 97 | 22 | 134 |
| – EDB - Other | 16 | 80 | 36 | 132 |
| Consumer Finance CCB |
25 67 |
30 144 |
18 168 |
73 379 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 143 | 452 | 345 | 940 |
| Off-balance sheet | ||||
| Retail Banking | 11 | 27 | 2 | 40 |
| – Homes - Mortgages | 1 | 2 | — | 3 |
| – EDB - Credit Cards | 4 | 7 | 1 | 12 |
| – EDB - Other | 6 | 18 | 1 | 25 |
| Consumer Finance | — | — | — | — |
| CCB | 12 | 13 | 12 | 37 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet | 23 | 40 | 14 | 77 |
| Total ECL | 166 | 492 | 359 | 1,017 |
| Coverage ratio(3) | % | % | % | % |
| On-balance sheet | ||||
| Retail Banking | — | 1.9 | 7.4 | 0.3 |
| – Homes - Mortgages | — | 0.7 | 5.2 | 0.1 |
| – EDB - Credit Cards | 0.7 | 26.3 | 57.9 | 5.1 |
| – EDB - Other | 0.4 | 11.5 | 20.5 | 2.9 |
| Consumer Finance | 0.5 | 8.3 | 69.2 | 1.4 |
| CCB | 0.5 | 4.2 | 26.6 | 2.1 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 0.1 | 2.4 | 12.3 | 0.4 |
| Off-balance sheet | ||||
| Retail Banking | — | 5.2 | 3.6 | 0.2 |
| – Homes - Mortgages | — | 1.7 | — | — |
| – EDB - Credit Cards | — | 4.6 | 3.6 | 0.1 |
| – EDB - Other | 0.2 | 7.3 | 16.7 | 0.7 |
| Consumer Finance | — | — | — | — |
| CCB | 0.1 | 2.8 | 27.9 | 0.4 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet | 0.1 | 4.1 | 14.3 | 0.2 |
| Total coverage | 0.1 | 2.5 | 12.4 | 0.3 |
(1) Off-balance sheet exposures include£5.2bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 23.
(3) ECL as a percentage of the related exposure.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
Total on-balance sheet exposures at 31 December 2022 comprised £215.7bn of customer loans, loans and advances to banks of £1.0bn, £7.5bn of sovereign assets measured at amortised cost, £6.0bn of assets measured at FVOCI, and £44.2bn of cash and balances at central banks.
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| 31 December 2022 | £m | £m | £m | £m |
| Exposures | ||||
| On-balance sheet | ||||
| Retail Banking | 175,365 | 14,399 | 2,072 | 191,836 |
| – Homes - Mortgages | 169,066 | 13,424 | 1,827 | 184,317 |
| – EDB - Credit Cards | 2,192 | 328 | 37 | 2,557 |
| – EDB - Other | 4,107 | 647 | 208 | 4,962 |
| Consumer Finance | 5,005 | 350 | 29 | 5,384 |
| CCB | 14,507 | 3,476 | 535 | 18,518 |
| Corporate Centre | 58,710 | — | — | 58,710 |
| Total on-balance sheet | 253,587 | 18,225 | 2,636 | 274,448 |
| Off-balance sheet | ||||
| Retail Banking(1) | ||||
| – Homes - Mortgages(1) | 21,175 | 490 | 56 | 21,721 |
| 7,899 | 109 | 21 | 8,029 | |
| – EDB - Credit Cards | 10,137 | 122 | 29 | 10,288 |
| – EDB - Other | 3,139 | 259 | 6 | 3,404 |
| Consumer Finance | 356 | — | — | 356 |
| CCB | 9,310 | 412 | 37 | 9,759 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet(2) | 30,841 | 902 | 93 | 31,836 |
| Total exposures | 284,428 | 19,127 | 2,729 | 306,284 |
| ECL | ||||
| On-balance sheet | ||||
| Retail Banking | 56 | 295 | 151 | 502 |
| – Homes - Mortgages | 23 | 130 | 95 | 248 |
| – EDB - Credit Cards | 14 | 85 | 21 | 120 |
| – EDB - Other | 19 | 80 | 35 | 134 |
| Consumer Finance | 19 | 27 | 21 | 67 |
| CCB | 69 | 155 | 138 | 362 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 144 | 477 | 310 | 931 |
| Off-balance sheet | ||||
| Retail Banking | 12 | 28 | 2 | 42 |
| – Homes - Mortgages | 2 | 1 | — | 3 |
| – EDB - Credit Cards | 3 | 6 | 1 | 10 |
| – EDB - Other | 7 | 21 | 1 | 29 |
| Consumer Finance | — | — | — | — |
| CCB | 14 | 11 | 7 | 32 |
| Total off-balance sheet | 26 | 39 | 9 | 74 |
| Total ECL | 170 | 516 | 319 | 1,005 |
| Coverage ratio(3) | % | % | % | % |
| On-balance sheet | ||||
| Retail Banking | — | 2.0 | 7.3 | 0.3 |
| – Homes - Mortgages | — | 1.0 | 5.2 | 0.1 |
| – EDB - Credit Cards | 0.6 | 25.9 | 56.8 | 4.7 |
| – EDB - Other | 0.5 | 12.4 | 16.8 | 2.7 |
| Consumer Finance | 0.4 | 7.7 | 72.4 | 1.2 |
| CCB | 0.5 | 4.5 | 25.8 | 2.0 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 0.1 | 2.6 | 11.8 | 0.3 |
| Off-balance sheet | ||||
| Retail Banking | 0.1 | 5.7 | 3.6 | 0.2 |
| – Homes - Mortgages | — | 0.9 | — | — |
| – EDB - Credit Cards | — | 4.9 | 3.4 | 0.1 |
| – EDB - Other | 0.2 | 8.1 | 16.7 | 0.9 |
| Consumer Finance | — | — | — | — |
| CCB | 0.2 | 2.7 | 18.9 | 0.3 |
| Total off-balance sheet | 0.1 | 4.3 | 9.7 | 0.2 |
| Total coverage | 0.1 | 2.7 | 11.7 | 0.3 |
(1) Off-balance sheet exposures include £2.8bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 23.
(3) ECL as a percentage of the related exposure.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The ECL provision at 30 June 2023 increased by £12m to £1,017m (2022: £1,005m) primarily due to a modest increase of £24m in CCB from the single name cases that emerged in Q422 and a release of £13m driven by the improved economic updates.
Gross write-off utilisation of £97m (30 June 2022: £71m).
Key movements in exposures and ECL in H123 by Stage were:
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
The following table analyses our Stage 2 exposures and ECL by the reason the exposure is classified as Stage 2.
| 30 June 2023 | PD | deterioration Forbearance(1) | Other | 30 DPD | Secured affordability |
Unsecured affordability |
High risk corporate |
Total | |
|---|---|---|---|---|---|---|---|---|---|
| Retail Banking Homes - | Exposure £m | 7,259 | 494 | 242 | 563 | 5,092 | — | — | 13,650 |
| Mortgages | ECL £m | 64 | 2 | 4 | 10 | 21 | — | — | 101 |
| Coverage % | 0.9 | 0.4 | 1.7 | 1.9 | 0.4 | — | — | 0.7 | |
| Retail Banking EDB - | Exposure £m | 248 | — | 25 | 8 | — | 88 | — | 369 |
| Credit Cards | ECL £m | 64 | — | 7 | 4 | — | 22 | — | 97 |
| Coverage % | 26.2 | 33.0 | 27.2 | 47.3 | — | 24.8 | — | 26.3 | |
| Retail Banking EDB - | Exposure £m | 311 | — | 25 | 169 | — | 188 | — | 693 |
| Other | ECL £m | 33 | — | 7 | 17 | — | 23 | — | 80 |
| Coverage % | 10.6 | — | 27.9 | 9.8 | — | 12.1 | — | 11.5 | |
| Consumer Finance | Exposure £m | 148 | — | 161 | 23 | 28 | — | — | 360 |
| ECL £m | 12 | — | 6 | 10 | 2 | — | — | 30 | |
| Coverage % | 8.0 | — | 3.8 | 43.4 | 7.1 | — | — | 8.3 | |
| CCB | Exposure £m | 1,892 | 70 | 508 | 120 | — | — | 834 | 3,424 |
| ECL £m | 76 | 2 | 17 | 3 | — | — | 46 | 144 | |
| Coverage % | 4.0 | 2.8 | 3.4 | 2.3 | — | — | 5.5 | 4.2 | |
| Corporate Centre | Exposure £m | — | — | — | — | — | — | — | — |
| ECL £m | — | — | — | — | — | — | — | — | |
| Coverage % | — | — | — | — | — | — | — | — | |
| Total Drawn | Exposure £m | 9,858 | 564 | 961 | 883 | 5,120 | 276 | 834 | 18,496 |
| ECL £m | 249 | 4 | 41 | 44 | 23 | 45 | 46 | 452 | |
| Coverage % | 2.5 | 0.7 | 4.3 | 5.0 | 0.4 | 16.1 | 5.5 | 2.4 | |
| Undrawn | ECL £m | 25 | — | 5 | 2 | — | 4 | 4 | 40 |
| Total Reported | Exposure £m | 10,725 | 564 | 1,055 | 932 | 5,092 | 276 | 834 | 19,478 |
| ECL £m | 274 | 4 | 46 | 46 | 23 | 49 | 50 | 492 |
| 31 December 2022 | PD deterioration |
Forbearance(1) | Other | 30 DPD | Mortgage affordability |
Retail unsecured affordability |
High risk corporate |
Total | |
|---|---|---|---|---|---|---|---|---|---|
| Retail Banking Homes - | Exposure £m | 7,310 | 449 | 241 | 463 | 4,961 | — | — | 13,424 |
| Mortgages | ECL £m | 86 | 2 | 5 | 10 | 27 | — | — | 130 |
| Coverage % | 1.2 | 0.4 | 2.1 | 2.2 | 0.5 | — | — | 1.0 | |
| Retail Banking EDB - | Exposure £m | 239 | — | 22 | 8 | — | 59 | — | 328 |
| Credit Cards | ECL £m | 63 | — | 4 | 4 | — | 14 | — | 85 |
| Coverage % | 26.4 | — | 18.2 | 50.0 | — | 23.7 | — | 25.9 | |
| Retail Banking EDB - | Exposure £m | 304 | — | 26 | 178 | — | 139 | — | 647 |
| Other | ECL £m | 43 | — | 6 | 14 | — | 17 | — | 80 |
| Coverage % | 14.1 | — | 23.1 | 7.9 | — | 12.2 | — | 12.4 | |
| Consumer Finance | Exposure £m | 159 | — | 164 | 27 | — | — | — | 350 |
| ECL £m | 11 | — | 6 | 10 | — | — | — | 27 | |
| Coverage % | 6.9 | — | 3.7 | 37.0 | — | — | — | 7.7 | |
| CCB | Exposure £m | 1,548 | 64 | 684 | 214 | — | — | 966 | 3,476 |
| ECL £m | 81 | 4 | 1 | 10 | — | — | 59 | 155 | |
| Coverage % | 5.2 | 6.3 | 0.1 | 4.7 | — | — | 6.1 | 4.5 | |
| Corporate Centre | Exposure £m | — | — | — | — | — | — | — | — |
| ECL £m | — | — | — | — | — | — | — | — | |
| Coverage % | — | — | — | — | — | — | — | — | |
| Total Drawn | Exposure £m | 9,560 | 513 | 1,137 | 890 | 4,961 | 198 | 966 | 18,225 |
| ECL £m | 284 | 6 | 22 | 48 | 27 | 31 | 59 | 477 | |
| Coverage % | 3.0 | 1.2 | 1.9 | 5.4 | 0.5 | 15.7 | 6.1 | 2.6 | |
| Undrawn | ECL £m | 19 | — | 8 | 6 | — | 4 | 2 | 39 |
| Total Reported | Exposure £m | 10,323 | 625 | 1,116 | 937 | 4,961 | 199 | 966 | 19,127 |
| ECL £m | 303 | 6 | 30 | 54 | 27 | 35 | 61 | 516 |
(1) Where the values of ECL and/or exposures are not nil, but round to nil when presented in £millions, the coverage ratio is still presented in the table.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
Where balances satisfy more than one of the criteria above for determining a SICR, we have assigned the corresponding gross carrying amount and ECL in order of the categories presented.
The following table analyses our Stage 2 exposures and the related ECL by whether or not they are in a cure period at the balance sheet date:
| 30 June 2023 | 31 December 2022 | |||||
|---|---|---|---|---|---|---|
| Exposure ECL |
Coverage | Exposure | ECL | Coverage | ||
| £m | £m | % | £m | £m | % | |
| Stage 2 not in cure period | 13,123 | 407 | 3.1 | 13,001 | 439 | 3.4 |
| Stage 2 in cure period (for transfer to Stage 1) | 6,355 | 85 | 1.3 | 6,126 | 77 | 1.3 |
| 19,478 | 492 | 2.5 | 19,127 | 516 | 2.7 |
The accounts in a cure period at 30 June 2023 increased slightly reflecting increases in the number of accounts in scope for the Secured and Unsecured affordability JAs.
The following table analyses our Stage 3 exposures and the related ECL by whether or not they are in a cure period at the balance sheet date.
| 30 June 2023 | 31 December 2022 | |||||
|---|---|---|---|---|---|---|
| Exposure ECL |
Coverage | Exposure | ECL | Coverage | ||
| £m | £m | % | £m | £m | % | |
| Stage 3 not in cure period | 2,543 | 317 | 12.5 | 2,415 | 285 | 11.8 |
| Stage 3 in cure period (for transfer to Stage 2) | 355 | 42 | 11.8 | 314 | 34 | 10.8 |
| 2,898 | 359 | 12.4 | 2,729 | 319 | 11.7 |
Stage 3 exposures, both in a cure period and those not in a cure period, increased at similar rates in the period reflecting the impact of the current economic environment in mortgages and CCB. The proportion in a cure period remained low compared to Stage 2.
There were no changes in criteria for accounts in a cure period as described in the 2022 Annual Report.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The table below shows the relationships between disclosures in this Credit risk review section which refer to drawn exposures and the associated ECL, and the total assets as presented in the Consolidated Balance Sheet. The Credit risk review disclosures exclude Joint ventures, as they carry low credit risk and therefore have an immaterial ECL, and Other items, mainly accrued interest that we have not yet charged to the customer's account, and cash collateral.
| On-balance sheet | Off-balance sheet | ||||
|---|---|---|---|---|---|
| Exposures | Loss allowance |
Net carrying amount |
Exposures | Loss allowance |
|
| 30 June 2023 | £m | £m | £m | £m | £m |
| Retail Banking | 183,301 | 488 | 182,813 | 24,076 | 40 |
| – Homes - Mortgages(1) | 176,086 | 222 | 175,864 | 10,357 | 3 |
| – EDB - Credit Cards(2) | 2,637 | 134 | 2,503 | 10,351 | 12 |
| – EDB - Other(3) | 4,578 | 132 | 4,446 | 3,368 | 25 |
| Consumer Finance | 5,319 | 73 | 5,246 | 465 | — |
| Corporate & Commercial Banking | 18,367 | 379 | 17,988 | 9,169 | 37 |
| Corporate Centre | 60,033 | — | 60,033 | — | — |
| Total exposures presented in Credit Quality tables | 267,020 | 940 | 266,080 | 33,710 | 77 |
| Joint ventures | 4,389 | ||||
| Other items | 619 | ||||
| Adjusted net carrying amount | 271,088 | ||||
| Assets classified at FVTPL | 2,817 | ||||
| Non-financial assets(3) | 3,053 | ||||
| Total assets per the Consolidated Balance Sheet | 276,958 | ||||
| 31 December 2022 | |||||
| Retail Banking | 191,836 | 502 | 191,334 | 21,721 | 42 |
| – Homes - Mortgages(1) | 184,317 | 248 | 184,069 | 8,029 | 3 |
| – EDB - Credit Cards(2) | 2,557 | 120 | 2,437 | 10,288 | 10 |
| – EDB - Other(3) | 4,962 | 134 | 4,828 | 3,404 | 29 |
| Consumer Finance | 5,384 | 67 | 5,317 | 356 | — |
| Corporate & Commercial Banking | 18,518 | 362 | 18,156 | 9,759 | 32 |
| Corporate Centre | 58,710 | — | 58,710 | — | — |
| Total exposures presented in Credit Quality tables | 274,448 | 931 | 273,517 | 31,836 | 74 |
| Joint ventures | 4,164 | ||||
| Other items | 745 | ||||
| Adjusted net carrying amount | 278,426 | ||||
| Assets classified at FVTPL | 2,536 | ||||
| Non-financial assets(3) | 4,251 |
Total assets per the Consolidated Balance Sheet 285,213
(1) Off-balance sheet exposures include offers in the pipeline and undrawn flexible mortgages products.
(2) Off-balance sheet exposures include credit cards.
(3) Non-financial assets include £(3,516)m (2022: £(2,657)m) of Macro hedge of interest rate risk.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
The following table shows changes in total on and off-balance sheet exposures, subject to ECL assessment, and the corresponding ECL, in the period. The table presents total gross carrying amounts and ECLs at a Santander UK group level. We present segmental views in the sections below.
| Stage 1 | Stage 2 | Stage 3 | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Exposures(1) | Exposures(1) ECL |
ECL | Exposures(1) | ECL | Exposures(1) | ECL | ||
| £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2023 | 284,428 | 170 | 19,127 | 516 | 2,729 | 319 | 306,284 | 1,005 |
| Transfers from Stage 1 to Stage 2(3) | (6,132) | (16) | 6,132 | 16 | — | — | — | — |
| Transfers from Stage 2 to Stage 1(3) | 4,186 | 79 | (4,186) | (79) | — | — | — | — |
| Transfers to Stage 3(3) | (244) | (3) | (654) | (44) | 898 | 47 | — | — |
| Transfers from Stage 3(3) | 11 | — | 225 | 14 | (236) | (14) | — | — |
| Transfers of financial instruments | (2,179) | 60 | 1,517 | (93) | 662 | 33 | — | — |
| Net ECL remeasurement on stage transfer(4) | — | (72) | — | 136 | — | 61 | — | 125 |
| Change in economic scenarios(2) | — | 9 | — | (37) | — | 15 | — | (13) |
| Changes to model | — | — | — | — | — | — | — | — |
| New lending and assets purchased(5) | 11,845 | 15 | 151 | 15 | 11 | 3 | 12,007 | 33 |
| Redemptions, repayments and assets sold(7) | (17,872) | (18) | (1,651) | (33) | (502) | (34) | (20,025) | (85) |
| Changes in risk parameters and other movements(6) | 2,132 | 2 | 334 | (12) | 176 | 59 | 2,642 | 49 |
| Assets written off(7) | — | — | — | — | (178) | (97) | (178) | (97) |
| At 30 June 2023 | 278,354 | 166 | 19,478 | 492 | 2,898 | 359 | 300,730 | 1,017 |
| Net movement in the period | (6,074) | (4) | 351 | (24) | 169 | 40 | (5,554) | 12 |
| ECL charge/(release) to the Income Statement | (4) | (24) | 137 | 109 | ||||
| Less: Discount unwind | — | — | (10) | (10) | ||||
| Less: Recoveries net of collection costs | — | — | 6 | 6 | ||||
| Total ECL charge/(release) to the Income Statement | (4) | (24) | 133 | 105 | ||||
| At 1 January 2022 | 292,364 | 133 | 17,964 | 330 | 3,017 | 403 | 313,345 | 866 |
| Transfers from Stage 1 to Stage 2(3) | (5,634) | (15) | 5,634 | 15 | — | — | — | — |
| At 1 January 2022 | 292,364 | 133 | 17,964 | 330 | 3,017 | 403 | 313,345 | 866 |
|---|---|---|---|---|---|---|---|---|
| Transfers from Stage 1 to Stage 2(3) | (5,634) | (15) | 5,634 | 15 | — | — | — | — |
| Transfers from Stage 2 to Stage 1(3) | 5,884 | 66 | (5,884) | (66) | — | — | — | — |
| Transfers to Stage 3(3) | (283) | (2) | (513) | (19) | 796 | 21 | — | — |
| Transfers from Stage 3(3) | 8 | — | 708 | 150 | (716) | (150) | — | — |
| Transfers of financial instruments | (25) | 49 | (55) | 80 | 80 | (129) | — | — |
| Net ECL remeasurement on stage transfer(4) | — | (42) | — | 100 | — | 52 | — | 110 |
| Change in economic scenarios(2) | — | 1 | — | 28 | — | 3 | — | 32 |
| New lending and assets purchased(5) | 27,650 | 25 | 234 | 35 | 32 | 12 | 27,916 | 72 |
| Redemptions, repayments and assets sold(7) | (31,130) | (19) | (1,586) | (34) | (586) | (48) | (33,302) | (101) |
| Changes in risk parameters and other movements(6) | 1,015 | (3) | 149 | (32) | 277 | 49 | 1,441 | 14 |
| Assets written off(7) | — | — | — | — | (186) | (71) | (186) | (71) |
| At 30 June 2022 | 289,874 | 144 | 16,706 | 507 | 2,634 | 271 | 309,214 | 922 |
| Net movement in the period | (2,490) | 11 | (1,258) | 177 | (383) | (132) | (4,131) | 56 |
| ECL charge/(release) to the Income Statement | 11 | 177 | (61) | 127 | ||||
| Less: Discount unwind | — | — | (6) | (6) | ||||
| Less: Recoveries net of collection costs | — | — | (3) | (3) | ||||
| Total ECL charge/(release) to the Income Statement | 11 | 177 | (70) | 118 |
(1) Exposures that have attracted an ECL, and as reported in the Credit Quality table above.
(2) Changes to assumptions in the period. Isolates the impact on ECL from changes to the economic variables for each scenario, the scenarios themselves, and the probability weights from all other movements. Also includes the impact of quarterly revaluation of collateral. The impact of changes in economics on exposure Stage allocations are shown in Transfers of financial instruments.
(3) Total impact of facilities that moved Stage(s) in the period. This means, for example, that where risk parameter changes (model inputs) or model changes (methodology) result in a facility moving Stage, the full impact is reflected here (rather than in Other). Stage flow analysis only applies to facilities that existed at both the start and end of the period. Transfers between Stages are based on opening balances and ECL at the start of the period.
(4) Relates to the revaluation of ECL following the transfer of an exposure from one Stage to another.
(5) Exposures and ECL of facilities that did not exist at the start of the period but did at the end. Amounts in Stage 2 and 3 represent assets which deteriorated in the period after origination in Stage 1.
(6) Residual movements on existing facilities that did not change Stage in the period, and which were not acquired in the period. Includes the net increase or decrease in the period of the mortgage pipeline, cash at central banks, the impact of changes in risk parameters in the period, unwind of discount rates and increases in ECL requirements of accounts which ultimately were written off in the period.
(7) Exposures and ECL for facilities that existed at the start of the period but not at the end.
Directors
statements
Financial
Shareholder information
We provide detailed credit risk analysis for Retail Banking in separate sections below for Homes, our largest portfolio, and our Everyday Banking portfolio.
| Stock | New business | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 30 June 2023 | 31 December 2022 | 30 June 2023 | 30 June 2022 | ||||||
| £m | % | £m | % | £m | % | £m | % | ||
| Home movers(1) | 72,954 | 42 | 76,357 | 41 | 1,753 | 43 | 6,178 | 34 | |
| Remortgagers(2) | 50,064 | 28 | 53,190 | 29 | 1,163 | 29 | 6,234 | 34 | |
| First-time buyers | 36,947 | 21 | 37,971 | 21 | 1,028 | 26 | 3,607 | 20 | |
| Buy-to-let | 16,121 | 9 | 16,799 | 9 | 70 | 2 | 2,088 | 12 | |
| 176,086 | 100 | 184,317 | 100 | 4,014 | 100 | 18,107 | 100 |
(1) 'Home movers' include both existing customers moving house and taking out a new mortgage with us, and customers who switch their mortgage to us when they move house.
(2) 'Remortgagers' are new customers who are taking a new mortgage with us.
As well as the new business in the table above, there were £15.4bn (H122: £11.0bn) of remortgages where we moved our customers with maturing mortgages onto new ones. We also provided £0.4bn (H122: £0.7bn) of further advances and flexible mortgage drawdowns. 79% (2022: 81%) of customers with a maturing mortgage were retained, which applied to mortgages four months post maturity, based on a 12-month average of retention rates to March 2023.
In H123, mortgage asset stock decreased across all sectors, with the stock borrower profile unchanged. Our new business also decreased, particularly in the Buyto-Let sector reflecting market conditions where landlords' appetite to expand their portfolios has reduced. In H123, we helped first-time buyers buy their new home with £1.0bn of gross lending (H122: £3.6bn).
The interest rate profile of our maturing mortgage asset stock was:
| 30 June 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| £m | % | £m | % | |
| Fixed rate | 155,914 | 89 | 163,622 | 89 |
| Of which maturing: | ||||
| – < 12 months |
40,272 | 23 | 38,233 | 21 |
| – Later than 1 year but no later than 3 years |
57,790 | 33 | 38,213 | 21 |
| – Later than 3 years but no later than 4 years |
31,809 | 18 | 24,310 | 13 |
| – Later than 4 years but no later than 5 years |
21,485 | 12 | 24,888 | 14 |
| – Later than 5 years |
4,558 | 3 | 37,978 | 21 |
| Variable rate | 13,277 | 7 | 12,430 | 7 |
| Standard Variable Rate (SVR) | 4,708 | 3 | 5,645 | 3 |
| Follow on Rate (FoR) | 2,187 | 1 | 2,620 | 1 |
| 176,086 | 100 | 184,317 | 100 |
In H123, we continued to see customers refinance from SVR to fixed rate products influenced by rapid increases in interest rates, with a slight increase in demand for variable rate products tracking the Bank of England base rate. We also saw more customers choosing shorter-term fixed rate products in H123.
c.£60bn of fixed rate mortgages mature in the next six quarters. Most of our mortgages were subject to a stressed affordability assessment at origination. The average stress rate for new mortgage applications prior to December 2021 was 6.35%, applied to loans with a fixed term below five years and excluding remortgages with no additional lending.
The geographical distribution of our mortgage asset stock and new business was:
| Stock | New business | ||||
|---|---|---|---|---|---|
| 30 June 2023 | 31 December 2022 | 30 June 2023 | 30 June 2022 | ||
| Region | £bn | £bn | £bn | £bn | |
| London | 44.9 | 47.0 | 1.0 | 4.5 | |
| Midlands and East Anglia | 24.6 | 25.6 | 0.6 | 2.8 | |
| North | 23.3 | 24.4 | 0.5 | 2.4 | |
| Northern Ireland | 2.7 | 2.9 | — | 0.1 | |
| Scotland | 6.5 | 6.8 | 0.2 | 0.6 | |
| South East excluding London | 55.8 | 58.4 | 1.3 | 5.7 | |
| South West, Wales and other | 18.3 | 19.2 | 0.4 | 2.0 | |
| 176.1 184.3 |
4.0 | 18.1 |
The portfolio's geographical distribution continued to represent a broad footprint across the UK, with a concentration around London and the South East. The loanto-income multiple of mortgage lending in H123, based on average earnings of new business at inception, was 3.10 (2022: 3.35).
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
The split of our mortgage asset by size was:
| Mortgage loan size | 30 June 2023 | 31 December 2022 |
|---|---|---|
| >£1.0m | 2 % | 2 % |
| £0.5m to £1.0m | 10 % | 10 % |
| £0.25m to £0.5m | 31 % | 31 % |
| <£0.25m | 57 % | 57 % |
| Average loan size (stock) | £185k | £183k |
| Average loan size (new business) | £225k | £237k |
This table shows the LTV distribution for the gross carrying amount and the related ECL of our total mortgage portfolio and Stage 3 mortgages, and new business. We also show the collateral value and average LTV. We use our estimate of the property value at the balance sheet date and include fees that have been added to the loan. For flexible products, we only include the drawn amount, not undrawn limits.
| 30 June 2023 | 31 December 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Stock | Stage 3 | Stock | Stage 3 | New | ||||||
| Total | ECL | Total | ECL | Business | Total | ECL | Total | ECL | Business | |
| LTV | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Up to 50% | 80,982 | 31 | 1,110 | 13 | 921 | 87,379 | 37 | 1,111 | 14 | 4,890 |
| >50-60% | 33,637 | 22 | 322 | 10 | 548 | 35,664 | 29 | 283 | 11 | 4,014 |
| >60-70% | 32,190 | 34 | 223 | 15 | 648 | 33,868 | 50 | 197 | 16 | 6,104 |
| >70-80% | 18,588 | 44 | 123 | 18 | 867 | 17,824 | 45 | 110 | 15 | 10,094 |
| >80-90% | 8,142 | 31 | 58 | 13 | 674 | 7,339 | 29 | 42 | 9 | 6,002 |
| >90-100% | 2,115 | 19 | 36 | 10 | 350 | 1,873 | 17 | 32 | 9 | 2,999 |
| >100% | 432 | 44 | 57 | 22 | 6 | 370 | 45 | 52 | 21 | 24 |
| 176,086 | 225 | 1,929 | 101 | 4,014 | 184,317 | 252 | 1,827 | 95 | 34,127 | |
| Collateral value (1) | 176,028 | 1,919 | 4,014 | 184,269 | 1,818 | 34,126 | ||||
| % | % | % | % | % | % | |||||
| Average LTV - Balance weighted(2) | 51 | 48 | 65 | 50 | 47 | 69 |
(1) Collateral value is limited to the balance of each loan and excludes the impact of any over-collateralisation. Includes collateral against loans in negative equity of £375m (2022: £323m). (2) Balance weighted LTV = (Loan 1 balance x (Loan 1 Balance/Loan 1 latest property valuation) + (Loan 2 balance x (loan 2 balance/Loan 2 latest property valuation) + ...) /(Loan 1 balance + Loan 2 balance+...).
At 30 June 2023, the parts of loans in negative equity which were effectively uncollateralised before deducting loss allowances was £58m (2022: £48m). The balance weighted average LTV of new business in the period in London was 63% (2022: 66%).
There were no significant changes in collateral quality in H123. Despite economic pressures, balance weighted average LTVs of stock were broadly flat over the period. Balance weighted average LTVs of new business reduced in H123 driven by proportionally more lending at LTV<=60%. We monitor the profile of new lending and take action as needed to ensure the LTV mix of completions is in line with our risk appetite.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Mortgage loans and advances to customers | 176,086 | 184,317 |
| of which: | ||
| – Stage 1 | 160,507 | 169,066 |
| – Stage 2 | 13,650 | 13,424 |
| – Stage 3 | 1,929 | 1,827 |
| Loss allowances(1) | 225 | 251 |
| % | % | |
| Stage 1 ratio(2) | 91.15 | 91.73 |
| Stage 2 ratio(2) | 7.75 | 7.28 |
| Stage 3 ratio | 1.11 | 1.00 |
(1) The ECL allowance is for both on and off–balance sheet exposures.
(2) Stage 1/Stage 2 exposures as a percentage of customer loans.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The following tables show changes in total on and off-balance sheet exposures and ECL in the period. The footnotes to the Santander UK group level table on page 26 also apply to these tables.
| Stage 1 | Stage 2 | Stage 3 | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Exposures(1) | ECL | Exposures(1) | ECL | Exposures(1) | ECL | Exposures(1) | ECL | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2023 | 176,965 | 25 | 13,533 | 131 | 1,848 | 95 | 192,346 | 251 |
| Transfers from Stage 1 to Stage 2(3) | (4,444) | (2) | 4,444 | 2 | — | — | — | — |
| Transfers from Stage 2 to Stage 1(3) | 3,336 | 19 | (3,336) | (19) | — | — | — | — |
| Transfers to Stage 3(3) | (142) | (2) | (392) | (10) | 534 | 12 | — | — |
| Transfers from Stage 3(3) | 4 | — | 190 | 5 | (194) | (5) | — | — |
| Transfers of financial instruments | (1,246) | 15 | 906 | (22) | 340 | 7 | — | — |
| Net ECL remeasurement on stage transfer(4) | — | (17) | — | 22 | — | 9 | — | 14 |
| Change in economic scenarios(2) | — | (4) | — | (18) | — | 2 | — | (20) |
| New lending and assets purchased(5) | 4,488 | 2 | 21 | 1 | — | — | 4,509 | 3 |
| Redemptions, repayments and assets sold(7) | (12,245) | (3) | (833) | (6) | (231) | (8) | (13,309) | (17) |
| Changes in risk parameters and other movements(6) | 2,760 | 3 | 144 | (5) | 17 | 2 | 2,921 | — |
| Assets written off (7) | — | — | — | — | (24) | (6) | (24) | (6) |
| At 30 June 2023 | 170,722 | 21 | 13,771 | 103 | 1,950 | 101 | 186,443 | 225 |
| Net movement in the period | (6,243) | (4) | 238 | (28) | 102 | 6 | (5,903) | (26) |
| ECL charge/(release) to the Income Statement | (4) | (28) | 12 | (20) | ||||
| Less: Discount unwind | — | — | (1) | (1) | ||||
| Less: Recoveries net of collection costs | — | — | (1) | (1) | ||||
| Total ECL charge/(release) to the Income Statement | (4) | (28) | 10 | (22) |
| At 1 January 2022 | 177,696 | 13 | 11,152 | 88 | 1,814 | 89 | 190,662 | 190 |
|---|---|---|---|---|---|---|---|---|
| Transfers from Stage 1 to Stage 2(3) | (3,968) | (1) | 3,968 | 1 | — | — | — | — |
| Transfers from Stage 2 to Stage 1(3) | 2,560 | 7 | (2,560) | (7) | — | — | — | — |
| Transfers to Stage 3(3) | (127) | (1) | (340) | (4) | 467 | 5 | — | — |
| Transfers from Stage 3(3) | 3 | — | 197 | 7 | (200) | (7) | — | — |
| Transfers of financial instruments | (1,532) | 5 | 1,265 | (3) | 267 | (2) | — | — |
| Net ECL remeasurement on stage transfer(4) | — | (6) | — | 19 | — | 4 | — | 17 |
| Change in economic scenarios(2) | — | (1) | — | (17) | — | (2) | — | (20) |
| New lending and assets purchased(5) | 18,880 | 5 | 42 | 2 | — | — | 18,922 | 7 |
| Redemptions, repayments and assets sold(7) | (11,760) | (2) | (766) | (2) | (209) | (6) | (12,735) | (10) |
| Changes in risk parameters and other movements(6) | (247) | 4 | 143 | 16 | 11 | 1 | (93) | 21 |
| Assets written off(7) | — | — | — | — | (3) | (1) | (3) | (1) |
| At 30 June 2022 | 183,037 | 18 | 11,836 | 103 | 1,880 | 83 | 196,753 | 204 |
| Net movement in the period | 5,341 | 5 | 684 | 15 | 66 | (6) | 6,091 | 14 |
| ECL charge/(release) to the Income Statement | 5 | 15 | (5) | 15 | ||||
| Less: Discount unwind | — | — | (1) | (1) | ||||
| Less: Recoveries net of collection costs | — | — | (1) | (1) | ||||
| Total ECL charge/(release) to the Income Statement | 5 | 15 | (7) | 13 | ||||
At 30 June 2023, there were £1.6bn (2022: £1.6bn) of mortgages on the balance sheet that we had forborne. At 30 June 2023, there were £1.8bn (2022: £2.1bn) of other mortgages on the balance sheet that we had modified since January 2008.
In H123, we signed up to the new Mortgage Charter, providing more support on top of measures already in place to help customers with increased mortgage rates.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
Credit performance
| Portfolio of particular interest(1) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total | Interest-only | Part interest only, part repayment (2) |
Flexible | LTV >100% | Buy-to-let | Other portfolio |
||||
| 30 June 2023 | £m | £m | £m | £m | £m | £m | £m | |||
| Mortgage portfolio | 176,086 | 38,891 | 12,799 | 5,999 | 432 | 16,121 | 121,668 | |||
| – Stage 1 | 160,507 | 33,780 | 11,412 | 4,955 | 274 | 15,160 | 112,862 | |||
| – Stage 2 | 13,650 | 4,152 | 1,162 | 808 | 101 | 917 | 8,098 | |||
| – Stage 3 | 1,929 | 959 | 225 | 236 | 57 | 44 | 708 | |||
| Stage 3 ratio | 1.11% | 2.48% | 1.77% | 4.26% | 13.13% | 0.27% | 0.58% | |||
| Properties in possession | 36 | 18 | 5 | 3 | 6 | 2 | 11 | |||
| Balance weighted LTV (indexed) | 51% | 47% | 49% | 36% | 117% | 58% | 52% |
| 31 December 2022 | |||||||
|---|---|---|---|---|---|---|---|
| Mortgage portfolio | 184,317 | 40,825 | 13,510 | 6,765 | 370 | 16,799 | 126,996 |
| – Stage 1 | 169,066 | 35,702 | 12,143 | 5,713 | 217 | 15,884 | 118,507 |
| – Stage 2 | 13,424 | 4,250 | 1,149 | 839 | 101 | 876 | 7,791 |
| – Stage 3 | 1,827 | 873 | 218 | 213 | 52 | 39 | 698 |
| Stage 3 ratio | 1.00% | 2.16% | 1.62% | 3.45% | 13.94% | 0.23% | 0.55% |
| Properties in possession | 47 | 18 | 8 | 3 | 7 | 1 | 16 |
| Balance weighted LTV (indexed) | 50% | 47% | 49% | 36% | 117% | 58% | 52% |
(1) Where a loan falls into more than one category, we include it in all the categories that apply. As a result, the sum of the mortgages in the segments of particular interest and the other portfolio does not agree to the total mortgage portfolio.
(2) Mortgage balance includes both the interest-only part of £9,551m (2022: £10,010m) and the non-interest-only part of the loan.
In H123, the combined total proportion of interest-only loans, part interest-only, part repayment loans and flexible loans was broadly stable at 32.8% (2022: 33.1%).
BTL mortgage balances decreased£0.7bn to £16.1bn (2022: £16.8bn) driven by a reduced buy-to-let market in the rising interest rates environment. In H123, the balance weighted average LTV of mortgage total new BTL lending was 60% (2022: 67%).
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
| Other unsecured | |||||||
|---|---|---|---|---|---|---|---|
| Business banking |
Personal loans |
Credit cards |
Overdrafts | Total other unsecured |
Total | ||
| 30 June 2023 | £m | £m | £m | £m | £m | £m | |
| Loans and advances to customers | 2,149 | 1,994 | 2,637 | 435 | 5,066 | 7,215 | |
| of which: | |||||||
| – Stage 1 | 1,895 | 1,684 | 2,230 | 130 | 4,044 | 5,939 | |
| – Stage 2 | 124 | 287 | 369 | 282 | 938 | 1,062 | |
| – Stage 3 | 130 | 23 | 38 | 23 | 84 | 214 | |
| Loss allowances(1) | 16 | 69 | 146 | 72 | 287 | 303 | |
| Stage 3 undrawn exposures | 2 | 32 | 34 | ||||
| Stage 3 ratio | 6.14 % | 2.28 % | 3.43 % | ||||
| Gross write-offs (6 months) | 6 | 58 | 64 |
| 31 December 2022 | ||||||
|---|---|---|---|---|---|---|
| Loans and advances to customers | 2,519 | 1,982 | 2,558 | 461 | 5,001 | 7,520 |
| of which: | ||||||
| – Stage 1 | 2,223 | 1,730 | 2,192 | 155 | 4,077 | 6,300 |
| – Stage 2 | 133 | 231 | 329 | 282 | 842 | 975 |
| – Stage 3 | 163 | 21 | 37 | 24 | 82 | 245 |
| Loss allowances(1) | 19 | 62 | 130 | 82 | 274 | 293 |
| Stage 3 undrawn exposures | 3 | 32 | 35 | |||
| Stage 3 ratio | 6.58 % | 2.27 % | 3.71 % | |||
| Gross write-offs (12 months) | 11 | 99 | 110 |
(1) The ECL allowance is for both on and off–balance sheet exposures.
Business Banking balances were lower, mainly due to reductions in the Bounce back loans (BBL) portfolio. Stage 3 assets reduced, although this had a minimal impact on write-offs as the reduction in assets was mainly due to the BBLs, where the 100% government guarantee was claimed. Currently, 20% of the customers who took a BBL are either in arrears or had their loans closed and claimed against the guarantee. This is amongst the lowest in the peer group. Other unsecured balances increased slightly in H123. However, Stage 2 unsecured assets increased reflecting the current economic environment. This is yet to impact Stage 3 or write-offs, which did not increase as 57% (2022: 55%) of credit card customers repay their balance in full each month and UPL average customer balances remained unchanged at £6,000.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Loans and advances to customers | 5,319 | 5,384 |
| of which: | ||
| – Stage 1 | 4,933 | 5,005 |
| – Stage 2 | 360 | 350 |
| – Stage 3 | 26 | 29 |
| Loss allowances(1) | 73 | 67 |
| Stage 3 ratio | 0.49 % | 0.54 % |
| Gross write offs | 11 | 19 |
(1) The ECL allowance is for both on and off–balance sheet exposures.
In H123, we maintained our prudent Consumer (auto) finance underwriting criteria. The product mix was broadly unchanged, with wholesale balances increasing slightly.
At 30 June 2023, Consumer (auto) finance gross lending (new business) was £1,114m (H122: £1,287m). Wholesale loans (Stock finance) to car dealerships at 30 June 2023 were approximately 9.8% (2022: 10.1%) of the Consumer loan book. At 30 June 2023, the average Consumer (auto) finance loan size was £17,560 (2022: £17,256).
The risk profile was stable in terms of our credit scoring acceptance policies. The overall risk performance was good with the vast majority of customers paying.
Shareholder information
Directors
These tables show our credit risk exposure according to our internal rating scale (see the 'Santander UK group level – credit risk review' section) for each portfolio. On this scale, the higher the rating, the better the quality of the counterparty.
| Santander UK risk grade | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1) | Total | |
| 30 June 2023 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| SME and mid corporate | — | 264 | 973 | 3,063 | 3,598 | 4,010 | 1,499 | 136 | 13,543 |
| Commercial Real Estate | — | 2 | 215 | 1,683 | 2,240 | 862 | 173 | 2 | 5,177 |
| Social Housing | 136 | 3,722 | 4,114 | 6 | — | — | — | — | 7,978 |
| 136 | 3,988 | 5,302 | 4,752 | 5,838 | 4,872 | 1,672 | 138 | 26,698 | |
| Of which: | |||||||||
| Stage 1 | 132 | 3,911 | 5,301 | 4,668 | 5,099 | 2,704 | 186 | 137 | 22,138 |
| Stage 2 | 4 | 77 | 1 | 84 | 739 | 2,168 | 813 | 1 | 3,887 |
| Stage 3 | — | — | — | — | — | — | 673 | — | 673 |
| 31 December 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| SME and mid corporate | — | 336 | 923 | 2,341 | 3,299 | 5,327 | 1,791 | 106 | 14,123 |
| Commercial Real Estate | — | 2 | 111 | 2,044 | 2,128 | 936 | 185 | 1 | 5,407 |
| Social Housing | 44 | 4,028 | 3,956 | 6 | — | — | — | — | 8,034 |
| 44 | 4,366 | 4,990 | 4,391 | 5,427 | 6,263 | 1,976 | 107 | 27,564 | |
| Of which: | |||||||||
| Stage 1 | 39 | 4,364 | 4,944 | 4,202 | 4,773 | 4,289 | 386 | 107 | 23,104 |
| Stage 2 | 5 | 2 | 46 | 189 | 654 | 1,974 | 1,018 | — | 3,888 |
| Stage 3 | — | — | — | — | — | — | 572 | — | 572 |
(1) Smaller exposures mainly in the commercial mortgage portfolio. We use scorecards for them, instead of a rating model.
In H123, committed exposure reduced by 3.1%, mainly in the SME and mid corporate portfolios. The rating distribution saw an improvement in SME and mid corporate with Commercial Real Estate deteriorating slightly.
We monitor exposures that show potentially higher risk characteristics using our Watchlist process. The table below shows the exposures we monitor, and those we classify as Stage 3 by portfolio at 30 June 2023 and 31 December 2022.
| Committed exposure | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Watchlist | ||||||||||
| Fully performing |
Enhanced monitoring |
Proactive management |
Stage 3 | Total(1) | Loss allowances |
|||||
| 30 June 2023 | £m | £m | £m | £m | £m | £m | ||||
| SME and mid corporate | 10,995 | 393 | 1,545 | 610 | 13,543 | 380 | ||||
| Commercial Real Estate | 4,374 | 93 | 647 | 63 | 5,177 | 36 | ||||
| Social Housing | 7,800 | — | 178 | — | 7,978 | — | ||||
| 23,169 | 486 | 2,370 | 673 | 26,698 | 416 | |||||
| 31 December 2022 | ||||||||||
| SME and mid corporate | 11,796 | 431 | 1,383 | 513 | 14,123 | 355 | ||||
| Commercial Real Estate | 4,765 | 103 | 480 | 59 | 5,407 | 38 | ||||
| Social Housing | 7,978 | 46 | 10 | — | 8,034 | 1 | ||||
| 24,539 | 580 | 1,873 | 572 | 27,564 | 394 |
(1) Includes committed facilities and derivatives.
In H123, in light of current economic headwinds, our overall watchlist exposure increased, with reductions in enhanced monitoring more than offset by a 26.5% increase in proactive management.
Stage 3 assets also increased, up 17.7% with loss allowances increasing by £22m (5.6%).
In H123, committed exposure in our CRE portfolio decreased by 4%. The rating distribution declined in the portfolio and Watchlist exposures increased by 27%. This was driven by structural changes impacting retail and office occupancy, which accounted for 38% of the CRE portfolio, compounded by falling capital values and higher interest rates.
Shareholder information
These tables show our credit risk exposure according to our internal rating scale (see the 'Santander UK group level – credit risk review' section) for each portfolio. On this scale, the higher the rating, the better the quality of the counterparty.
| Santander UK risk grade | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1) | Total | |
| 30 June 2023 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Sovereign and Supranational | 42,552 | 1,896 | — | — | — | — | — | — | 44,448 |
| Structured Products | 170 | 1,470 | 787 | — | — | — | — | — | 2,427 |
| Financial Institutions | 1,167 | 665 | 393 | 7 | — | — | — | — | 2,232 |
| 43,889 | 4,031 | 1,180 | 7 | — | — | — | — | 49,107 | |
| Of which: | |||||||||
| Stage 1 | 43,889 | 4,031 | 1,180 | 7 | — | — | — | — | 49,107 |
| Stage 2 | — | — | — | — | — | — | — | — | — |
| Stage 3 | — | — | — | — | — | — | — | — | — |
| 31 December 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sovereign and Supranational | 47,040 | 1,077 | — | — | — | — | — | — | 48,117 |
| Structured Products | 136 | 1,162 | 875 | — | — | — | — | — | 2,173 |
| Financial Institutions | 1,191 | 672 | 521 | 26 | — | — | — | — | 2,410 |
| 48,367 | 2,911 | 1,396 | 26 | — | — | — | — | 52,700 | |
| Of which: | |||||||||
| Stage 1 | 48,367 | 2,911 | 1,396 | 26 | — | — | — | — | 52,700 |
| Stage 2 | — | — | — | — | — | — | — | — | — |
| Stage 3 | — | — | — | — | — | — | — | — | — |
(1) Smaller exposures mainly in the commercial mortgage portfolio. We use scorecards for them, instead of a rating model.
Committed exposures reduced by 6.8% mainly in UK Sovereign and Supranational exposures, as part of normal liquid asset portfolio management, which reduced by 7.6%. The portfolio profile remained short-term, reflecting the purpose of the holdings.
We typically classify geographical location according to the counterparty's country of domicile unless a full risk transfer guarantee is in place, in which case we use the guarantor's country of domicile instead.
| 30 June 2023 | 31 December 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Rest of | Rest of | |||||||||
| UK | Europe | US | World | Total | UK | Europe | US | World | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Sovereign and Supranational | 39,581 | 2,063 | — | 2,804 | 44,448 | 43,936 | 1,886 | 83 | 2,212 | 48,117 |
| Structured Products | 1,430 | 243 | — | 754 | 2,427 | 1,379 | 422 | 4 | 368 | 2,173 |
| Financial Institutions | 884 | 968 | 186 | 194 | 2,232 | 988 | 1,005 | 230 | 187 | 2,410 |
| 41,895 | 3,274 | 186 | 3,752 | 49,107 | 46,303 | 3,313 | 317 | 2,767 | 52,700 |
We monitor exposures that show potentially higher risk characteristics using our Watchlist process. In Corporate Centre, committed exposures were all fully performing at 30 June 2023 and 31 December 2022.
Directors
responsibilities Risk review
Financial statements Shareholder information
Market risk comprises banking market risk and trading market risk.
Market risk management In H123, there were no significant changes in the way we manage market risk as described in the 2022 Annual Report.
In this section, we analyse our key banking and trading market risk metrics.
Yield curve risk
The table below shows how our net interest income would be affected by a parallel shift (both up and down) applied instantaneously to the yield curve at 30 June 2023 and 31 December 2022. Sensitivity to parallel shifts represents the amount of risk in a way that we think is both simple and scalable.
| 30 June 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| +100bps | -100bps | +100bps | -100bps | |
| £m | £m | £m | £m | |
| NII sensitivity(1) | 213 | (218) | 241 | (197) |
| EVE sensitivity | (269) | 235 | (487) | 635 |
(1) Based on modelling assumptions of repricing behaviour.
In H123, we continued to actively manage interest rate risk by hedging new mortgages, reducing the size of the structural position.
NII sensitivity is adversely exposed to down shock scenarios. NII sensitivity deteriorated in H123, due to the reduction in the structural position.
EVE sensitivity is adversely exposed to up shock scenarios. EVE sensitivity improved in H123, largely due to the reduction in the structural position and model changes.
In H123, there were no significant changes to our traded market risk exposures. The Internal VaR for exposure to traded market risk at 30 June 2023 was less than £1m (2022: less than £1m).
Net Interest Income (NII) sensitivity to +100bps was £213m and to ‑100bps was £(218)m (2022: £241m and £(197)m)
Economic Value of Equity (EVE) sensitivity to +100bps was £(269)m and to ‑100bps was £235m (2022: £(487)m and £635m)
Key metrics
£11.0bn)
Financial statements
£46.3bn)
LCR of 151% (2022:152%)
Shareholder information
Wholesale funding with maturity <1 year £13.0bn (2022:
LCR eligible liquidity pool carrying value of £47.0bn (2022:
Liquidity risk is the risk that, while still being solvent, we do not have the liquid financial resources to meet our obligations when they fall due, or we can only obtain them at high cost.
In H123, there were no significant changes in the way we manage liquidity risk as described in the 2022 Annual Report.
In this section, we analyse our key liquidity metrics and our wholesale funding. We also provide information on asset encumbrance.
This table shows our LCR at 30 June 2023 and 31 December 2022.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| RFB DoLSub LCR(2) | £bn | £bn |
| Eligible liquidity pool (liquidity value)(1) | 46.5 | 46.2 |
| Net stress outflows | (30.9) | (30.4) |
| Surplus | 15.6 | 15.8 |
| Eligible liquidity pool as a percentage of anticipated net cash flows | 151 % | 152 % |
(1) The liquidity value is calculated as applying an applicable haircut to the carrying value.
(2) The RFB LCR was 154% (2022:157%).
LCR eligible liquidity pool of £47.0bn (2022: £46.3bn) includes £37.8bn cash and central bank reserves (2022: £42.1bn). The remaining assets are mainly Sterling and USD denominated government bonds and covered bonds.
Term duration in the LCR eligible liquidity pool is hedged with swaps to offset mark to market movements from interest rate changes.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| NSFR | 133 % | 135 % |
We remain in a strong liquidity position. We hold sufficient liquid resources and have adequate governance and controls in place to manage the liquidity risks arising from our business and strategy. At 30 June 2023 and 31 December 2022, the LCR and NSFR significantly exceeded regulatory requirements.
Financial statements Shareholder information
Our funding strategy continues to be based on maintaining a conservatively structured balance sheet and diverse sources of funding to meet the needs of our business strategy and plans. The CFO Division maintains a funding plan that complies with our Liquidity Risk Appetite (LRA) and regulatory liquidity and capital requirements.
This table shows our main sources of wholesale funding. It does not include securities finance agreements. The table is based on exchange rates at issue and scheduled repayments and call dates. It does not reflect the final contractual maturity of the funding.
For details of the maturities of financial liabilities and off-balance sheet commitments, see Note 27 to the Condensed Consolidated Interim Financial Statements.
| ≤ 1 | >1 and ≤ 3 | >3 and ≤ 6 | >6 and ≤ 9 | >9 and ≤ | Sub-total | >1 and | >2 and | |||
|---|---|---|---|---|---|---|---|---|---|---|
| month | months | months | months | 12 months | ≤ 1 year | ≤ 2 years | ≤ 5 years | >5 years | Total | |
| 30 June 2023 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Downstreamed from Santander UK Group Holdings plc to Santander UK plc(1) | ||||||||||
| Senior unsecured – public benchmark | — | 0.6 | 0.8 | 1.6 | — | 3.0 | 0.4 | 7.6 | 1.1 | 12.1 |
| – privately placed | — | — | — | — | — | — | — | 0.1 | — | 0.1 |
| Subordinated liabilities and equity (incl. AT1) | — | — | — | — | 0.5 | 0.5 | 0.5 | 0.7 | 1.0 | 2.7 |
| — | 0.6 | 0.8 | 1.6 | 0.5 | 3.5 | 0.9 | 8.4 | 2.1 | 14.9 | |
| Other Santander UK plc | ||||||||||
| Deposits by banks | 0.2 | 0.6 | 0.7 | 0.2 | — | 1.7 | — | — | — | 1.7 |
| Certificates of deposit and commercial paper | 1.5 | 1.5 | 0.5 | — | — | 3.5 | — | — | — | 3.5 |
| Senior unsecured – public benchmark | — | — | — | 0.6 | 0.3 | 0.9 | 0.3 | — | 0.3 | 1.5 |
| – privately placed | — | — | — | — | — | — | 0.1 | 0.2 | 0.1 | 0.4 |
| Covered bonds | — | 0.9 | — | 1.0 | 0.9 | 2.8 | 2.3 | 9.3 | 1.0 | 15.4 |
| Securitisation & structured issuance(2) | 0.1 | — | — | — | — | 0.1 | 0.1 | 1.4 | — | 1.6 |
| TFSME | — | — | — | — | — | — | — | 21.0 | — | 21.0 |
| Subordinated liabilities | — | — | 0.4 | — | — | 0.4 | — | — | 0.7 | 1.1 |
| 1.8 | 3.0 | 1.6 | 1.8 | 1.2 | 9.4 | 2.8 | 31.9 | 2.1 | 46.2 | |
| Other group entities | ||||||||||
| Securitisation & structured issuance(3) | 0.1 | — | — | — | — | 0.1 | 0.5 | — | — | 0.6 |
| Total at 30 June 2023 | 1.9 | 3.6 | 2.4 | 3.4 | 1.7 | 13.0 | 4.2 | 40.3 | 4.2 | 61.7 |
| Of which: | ||||||||||
| – Secured | 0.2 | 0.9 | — | 1.0 | 0.9 | 3.0 | 2.9 | 31.7 | 1.0 | 38.6 |
| – Unsecured | 1.7 | 2.7 | 2.4 | 2.4 | 0.8 | 10.0 | 1.3 | 8.6 | 3.2 | 23.1 |
| 31 December 2022 | ||||||||||
| Total at 31 December 2022 | 2.6 | 5.2 | 0.5 | 1.5 | 1.2 | 11.0 | 6.6 | 42.2 | 5.1 | 64.9 |
| Of which: | ||||||||||
| – Secured | 0.1 | 1.0 | 0.2 | 0.9 | — | 2.2 | 3.5 | 34.0 | 1.2 | 40.9 |
| – Unsecured | 2.5 | 4.2 | 0.3 | 0.6 | 1.2 | 8.8 | 3.1 | 8.2 | 3.9 | 24.0 |
(1) 96% of senior unsecured debt issued from Santander UK Group Holdings plc has been downstreamed to Santander UK plc as 'secondary non-preferential debt' in line with the guidelines from the Bank of England for Internal MREL.
(2) Includes funding from mortgage-backed securitisation vehicles where Santander UK plc is the asset originator.
(3) Includes funding from asset-backed securitisation vehicles where entities other than Santander UK plc are the asset originator.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
In H123, our external term issuance (sterling equivalent) was:
| Sterling | US Dollar | Euro | Other | Total H123 | Total H122 | |
|---|---|---|---|---|---|---|
| £bn | £bn | £bn | £bn | £bn | £bn | |
| Downstreamed from Santander UK Group Holdings plc to Santander UK plc | ||||||
| Senior unsecured – public benchmark | — | 1.0 | — | — | 1.0 | 1.2 |
| Subordinated debt and equity (inc. AT1) | 0.3 | — | — | — | 0.3 | 0.8 |
| 0.3 | 1.0 | — | — | 1.3 | 2.0 | |
| Other Santander UK plc | ||||||
| Securitisations and other secured funding | 0.8 | — | — | — | 0.8 | — |
| Covered bonds | 1.5 | — | — | — | 1.5 | 4.1 |
| 2.3 | — | — | — | 2.3 | 4.1 | |
| Other group entities | ||||||
| Securitisations | 0.5 | — | — | — | 0.5 | — |
| Total gross issuances | 3.1 | 1.0 | — | — | 4.1 | 6.1 |
We repaid £4.0bn TFSME in H123 with £21.0bn remaining. £17.1bn due for repayment by 2025 and the remaining £3.9bn due for repayment between 2027 and 2031.
In H123, we issued c£3.8bn Sterling equivalent medium term funding, including c£1bn of issuance to Santander UK Group Holdings plc and c£2.8bn of other secured issuance . We also issued £300m of 10 year Tier 2 (non-call 5 year) which was bought by Santander UK Group Holdings plc.
We issued securitised products to a diverse investor base through our prime mortgage-backed and other asset-backed funding programmes. We raised funding with mortgage-backed notes, both issued to third parties and retained – the latter being central bank eligible collateral for funding purposes in other Bank of England facilities. We also have a covered bond programme, under which we issue securities to investors secured by a pool of residential mortgages. For more on these programmes, see Notes 14 and 26 to the Consolidated Financial Statements in the 2022 Annual Report.
Our level of encumbrance from external and internal issuance of securitisations and covered bonds increased in H123 to £25.6bn (2022: £25.0bn). For more, see Note 14 to the Consolidated Financial Statements in the 2022 Annual Report and Note 10 to the Condensed Consolidated Interim Financial Statements.
Financial statements Shareholder information
Capital risk is the risk that we do not have an adequate amount or quality of capital to meet our internal business needs, regulatory requirements and market expectations.
In H123, there were no significant changes in the way we manage capital risk as described in the 2022 Annual Report.
In this section, we analyse our capital resources and key capital ratios including our RWAs.
CET1 capital ratio of 15.6% (2022: 15.4%)
Total qualifying regulatory capital to £14.4bn (2022: £14.3bn)
We target a CET1 management buffer of sufficient size to absorb volatility in CET1 deductions, capital supply and capital demand whilst remaining above the current and expected future regulatory CET1 requirement. Distribution restrictions would be expected to be applied if we were unable to meet both our minimum requirement, which consists of the Pillar 1 minimum plus Pillar 2A, the CRD IV buffers consisting of the Capital Conservation Buffer (CCB), the Countercyclical Capital Buffer (CCyB), and the Other Systemically Important Institutions Buffer (O-SII). Expected future regulatory CET1 requirements are impacted by the increase in the UK CCyB to 2% which occurred in July 2023.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| % | % | |
| CET1 capital ratio | 15.6 | 15.4 |
| AT1 | 2.8 | 2.8 |
| Tier 2 | 2.0 | 2.2 |
| Total capital ratio | 20.4 | 20.4 |
The total subordination available to Santander UK plc senior unsecured bondholders was 20.4% (2022: 20.4%) of RWAs.
Return on assets - profit after tax divided by average total assets was 0.29% (H122: 0.26%).
The CET1 capital ratio increased 20bps to 15.6%. This was largely due to higher profit. We remain strongly capitalised with significant headroom to minimum requirements and MDA.
Total capital ratio remained broadly stable at 20.4%.
This table shows our qualifying regulatory capital:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| CET1 capital | 10,992 | 10,799 |
| AT1 capital | 1,956 | 1,956 |
| Tier 1 capital | 12,948 | 12,755 |
| Tier 2 capital | 1,447 | 1,548 |
| Total regulatory capital(1) | 14,395 | 14,303 |
(1) Capital resources include a transitional IFRS 9 benefit at 30 June 2023 of £9m (2022: £19m).
At 30 June 2023, we had down streamed £11.6bn of senior unsecured bonds from Santander UK Group Holdings plc as Internal MREL compliant, secondary nonpreferential debt to Santander UK plc.
Total Risk-weighted assets at 30 June 2023 were £70.7bn (2022: £70.1bn), which are consistent with our regulatory filings.
Financial statements Shareholder information
Pension risk is the risk caused by our statutory contractual or other liabilities with respect to a pension scheme (whether set up for our employees or those of a related company or otherwise). It also refers to the risk that we will need to make payments or other contributions with respect to a pension scheme due to some other reason.
In H123, there were no significant changes in the way we manage pension risk as described in the 2022 Annual Report.
In this section, we provide an update on key movements in pension risk profile in H123.
The underlying level of risk in the Scheme was broadly stable in H123, with minor changes in hedge ratios and asset allocations. We continued to focus on ensuring sufficient liquidity and collateral levels. Collateral levels are managed through measures of the size of interest rate shock required to exhaust available collateral.
Our main focus is to ensure the Scheme achieves the right balance between risk and reward whilst minimising the impact on our capital and financial position. At 30 June 2023, the Funding Deficit at Risk increased to £930m (2022: £860m), mainly due to the annual update to scenarios used for risk measurement where severe asset and interest rate stresses increased following the review of current and potential future economic conditions.
The impact from variations in the IAS 19 position on CET1 capital was not significant in H123. For more on the impact of our defined benefit schemes on capital, see the 'Capital risk' section.
The accounting position slightly deteriorated in H123. The Scheme sections in surplus had an aggregate surplus of £998m at 30 June 2023 (2022: £1,050m) while there were no sections in deficit (2022: none). The overall funded position was a £998m surplus (2022: £1,050m surplus). There were also unfunded liabilities of £25m at 30 June 2023 (2022: £25m). The overall deterioration was mainly a result of falls in the LDI portfolio driven by increases in long-term gilt yields though these falls were in part offset by a fall in the value of the liabilities resulting from an increase in discount rate driven by the same rise in yields. However there remains considerable market uncertainty and our position could change materially over a short period.
For more on our pension schemes, including the asset allocation and our accounting assumptions, see Note 22 to the Condensed Consolidated Interim Financial Statements.
Funding Deficit at Risk was £930m (2022: £860m)
Funded defined benefit pension scheme accounting surplus was £998m (2022: £1,050m)
Financial statements
Key metrics
increased by 8% compared to H122.
Shareholder information
Operational risk losses (over £10,000, and excluding PPI)
Operational risk is the risk of loss due to inadequate or failed internal processes, people and systems, or external events.
In H123, there were no significant changes in the way we manage operational risk as described in the 2022 Annual Report.
In this section, we provide an update on key movements in operational risk in H123.
In H123, we did not experience any material operational risk losses with the exception of fraud. The losses in H123 remained within our risk appetite. In addition, we continue to maintain provisions to cover customer remediation programmes and associated costs.
Information and cyber security remain a key focus. We experienced no significant data or cyber security incidents in H123, although we responded to a number of third-party incidents. We continue to enhance our threat prevention controls and test our business area recovery plans against a range of scenarios. We continue to see increasing ransomware attacks across all sectors, driven by compromises in supply chain tools, and we expect this trend to remain. We continue to invest in the right skills and resources to manage data and cyber risks, and constantly monitor cyber threats, including those from the geopolitical environment.
In H123, we continued to monitor and mitigate data risk through enhanced governance structures and processes. Our Data Programme is progressing with clearly defined deliverables that will improve our ability to manage data and enhance our capabilities, in line with the Data Strategy driven by the Chief Data Officer.
Fraud risk losses remain a material driver of our operational risk loss position, in line with the wider UK financial services industry. Social engineering techniques used by fraudsters are a significant threat to customers and outside of the bank's controls. Authorised Push Payment (APP) fraud is our largest fraud type, and we are focused on preventative measures in response to increasing fraud attacks. In H123, as part of our Fraud Transformation Program, we deployed new fraud prevention tools to enhance our existing controls. This included configurable payment limits for digital banking and the completion of our deployment dynamic 'scam warnings' in our online banking payment process. The latter has enhanced fraud prevention controls for high-risk digital payments, presenting customers with tailored questions and warning specific to their payment journey. We also play a collaborative role in fraud management with industry partners, through UK Finance and Stop Scams UK, alongside our customer awareness campaigns on the most common fraud scams.
The importance of IT remains at the centre of our activities and we continue to progress a bank-wide programme to address key risks in our IT estate, including increasing obsolescence, partly due to the fast pace of technological evolution. We expect the programme to deliver risk reduction over a three year period and we closely monitor improvements through our risk governance framework.
People risk continues to be compounded by changes in our operating models and the execution of our strategies. We continue to adapt and respond to these risks; in particular, the people risks associated with the phased relocation of our Head Office to Unity Place in Milton Keynes, which are under close monitoring and management. H123 continued to show lower levels of wellbeing-related absence. Attrition rates stabilised after periods of successive rises in 2022 reflecting the buoyant job market. Our wellbeing and inclusion strategy focuses on helping colleagues through change, and supports productivity. We continue to advocate hybrid working and encourage colleagues to attend our offices regularly. We also provide support in response to the impact of external economic factors on some colleagues.
We continue to rely extensively on third parties for a range of goods and services, provided by both Banco Santander and external suppliers. In H123, we reassessed our major suppliers against a revised set of controls and implemented new metrics to manage our risk exposure.
The way in which we operate, the technology we rely on, and how we interact with our customers and stakeholders is constantly evolving, and consequently, our ability as an organisation to meet this change is a key priority. We continued our transformation to simplify the bank, digitise processes and customer journeys, reduce costs, extend internal capabilities and ensure a resilient operating model. This includes delivery against a diverse transformation agenda with specific focus on cloud migration, further digitalisation and managing obsolescence. Ensuring change does not result in unacceptable impacts on our risk profile underpins our strategic decisions and is robustly managed.
We have committed that, by 2025, we will address the vulnerabilities identified in the first operational resilience self-assessment approved by the Board and submitted to our regulators in March 2022. Achieving this will enhance our resilience, i.e. the ability of Santander UK to recover its Important Business Services (IBS) within Impact Tolerance levels to avoid intolerable harm to customers, the firm, or the market, with focus on vulnerable customers. In H123, we focused on identifying the most critical technology assets to support the continued prioritisation of activities to strengthen our resilience by March 2025. We continue to embed resilience as we identify and analyse events and incidents directly impacting our IBS and the underlying assets of technology, data, people, third parties, and premises. We continue to develop our capability and evolve our frameworks and governance to enhance operational resilience. The Board approved our annual operational resilience self-assessment in March 2023 and regularly monitors management's progress on enhancing overall operational resilience.
Financial statements Shareholder information
We manage the conduct and non-financial regulatory risk types in one framework. We do this to reflect their similarities.
In H123, there were no significant changes in the way we manage conduct and regulatory risk as described in the 2022 Annual Report.
In this section, we provide an update on key developments in conduct and regulatory risk in H123.
To fully consider customer and conduct impacts across our business, we maintain a strong focus on robust oversight and control of the customer journey across all our products and services. In H123, we continued to build on our progress and remain vigilant in taking a customer-focused approach in developing strategy, products, services and policies that support fair customer outcomes and market integrity.
As part of this, we:
Like all UK banks, we continue to see a demanding regulatory agenda focused on consumer outcomes and customer vulnerability, including Consumer Duty. We continue to evaluate the evolving regulatory environment, particularly in light of the Financial Services and Markets Act, and the government's Edinburgh Reforms. Conduct risks will likely continue to rise in the near and medium-term, as banks deal with increasing numbers of personal and business borrowers who are impacted by the rising cost of living.
When we implement change, we focus on ensuring that our strategy, leadership, governance arrangements, and approach to managing and rewarding staff does not lead to a detrimental impact on our customers, competition, or to market integrity. We also remain committed to protecting the personal data we collect and use, and respecting the data protection rights of our customers, our people and others associated with us.
For key movements in our financial crime risk profile, see the 'Financial crime risk review' section.
For more on our provisions, see Note 21 to the Condensed Consolidated Interim Financial Statements. For more on our contingent liabilities, see Note 23 to the Condensed Consolidated Interim Financial Statements.
Customer remediation provision was £90m (2022: £90m)
Litigation and other regulatory provision was £138m (2022: £136m)
Shareholder information
Financial crime risk is the risk that we are used to further financial crime, including money laundering, sanctions evasion, terrorist financing, facilitation of tax evasion, bribery and corruption.
Financial crime risk management
In H123, there were no significant changes in the way we manage financial crime risk as described in the 2022 Annual Report.
In this section, we provide an update on key developments in financial crime risk in H123.
We take our financial crime responsibilities extremely seriously. Protecting the communities we serve from the social and economic impacts of financial crime remains a top priority. The financial crime landscape continues to be complex, with evolving regulatory and legal requirements, geo-political factors and changing criminal methods influencing the risks we face. In H123, we:
We considered the likely impact of the recent Government announcements on account closures. We only close accounts after a thorough review of all the circumstances, in line with our legal and regulatory obligations and customer communication. We are working to ensure we comply with these proposed rules at the earliest possible opportunity. It is paramount to us that customers have access to banking services and are treated fairly and transparently. These proposals must be brought in swiftly, but without causing unintended financial crime consequences.
Senior management and the Board engagement in financial crime risk management remains high, proportionate with one of our top risks. We continue to enhance our risk management capabilities across data, systems and subject matter expertise through our multi-year financial crime transformation and remediation programme. Continued areas of focus in 2023 include:
Shareholder information
| Independent review report | 45 |
|---|---|
| Primary financial statements | 46 |
| Condensed Consolidated Income Statement Condensed Consolidated Statement of |
46 |
| Comprehensive Income Condensed Consolidated Balance Sheet |
47 48 |
| Condensed Consolidated Cash Flow Statement Condensed Consolidated Statement of Changes in |
49 |
| Equity Notes to the financial statements |
50 |
| 51 |
Shareholder information
We have reviewed Santander UK plc's condensed consolidated interim financial statements (the "interim financial statements") in the Half Yearly Financial Report of Santander UK plc for the 6 month period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
The interim financial statements included in the Half Yearly Financial Report of Santander UK plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern.
The Half Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Half Yearly Financial Report, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the Half Yearly Financial Report based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP Chartered Accountants London 10 August 2023
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
For the Half Year to
| 30 June 2023 | 30 June 2022 | ||
|---|---|---|---|
| Notes | £m | £m | |
| Interest and similar income | 5,346 | 2,743 | |
| Interest expense and similar charges | (2,985) | (623) | |
| Net interest income | 2,361 | 2,120 | |
| Fee and commission income | 401 | 377 | |
| Fee and commission expense | (251) | (209) | |
| Net fee and commission income | 150 | 168 | |
| Other operating income | 83 | 102 | |
| Total operating income | 2,594 | 2,390 | |
| Operating expenses before credit impairment charges, provisions and charges | 3 | (1,219) | (1,172) |
| Credit impairment charges | 4 | (105) | (118) |
| Provisions for other liabilities and charges | 4 | (148) | (118) |
| Total operating credit impairment charges, provisions and charges | (253) | (236) | |
| Profit before tax | 1,122 | 982 | |
| Tax on profit | 5 | (308) | (232) |
| Profit after tax | 814 | 750 | |
| Attributable to: | |||
| Equity holders of the parent | 814 | 750 | |
| Profit after tax | 814 | 750 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
For the Half Year to
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Profit after tax | 814 | 750 |
| Other comprehensive (expense)/income that may be reclassified to profit or loss subsequently: | ||
| Movement in fair value reserve (debt instruments): | ||
| - Change in fair value | (12) | (171) |
| - Income statement transfers | 8 | 162 |
| - Taxation | 1 | 4 |
| (3) | (5) | |
| Cash flow hedges: | ||
| - Effective portion of changes in fair value | (1,187) | 726 |
| - Income statement transfers | 1,112 | (1,807) |
| - Taxation | 21 | 299 |
| (54) | (782) | |
| Net other comprehensive expense that may be reclassified to profit or loss subsequently | (57) | (787) |
| Other comprehensive (expense)/income that will not be reclassified to profit or loss subsequently: | ||
| Pension remeasurement: | ||
| - Change in fair value | (160) | 326 |
| - Taxation | 45 | (26) |
| (115) | 300 | |
| Own credit adjustment: | ||
| - Change in fair value | (7) | 29 |
| - Taxation | 2 | (9) |
| (5) | 20 | |
| Net other comprehensive (expense)/income that will not be reclassified to profit or loss subsequently | (120) | 320 |
| Total other comprehensive expense net of tax | (177) | (467) |
| Total comprehensive income | 637 | 283 |
| Attributable to: | ||
| Equity holders of the parent | 637 | 283 |
| Total comprehensive income | 637 | 283 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
| 30 June 2023 | 31 December 2022 | ||
|---|---|---|---|
| Notes | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 39,612 | 44,190 | |
| Derivative financial instruments | 7 | 2,556 | 2,407 |
| Other financial assets at fair value through profit or loss | 8 | 261 | 129 |
| Loans and advances to customers | 9 | 211,055 | 219,716 |
| Loans and advances to banks | 1,173 | 992 | |
| Reverse repurchase agreements - non trading | 11 | 12,024 | 7,348 |
| Other financial assets at amortised cost | 152 | 156 | |
| Macro hedge of interest rate risk | (3,516) | (2,657) | |
| Financial assets at fair value through other comprehensive income | 7,072 | 6,024 | |
| Interests in other entities | 12 | 222 | 252 |
| Intangible assets | 13 | 1,549 | 1,550 |
| Property, plant and equipment | 14 | 1,495 | 1,513 |
| Current tax assets | 532 | 478 | |
| Retirement benefit assets | 22 | 998 | 1,050 |
| Other assets | 1,724 | 2,016 | |
| Assets held for sale | 29 | 49 | 49 |
| Total assets | 276,958 | 285,213 | |
| Liabilities | |||
| Derivative financial instruments | 7 | 1,543 | 951 |
| Other financial liabilities at fair value through profit or loss | 15 | 864 | 803 |
| Deposits by customers | 16 | 187,934 | 195,568 |
| Deposits by banks | 17 | 25,580 | 28,525 |
| Repurchase agreements - non trading | 18 | 9,853 | 7,982 |
| Debt securities in issue | 19 | 31,831 | 31,531 |
| Subordinated liabilities | 20 | 2,150 | 2,332 |
| Macro hedge of interest rate risk | (67) | 95 | |
| Other liabilities | 2,243 | 2,581 | |
| Provisions | 21 | 395 | 378 |
| Deferred tax liabilities | 34 | 35 | |
| Retirement benefit obligations | 22 | 25 | 25 |
| Total liabilities | 262,385 | 270,806 | |
| Equity | |||
| Share capital | 3,105 | 3,105 | |
| Share premium | 5,620 | 5,620 | |
| Other equity instruments | 24 | 1,956 | 1,956 |
| Retained earnings | 5,071 | 4,848 | |
| Other reserves | (1,179) | (1,122) | |
| Total equity | 14,573 | 14,407 | |
| Total liabilities and equity | 276,958 | 285,213 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
The Financial Statements were approved and authorised for issue by the Board on 10 August 2023 and signed on its behalf by:
Chief Executive Officer Chief Financial Officer
Mike Regnier Madhukar Dayal
Company Registered Number: 2294747
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
For the Half Year to
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Cash flows from operating activities | ||
| Profit before tax | 1,122 | 982 |
| Adjustments for: | ||
| Non-cash items included in profit | 1,029 | 827 |
| Change in operating assets | 8,032 | (4,126) |
| Change in operating liabilities | (9,355) | (7,263) |
| Corporation taxes paid | (295) | (223) |
| Effects of exchange rate differences | (437) | 878 |
| Net cash flows from operating activities | 96 | (8,925) |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment and intangible assets | (235) | (263) |
| Proceeds from sale of property, plant and equipment and intangible assets | 78 | 103 |
| Purchase of financial assets at amortised cost and financial assets at FVOCI | (3,417) | (1,146) |
| Proceeds from sale and redemption of financial assets at amortised cost and financial assets at FVOCI | 2,088 | 2,421 |
| Net cash flows from investing activities | (1,486) | 1,115 |
| Cash flows from financing activities | ||
| Issue of other equity instruments | — | 750 |
| Issue of debt securities and subordinated notes | 2,326 | 4,116 |
| Issuance costs of debt securities and subordinated notes | (10) | (8) |
| Repayment of debt securities and subordinated notes | (1,598) | (1,977) |
| Repurchase of other equity instruments | — | (985) |
| Dividends paid on ordinary shares | (410) | (389) |
| Dividends paid on preference shares and other equity instruments | (61) | (88) |
| Principal elements of lease payments | (34) | (33) |
| Net cash flows from financing activities | 213 | 1,386 |
| Change in cash and cash equivalents | (1,177) | (6,424) |
| Cash and cash equivalents at beginning of the period | 46,484 | 49,254 |
| Effects of exchange rate changes on cash and cash equivalents | (197) | 37 |
| Cash and cash equivalents at the end of the period | 45,110 | 42,867 |
| Cash and cash equivalents consist of: | ||
| Cash and balances at central banks | 39,612 | 43,390 |
| Less: restricted balances | (2,076) | (2,137) |
| 37,536 | 41,253 | |
| Other cash equivalents: Loans and advances to banks - Non trading | 925 | 733 |
| Other cash equivalents: Reverse repurchase agreements | 6,649 | 881 |
| Cash and cash equivalents at the end of the period | 45,110 | 42,867 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
For the Half Year to
| Other reserves | Non | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Share | Share | Other equity | Cash flow | Currency | Retained | controlling | ||||
| capital | premium | instruments Fair value | hedging | translation | earnings | Total | interests | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2023 | 3,105 | 5,620 | 1,956 | 5 | (1,128) | 1 | 4,848 | 14,407 | — | 14,407 |
| Profit after tax | — | — | — | — | — | — | 814 | 814 | — | 814 |
| Other comprehensive (expense), net of tax: | ||||||||||
| - Fair value reserve (debt instruments) | — | — | — | (3) | — | — | — | (3) | — | (3) |
| - Cash flow hedges | — | — | — | — | (54) | — | — | (54) | — | (54) |
| - Pension remeasurement | — | — | — | — | — | — | (115) | (115) | — | (115) |
| - Own credit adjustment | — | — | — | — | — | — | (5) | (5) | — | (5) |
| Total comprehensive income | — | — | — | (3) | (54) | — | 694 | 637 | — | 637 |
| Dividends on ordinary shares | — | — | — | — | — | — | (410) | (410) | — | (410) |
| Dividends on preference shares and other equity | ||||||||||
| instruments | — | — | — | — | — | — | (61) | (61) | — | (61) |
| At 30 June 2023 | 3,105 | 5,620 | 1,956 | 2 | (1,182) | 1 | 5,071 | 14,573 | — | 14,573 |
| At 1 January 2022 | 3,105 | 5,620 | 2,191 | 25 | 107 | 1 | 5,053 | 16,102 | — | 16,102 |
| Profit after tax | — | — | — | — | — | — | 750 | 750 | — | 750 |
| Other comprehensive (expense)/income, net of tax: | ||||||||||
| - Fair value reserve (debt instruments) | — | — | — | (5) | — | — | — | (5) | — | (5) |
| - Cash flow hedges | — | — | — | — | (782) | — | — | (782) | — | (782) |
| - Pension remeasurement | — | — | — | — | — | — | 300 | 300 | — | 300 |
| - Own credit adjustment | — | — | — | — | — | — | 20 | 20 | — | 20 |
| Total comprehensive income | — | — | — | (5) | (782) | — | 1,070 | 283 | — | 283 |
| Issue of other equity instruments | — | — | 750 | — | — | — | — | 750 | — | 750 |
| Repurchase of other equity instruments | — | — | (985) | — | — | — | — | (985) | — | (985) |
| Dividends on ordinary shares | — | — | — | — | — | — | (389) | (389) | — | (389) |
| Dividends on preference shares and other equity instruments |
— | — | — | — | — | — | (88) | (88) | — | (88) |
| At 30 June 2022 | 3,105 | 5,620 | 1,956 | 20 | (675) | 1 | 5,646 | 15,673 | — | 15,673 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
Shareholder information
The financial information in these Condensed Consolidated Interim Financial Statements is unaudited and does not constitute statutory accounts as defined in section 434 of the UK Companies Act 2006. Statutory accounts for the year ended 31 December 2022 have been delivered to the Registrar of Companies.
The Condensed Consolidated Interim Financial Statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of operations for the interim period. All such adjustments to the financial information are of a normal, recurring nature. Because the results from common banking activities are so closely related and responsive to changes in market conditions, the results for any interim period are not necessarily indicative of the results that can be expected for the year.
The Condensed Consolidated Interim Financial Statements have been prepared in accordance with International Accounting Standard IAS 34 'Interim Financial Reporting', as issued by the International Accounting Standards Board (IASB) and adopted in the UK, and the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority (FCA). They do not include all the information and disclosures normally required for full annual financial statements and should be read in conjunction with the Consolidated Financial Statements of Santander UK plc (the Company) and its subsidiaries (collectively Santander UK or the Santander UK group) for the year ended 31 December 2022 which were prepared in accordance with UK-adopted International Accounting Standards (IAS). Those consolidated financial statements were also prepared in accordance with IFRSs as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee, as there were no applicable differences from IFRSs as issued by the IASB for the periods presented.
The same accounting policies, presentation and methods of computation are followed in these Condensed Consolidated Interim Financial Statements as were applied in the presentation of the Santander UK group's 2022 Annual Report.
In light of geopolitical and economic uncertainty, the Directors updated their going concern assessment in preparing these Condensed Consolidated Interim Financial Statements. In making their going concern assessment, the Directors considered a wide range of information that included Santander UK's long term business and strategic plans, forecasts and projections, estimated capital, funding and liquidity requirements, contingent liabilities and the reasonably possible changes in trading performance arising from potential economic, market and product developments.
After making enquiries, the Directors have a reasonable expectation that Santander UK has adequate resources to continue in operational existence for at least twelve months from the date of this report and, therefore, having reassessed the principal risks and uncertainties, the Directors consider it appropriate for the Condensed Consolidated Interim Financial Statements to be prepared on a going concern basis.
The preparation of the Condensed Consolidated Interim Financial Statements in accordance with IFRS requires management to make judgements and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based on amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
There has been no change in the inherent sensitivity of the areas of judgement in the period. Management have considered the impact of developments in principal risks and uncertainties, as set out in the Risk review, on critical judgements and accounting estimates.
The significant judgements, apart from those involving estimation, made by management in applying Santander UK's accounting policies in these financial statements (key judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year (key estimates), which together are considered critical to Santander UK's results and financial position, are as follows:
| Key judgements | – Determining an appropriate definition of default |
|---|---|
| – Establishing the criteria for a significant increase in credit risk (SICR) and, for corporate borrowers, internal credit risk rating | |
| – Determining the need for any judgemental adjustments | |
| – Determining the need to assess corporate Stage 3 exposures individually | |
| Key estimates | – Forward-looking multiple economic scenario assumptions |
| – Probability weights assigned to multiple economic scenarios |
For more on each of these key judgements and estimates, see 'Critical judgements and accounting estimates applied in calculating ECL' in the 'Credit risk – credit risk management' section of the Risk review in the 2022 Annual Report.
For detailed disclosures, see 'Sensitivity of ECL allowance' in the 'Credit risk – credit risk management' section of the Risk review.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| Key judgements | – Determining whether a present obligation exists |
|---|---|
| – Determining the likely outcome of future legal decisions | |
| Key estimates | – Probability, timing, nature and amount of any outflows that may arise from past events |
Included in Litigation and other regulatory provisions in Note 21 are amounts in respect of management's best estimates of liability relating to a legal dispute regarding allocation of responsibility for a specific PPI portfolio of complaints, and Plevin related litigation. Note 23 provides disclosure relating to ongoing factual issues and reviews that could impact the timing and amount of any outflows.
Note 23 includes disclosure relating to an investigation in relation to the historical involvement of Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax arbitrage transactions.
These judgements are based on the specific facts available and often require specialist professional advice. There can be a wide range of possible outcomes and uncertainties, particularly in relation to legal actions, and regulatory and consumer credit matters. As a result, it is often not possible to make reliable estimates of the likelihood and amount of any potential outflows, or to calculate any resulting sensitivities. For more on these key judgements and estimates, see Notes 21 and 23.
| Key judgements | – Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate | ||||
|---|---|---|---|---|---|
| – Determining the methodology for setting the inflation assumption | |||||
| Key estimates | – Discount rate applied to future cash flows | ||||
| – Rate of price inflation | |||||
| – Expected lifetime of the schemes' members | |||||
| – Valuation of pension fund assets whose values are not based on market observable data |
For more on each of these key judgements and estimates, see Note 22.
For detailed disclosures, see 'Actuarial assumption sensitivities' in Note 22.
The Scheme is invested in certain assets whose values are not based on market observable data, such as investments in private equity funds and property. Due diligence has been conducted to support the values obtained in respect of these assets are appropriate and represent fair value. Given the nature of these investments, we are unable to prepare sensitivities on how their values could vary as market conditions or other variables change.
| Key judgements: | – Determining the basis of goodwill impairment testing methodology, including the need for planning assumptions and internal capital allocations – Identifying the indicators of potential impairment |
|---|---|
| Key estimates: | – Forecast cash flows for cash generating units, including estimated allocations of regulatory capital |
| – Growth rate beyond initial cash flow projections | |
| – Discount rates which factor in risk-free rates and applicable risk premiums | |
| All of these variables are subject to fluctuations in external market rates and economic conditions beyond management's control |
For more on each of these key judgements and estimates, see Note 13.
For detailed disclosures, see 'Sensitivities of key assumptions in calculating VIU' in Note 20 to the Consolidated Financial Statements in the 2022 Annual Report.
Financial statements Shareholder information
Santander UK's principal activity is financial services, mainly in the UK. The business is managed and reported on the basis of four segments, which are strategic business units that offer different products and services, have different customers and require different technology and marketing strategies. Geographical information is not provided, as substantially all of Santander UK's activities are in the UK.
In December 2022, we transferred social housing loans, and non-core liabilities to our CCB segment from Corporate Centre to reflect the way these assets are managed, and restated comparatives accordingly. This resulted in an increase in H122 profit before tax in CCB of £1m and an equal but opposite impact in Corporate Centre.
| Corporate | |||||
|---|---|---|---|---|---|
| Retail | Consumer | & | Corporate | Total | |
| Banking | Finance | Commercial Banking |
Centre | ||
| 30 June 2023 | £m | £m | £m | £m | £m |
| Net interest income | 1,865 | 79 | 405 | 12 | 2,361 |
| Non-interest income/(expense) | 88 | 100 | 67 | (22) | 233 |
| Total operating income/(expense) | 1,953 | 179 | 472 | (10) | 2,594 |
| Operating expenses before credit impairment charges, provisions and charges | (912) | (73) | (170) | (64) | (1,219) |
| Credit impairment charges | (55) | (14) | (36) | — | (105) |
| Provisions for other liabilities and charges | (106) | (3) | 4 | (43) | (148) |
| Total operating credit impairment charges, provisions and charges | (161) | (17) | (32) | (43) | (253) |
| Profit/(loss) before tax | 880 | 89 | 270 | (117) | 1,122 |
| Revenue from external customers | 1,856 | 313 | 364 | 61 | 2,594 |
| Inter-segment revenue/(expense) | 97 | (134) | 108 | (71) | — |
| Total operating income/(expense) | 1,953 | 179 | 472 | (10) | 2,594 |
| Revenue from external customers includes the following fee and commission income:(1) | |||||
| – Current account and debit card fees | 227 | — | 31 | — | 258 |
| – Insurance, protection and investments | 24 | — | — | — | 24 |
| – Credit cards | 49 | — | — | — | 49 |
| – Non-banking and other fees(2) | 1 | 12 | 53 | 4 | 70 |
| Total fee and commission income | 301 | 12 | 84 | 4 | 401 |
| Fee and commission expense | (216) | (3) | (26) | (6) | (251) |
| Net fee and commission income/(expense) | 85 | 9 | 58 | (2) | 150 |
| Customer loans | 183,301 | 5,319 | 18,367 | — | 206,987 |
| Total assets(3) | 190,542 | 10,541 | 18,367 | 57,508 | 276,958 |
| Of which assets held for sale | — | — | — | 49 | 49 |
| Customer deposits | 155,692 | — | 23,525 | 4,642 | 183,859 |
| Total liabilities | 155,799 | 1,683 | 23,562 | 81,341 | 262,385 |
(1) The disaggregation of fees and commission income as shown above is not included in reports provided to the chief operating decision maker but is provided to show the split by reportable segments.
(2) Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance. (3) Includes customer loans, net of credit impairment charge allowances.
| CEO review | Financial overview | responsibilities | Risk review | statements | information | |||
|---|---|---|---|---|---|---|---|---|
| Retail Banking |
Consumer Finance |
Corporate & Commercial Banking |
Corporate Centre |
Total | ||||
| 30 June 2022 | £m | £m | £m | £m | £m | |||
| Net interest income | 1,784 | 92 | 241 | 3 | 2,120 | |||
| Non-interest income/(expense) | 116 | 101 | 70 | (17) | 270 | |||
| Total operating income | 1,900 | 193 | 311 | (14) | 2,390 | |||
| Operating expenses before credit impairment (charges)/write-backs, provisions and charges | (831) | (73) | (181) | (87) | (1,172) | |||
| Credit impairment (charges)/write-backs | (126) | (13) | 20 | 1 | (118) | |||
| Provisions for other liabilities and charges | (101) | — | (2) | (15) | (118) | |||
| Total operating credit impairment (charges)/write-backs, provisions and charges | (227) | (13) | 18 | (14) | (236) | |||
| Profit/(loss) before tax | 842 | 107 | 148 | (115) | 982 | |||
| Revenue/(expense) from external customers | 2,033 | 243 | 345 | (231) | 2,390 | |||
| Inter-segment revenue/(expense) | (133) | (50) | (34) | 217 | — | |||
| Total operating income/(expense) | 1,900 | 193 | 311 | (14) | 2,390 | |||
| Revenue from external customers includes the following fee and commission income:(1) | ||||||||
| – Current account and debit card fees | 218 | — | 29 | — | 247 | |||
| – Insurance, protection and investments | 31 | — | — | — | 31 | |||
| – Credit cards | 46 | — | — | — | 46 | |||
| – Non-banking and other fees(2) | 4 | 8 | 36 | 5 | 53 | |||
| Total fee and commission income | 299 | 8 | 65 | 5 | 377 | |||
| Fee and commission expense | (191) | — | (11) | (7) | (209) | |||
| Net fee/(expense) and commission income | 108 | 8 | 54 | (2) | 168 | |||
| 31 December 2022 | ||||||||
| Customer loans | 191,836 | 5,384 | 18,518 | — | 215,738 | |||
| Total assets(3) | 200,872 | 10,371 | 18,518 | 55,452 | 285,213 | |||
| Of which assets held for sale | — | — | — | 49 | 49 | |||
| Customer deposits | 161,748 | — | 24,798 | 3,365 | 189,911 | |||
| Total liabilities | 161,821 | 1,223 | 24,473 | 83,289 | 270,806 |
Financial
Shareholder
(1) The disaggregation of fees and commission income as shown above is not included in reports provided to the chief operating decision maker but is provided to show the split by reportable segments.
(2) Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
Directors
(3) Includes customer loans, net of credit impairment charge allowances..
The main differences between Customer loans and Loans and advances to customers (Note 9) are balances in Corporate Centre held for liquidity purposes. The main differences between Customer deposits and Deposits by customers (Note 16) are equity-linked deposits and intercompany deposits.
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Staff costs | 611 | 556 |
| Other administration expenses | 474 | 458 |
| Depreciation, amortisation and impairment | 134 | 158 |
| 1,219 | 1,172 |
In H123, 'Depreciation, amortisation and impairment' included an impairment charge of £2m (H122: £10m) associated with branch and head office site closures as part of the transformation programme. For more, see Note 14.
Shareholder information
Directors
For the Half Year to
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Credit impairment charges/(write-backs): | ||
| Loans and advances to customers | 98 | 114 |
| Recoveries of loans and advances, net of collection costs | 4 | (6) |
| Off-balance sheet credit exposures (See Note 21) | 3 | 10 |
| 105 | 118 | |
| Provisions for other liabilities and charges (excluding off-balance sheet credit exposures) (See Note 21) | 149 | 121 |
| Releases for residual value and voluntary termination | (1) | (3) |
| 148 | 118 | |
| 253 | 236 |
In H123 and H122 there were no material credit impairment charges on loans and advances to banks, non-trading reverse repurchase agreements, other financial assets at amortised cost and financial assets at FVOCI.
The Santander UK group's effective tax rate for H123 was 27.5% (H122: 23.6%). The tax on profit before tax differs from the theoretical amount that would arise using the basic corporation tax rate as follows:
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Profit before tax | 1,122 | 982 |
| Tax calculated at a tax rate of 23.5% (H122:19%) | 264 | 187 |
| Bank surcharge on profits | 44 | 70 |
| Non-deductible preference dividends paid | 5 | 5 |
| Non-deductible UK Bank Levy | 8 | 8 |
| Non-deductible conduct remediation, fines and penalties | 3 | (1) |
| Other non-deductible costs and non-taxable income | 3 | 8 |
| Effect of change in tax rate on deferred tax provision | — | (23) |
| Tax relief on dividends in respect of other equity instruments | (19) | (22) |
| Tax charge | 308 | 232 |
Interim period corporation tax is accrued based on the estimated average annual effective corporation tax for the year of 27.5% (H122: 26.0% before including the impact of the reduction in the bank surcharge substantively enacted in Q1 2022). See Note 9 to the Consolidated Financial Statements in the 2022 Annual Report for further details of changes in tax rates.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK, introducing a global minimum effective tax rate of 15%. The legislation implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023.
An interim dividend of £410m was declared on the Company's ordinary shares in issue (H122: £389m).
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
| 30 June 2023 | 31 December 2022 | |||||
|---|---|---|---|---|---|---|
| Fair value | Fair value | |||||
| Notional | Notional | |||||
| amount | Assets | Liabilities | amount | Assets | Liabilities | |
| £m | £m | £m | £m | £m | £m | |
| Derivatives held for trading: | ||||||
| Exchange rate contracts | 9,487 | 125 | 135 | 14,006 | 315 | 281 |
| Interest rate contracts | 29,027 | 690 | 826 | 31,135 | 465 | 754 |
| Equity and credit contracts | 863 | 137 | 20 | 902 | 130 | 25 |
| Total derivatives held for trading | 39,377 | 952 | 981 | 46,043 | 910 | 1,060 |
| Derivatives held for hedging | ||||||
| Designated as fair value hedges: | ||||||
| Exchange rate contracts | 742 | 4 | 7 | 538 | 12 | 4 |
| Interest rate contracts | 102,501 | 2,377 | 581 | 77,748 | 1,777 | 403 |
| 103,243 | 2,381 | 588 | 78,286 | 1,789 | 407 | |
| Designated as cash flow hedges: | ||||||
| Exchange rate contracts | 27,400 | 1,317 | 298 | 26,035 | 1,717 | 186 |
| Interest rate contracts | 38,421 | 168 | 1,938 | 26,108 | 164 | 1,471 |
| 65,821 | 1,485 | 2,236 | 52,143 | 1,881 | 1,657 | |
| Total derivatives held for hedging | 169,064 | 3,866 | 2,824 | 130,429 | 3,670 | 2,064 |
| Derivative netting(1) | — | (2,262) | (2,262) | — | (2,173) | (2,173) |
| Total derivatives | 208,441 | 2,556 | 1,543 | 176,472 | 2,407 | 951 |
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was £1,607m (2022: £1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was £54m (2022: £70m).
At 30 June 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of £1,245m (2022: £1,319m) and the fair value of derivative liabilities included amounts due to Banco Santander group entities of £216m (2022: £207m).
Note 28 includes details of the notional value of hedging instruments by benchmark interest rate impacted by IBOR reform and the notional amounts of assets, liabilities and off-balance sheet commitments affected by IBOR reform that have yet to transition to an alternative benchmark interest rate.
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Loans and advances to customers | 42 | 45 |
| Debt securities | 219 | 84 |
| 261 | 129 |
Directors
Financial statements Shareholder information
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Loans and advances to customers | 212,016 | 220,669 |
| Credit impairment loss allowances on loans and advances to customers | (940) | (931) |
| Residual value and voluntary termination provisions on finance leases | (21) | (22) |
| Net loans and advances to customers | 211,055 | 219,716 |
For movements in expected credit losses, see the 'Movement in total exposures and the corresponding ECL' table in the Santander UK group level - Credit risk review section of the Risk review.
The information in this Note relates to securitisations and covered bonds for consolidated structured entities, used to obtain funding or collateral. It excludes structured entities relating to credit protection transactions.
The gross assets securitised, or for the covered bond programme assigned at 30 June 2023 and 31 December 2022 were:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Mortgage-backed master trust structures: | ||
| – Holmes | 2,214 | 1,646 |
| – Fosse | 1,892 | 2,028 |
| 4,106 | 3,674 | |
| Other asset-backed securitisation structures: | ||
| – Motor | — | 6 |
| – Repton | 750 | — |
| 750 | 6 | |
| Total securitisation programmes | 4,856 | 3,680 |
| Covered bond programme: | ||
| – Euro 35bn Global Covered Bond Programme | 20,790 | 21,304 |
| Total securitisation and covered bond programmes | 25,646 | 24,984 |
The following table sets out the internal and external issuances and redemptions in H123 and H122 for each securitisation and covered bond programme.
| Internal issuances | External issuances | Internal redemptions | External redemptions | |||||
|---|---|---|---|---|---|---|---|---|
| H123 | H122 | H123 | H122 | H123 | H122 | H123 | H122 | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Mortgage-backed master trust structures: | ||||||||
| – Holmes | 118 | — | 750 | — | 30 | 42 | 142 | 114 |
| – Fosse | — | — | — | — | — | 34 | — | 185 |
| Other asset-backed securitisation structures: | ||||||||
| – Motor | — | — | — | — | — | — | 7 | 21 |
| – Repton | — | — | 550 | — | — | — | — | — |
| Covered bond programme: | ||||||||
| – Euro 35bn Global Covered Bond Programme | 1,100 | — | 1,500 | 4,182 | 5 | — | 1,017 | 827 |
| 1,218 | — | 2,800 | 4,182 | 35 | 76 | 1,166 | 1,147 |
During H123, the remaining asset-backed notes from the Motor securitisation structure were redeemed. In H123 Repton 2023-1 Limited borrowed £550m through an asset-backed variable funding note facility. Repayment of this will begin in 2025.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Agreements with banks | 1,253 | 885 |
| Agreements with customers | 10,771 | 6,463 |
| 12,024 | 7,348 |
There have been no significant changes to the Santander UK group's interests in subsidiaries, joint ventures and unconsolidated structured entities, as set out in Note 19 to the Consolidated Financial Statements in the 2022 Annual Report.
At 30 June 2023, intangible assets comprised goodwill of £1,199m (2022: £1,199m) and computer software of £350m (2022: £351m).
At 30 June 2023, a review was performed to identify any potential impairment indicators for goodwill. No indicators of impairment were identified and so a full impairment test was not performed for the half year. At 30 June 2023, there were no significant changes in key assumptions that gave rise to an indicator of impairment. Details of the sensitivity of value in use (VIU) changes to assumptions to achieve nil headroom are set out in Note 20 to the Consolidated Financial Statements in the 2022 Annual Report.
| Property | Office fixtures and equipment |
Operating lease Computer software assets |
Right-of-use assets | Total(1) | ||
|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | |
| Cost: | ||||||
| At 1 January 2023 | 889 | 823 | 72 | 722 | 267 | 2,773 |
| Additions | 31 | 44 | — | 41 | 23 | 139 |
| Disposals | (63) | (9) | — | (81) | (22) | (175) |
| At 30 June 2023 | 857 | 858 | 72 | 682 | 268 | 2,737 |
| Accumulated depreciation: | ||||||
| At 1 January 2023 | 270 | 618 | 72 | 145 | 155 | 1,260 |
| Charge for the period | 9 | 31 | — | 33 | 10 | 83 |
| Disposals | (63) | (7) | — | (30) | (1) | (101) |
| At 30 June 2023 | 216 | 642 | 72 | 148 | 164 | 1,242 |
| Carrying amount | 641 | 216 | — | 534 | 104 | 1,495 |
(1) Property includes assets under construction of £259m (2022: £204m) and investment properties of £17m (2022: £17m).
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Structured Notes Programmes | 370 | 375 |
| Eurobonds | 93 | 102 |
| Structured deposits | 401 | 321 |
| Other | — | 5 |
| 864 | 803 |
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Demand and time deposits(1) | 183,637 | 189,587 |
| Amounts due to other Santander UK Group Holdings plc subsidiaries | 65 | 67 |
| Amounts due to Santander UK Group Holdings plc(2) | 3,126 | 4,759 |
| Amounts due to fellow Banco Santander subsidiaries and joint ventures | 1,106 | 1,155 |
| 187,934 | 195,568 |
(1) Includes capital amount guaranteed / protected equity index-linked deposits of £364m (2022: £408m).
(2) Includes downstreamed funding from our immediate parent company Santander UK Group Holdings plc.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Items in the course of transmission | 531 | 701 |
| Deposits held as collateral | 1,607 | 1,741 |
| Other deposits(1) | 23,439 | 26,082 |
| Amounts due to Santander UK subsidiaries | 3 | 1 |
| 25,580 | 28,525 |
(1) Includes drawdown from the TFSME of £21.0bn (2022: £25.0bn).
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Agreements with banks | 406 | 50 |
| Agreements with customers | 9,447 | 7,932 |
| 9,853 | 7,982 |
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Medium-term notes | 10,930 | 10,644 |
| Euro 35bn Global Covered Bond Programme | 15,247 | 15,205 |
| US\$20bn Commercial Paper Programmes | 1,591 | 1,851 |
| Certificates of deposit | 1,975 | 2,874 |
| Credit linked notes | — | 60 |
| Securitisation programmes | 2,088 | 897 |
| 31,831 | 31,531 |
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| £325m Sterling preference shares | 344 | 344 |
| Undated subordinated liabilities | 205 | 219 |
| Dated subordinated liabilities | 1,601 | 1,769 |
| 2,150 | 2,332 |
In H123, certain subordinated liabilities were repurchased as part of ongoing liability management exercises, resulting in a profit of £3m (H122: a loss of £1m).
| ECL on | ||||||||
|---|---|---|---|---|---|---|---|---|
| Litigation | undrawn | |||||||
| Customer remediation |
and other regulatory |
Bank Levy | Property | facilities and guarantees |
Restructuring | Other | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2023 | 90 | 136 | 3 | 47 | 74 | 21 | 7 | 378 |
| Additional provisions (See Note 4) | 30 | 14 | — | 4 | 3 | 34 | 90 | 175 |
| Provisions released (See Note 4) | (20) | — | — | (1) | — | — | (2) | (23) |
| Utilisation and other | (10) | (12) | (3) | (2) | — | (17) | (91) | (135) |
| At 30 June 2023 | 90 | 138 | — | 48 | 77 | 38 | 4 | 395 |
An additional provision of £30m was recognised in H123, for a customer remediation exercise relating to our mortgage book. This remediation relates to the proposed refund of interest inconsistently charged on mortgage products for customers in Financial Support.
A £30m provision was recognised in H123, relating to restructuring announced to employees in January 2023.
In H123, other provisions included charges for operational risk provisions of £87m (H122: £78m), including fraud losses of £75m (H122: £63m).
Directors
Financial statements
The amounts recognised in the balance sheet were as follows:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Assets/(liabilities) | ||
| Funded defined benefit pension scheme - surplus | 998 | 1,050 |
| Unfunded pension and post-retirement medical benefits | (25) | (25) |
| Total net assets | 973 | 1,025 |
An expense of £33m (H122: £30m) was recognised for defined contribution plans in the period and is included in staff costs within operating expenses (see Note 3).
The total amount released to the income statement was £16m (H122: charge of £4m).
The amounts recognised in other comprehensive income were as follows:
| 30 June 2023 | 30 June 2022 | |
|---|---|---|
| £m | £m | |
| Return on plan assets (excluding amounts included in net interest expense) | 470 | 3,352 |
| Actuarial losses arising from experience adjustments | 89 | 296 |
| Actuarial gains arising from changes in financial assumptions | (399) | (3,974) |
| Pension remeasurement | 160 | (326) |
The net assets recognised in the balance sheet were determined as follows:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Present value of defined benefit obligations | (7,634) | (7,933) |
| Fair value of scheme assets | 8,607 | 8,958 |
| Net defined benefit assets | 973 | 1,025 |
The principal actuarial assumptions used for the Scheme were:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| % | % | |
| To determine benefit obligations(1) : |
||
| – Discount rate for scheme liabilities | 5.3 | 4.9 |
| – General price inflation | 3.1 | 3.1 |
| – General salary increase | 1.0 | 1.0 |
| – Expected rate of pension increase | 3.0 | 3.0 |
| Years | Years | |
| Longevity at 60 for current pensioners, on the valuation date: | ||
| – Males | 27.4 | 27.4 |
| – Females | 30.1 | 30.1 |
| Longevity at 60 for future pensioners currently aged 40, on the valuation date: | ||
| – Males | 28.9 | 28.9 |
| – Females | 31.6 | 31.6 |
(1) The discount rate and inflation related assumptions set out in the table above reflect the assumptions calculated based on the Scheme's duration and cash flow profile as a whole. The actual assumptions used were determined for each section independently based on each section's duration and cash flow profile.
The majority of the liability movement in H123 was due to increased long-term index-linked gilt yields.
The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
| (Decrease)/increase | |||
|---|---|---|---|
| 30 June 2023 | 31 December 2022 | ||
| Assumption | Change in pension obligation at period end from | £m | £m |
| Discount rate | 50bps increase | (466) | (501) |
| General price inflation | 50bps increase | 341 | 374 |
| Mortality | Each additional year of longevity assumed | 185 | 203 |
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Guarantees given to third parties | 436 | 448 |
| Formal standby facilities, credit lines and other commitments | 33,274 | 31,388 |
| 33,710 | 31,836 |
Where the items set out below can be reliably estimated, they are disclosed in the table above.
There have been no significant changes to the contingent liabilities as set out in Note 31 to the Consolidated Financial Statements in the 2022 Annual Report, except as set out below:
Santander UK engages in discussion, and co-operates, with the FCA, PRA, CMA and other regulators and government agencies in various jurisdictions in their supervision and review of Santander UK including reviews exercised under statutory powers, regarding its interaction with past and present customers, both as part of general thematic work and in relation to specific products, services and activities. During the ordinary course of business, Santander UK is also subject to complaints and threatened legal proceedings brought by or on behalf of current or former employees, customers, investors or other third parties, in addition to legal and regulatory reviews, challenges and tax or enforcement investigations or proceedings in various jurisdictions. All such matters are assessed periodically to determine the likelihood of Santander UK incurring a liability.
In those instances where it is concluded that it is not yet probable that a quantifiable payment will be made, for example because the facts are unclear or further time is required to fully assess the merits of the case or to reasonably quantify the expected payment, no provision is made. In addition, where it is not currently practicable to estimate the possible financial effect of these matters, no provision is made.
AXA France IARD and AXA France Vie (former GE Capital Corporation Group entities (GE Capital), known as Financial Insurance Company Ltd (FICL) and Financial Assurance Company Ltd (FACL), acquired by AXA SA in 2015) (together, AXA France) have brought a claim for £552m (plus interest) against (i) Santander Cards UK Limited (former GE Capital entity known as GE Capital Bank Limited (GECB), which was acquired by Banco Santander SA in 2008 and subsequently transferred to Santander UK plc); and (ii) Santander Insurance Services UK Limited (a Banco Santander SA subsidiary) (together the Santander Entities). The claim relates to the allocation of liability for compensation and associated costs in respect of a large number of PPI policies distributed by GECB pre-2005, which were underwritten by FICL and FACL. AXA France reduced their claim from £670m (plus interest) to £552m (plus interest) in their Re-Re-Amended Particulars of Claim dated 29 June 2023. The Santander Entities strongly refute the claim. Trial has been fixed for six weeks, beginning on 3 March 2025.
There are ongoing factual issues to be resolved which may have legal consequences including in relation to liability. These issues create uncertainties which mean that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The litigation and other regulatory provision in Note 21 includes our best estimate of the Santander Entities' liability to the specific portfolio. Further information has not been provided on the basis that it would be seriously prejudicial to the Santander Entities' interests in connection with the dispute.
In addition, and in relation to PPI more generally, the PPI provision includes an amount relating to legal claims challenging the FCA's industry guidance on the treatment of Plevin / recurring non-disclosure assessments. This provision is based on current stock levels, future projected claims, and average redress. There remains a risk that volumes received in future may be higher than forecast. The provision in Note 21 includes our best estimate of Santander UK's liability for the specific issue. The actual cost of customer compensation could differ from the amount provided. It is not currently practicable to provide an estimate of the risk and amount of any further financial impact.
In June 2018 the Cologne Criminal Prosecution Office and the German Federal Tax Office commenced an investigation in relation to the historical involvement of Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax arbitrage transactions (known as cum/ex transactions). These transactions allegedly exploited a loophole of a specific German settlement mechanism through short-selling and complex derivative structuring which resulted in the German government either refunding withholding tax where such tax had not been paid or refunding it more than once. The German authorities are investigating numerous institutions and individuals in connection with alleged transactions and practices which may be found to be illegal under German law.
During H123 we continued to cooperate with the German authorities and, with the assistance of external experts, to progress an internal investigation into the matters in question. From Santander UK plc's perspective, the investigation is focused principally on the period 2009-2011 and remains on-going. There remain factual issues to be resolved which may have legal consequences including potentially material financial penalties. These issues create uncertainties which mean that it is difficult to predict the resolution of the matter including timing or the significance of the possible impact. These uncertainties mean it is not currently possible to make a reliable assessment of the size of any related potential liability. Any potential losses, claims or expenses suffered or incurred by Santander Financial Services plc in respect of these matters have been fully indemnified by Santander UK plc, as part of the ring-fencing transfer scheme between Santander UK plc, Santander Financial Services plc and Banco Santander SA.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
Following the FCA's Motor Market review, Santander Consumer (UK) plc (SCUK) has received a number of county court claims and complaints in respect of its historical commission arrangements and is monitoring industry developments for potential liabilities for claims related to the use of discretionary commission models prior to the Motor Market review. It is possible that further claims and complaints may be received. A claim has been issued against SCUK, Santander UK plc and others in the Competition Appeal Tribunal (CAT), alleging that SCUK's historical commission arrangements in respect of used car financing operated in breach of the Competition Act 1998. While it is possible that certain costs will be incurred in relation to existing or future county court claims, complaints and the CAT proceedings, the resolution of such matters is not possible to predict with any certainty. It is also not considered that a legal or constructive obligation has been incurred in relation to such matters that would require a provision to be recognised at this stage. In view of the inherent uncertainties, it is therefore also not possible to estimate the extent of any financial impact.
The Santander UK group engages in discussion, and co-operates, with HM Revenue & Customs (HMRC) in their oversight of the Santander UK group's tax matters. The Santander UK group adopted the UK's Code of Practice on Taxation for Banks in 2010.
On 2 November 2015, Visa Europe Ltd agreed to sell 100% of its share capital to Visa Inc. The deal closed on 21 June 2016. As a member and shareholder of Visa Europe Ltd, Santander UK received upfront consideration made up of cash and convertible preferred stock. Following ring-fencing, the convertible preferred stock is now held by Santander Equity Investments Limited (SEIL), outside the ring-fenced bank. Conversion of the preferred stock into Class A Common Stock of Visa Inc. depends on the outcome of litigation against Visa involving UK & Ireland (UK&I) multilateral interchange fees (MIFs). In June 2020, the Supreme Court issued a judgement finding that MIFs restricted competition.
In addition, Santander UK plc and certain other UK&I banks have agreed to indemnify Visa Inc. in the event that the preferred stock is insufficient to meet the costs of this litigation. Visa Inc. has recourse to this indemnity once more than €1bn of losses relating to UK&I MIFs have arisen or once the total value of the preferred stock issued to UK&I banks on closing has been reduced to nil. Santander UK plc's liability under this indemnity is capped at €39.85m. At this stage, it is unclear whether the litigation will give rise to more than €1bn of losses relating to UK&I MIFs which means it is not practicable to predict the resolution of the matter including the timing or the significance of the possible impact.
As part of the sale of subsidiaries, businesses and other entities, and as is normal in such circumstances, entities within the Santander UK group have given warranties and/or indemnities to the purchasers.
| Interest rate | 30 June 2023 | 31 December 2022 | ||
|---|---|---|---|---|
| % | Next call date | £m | £m | |
| AT1 securities: | ||||
| - £500m Perpetual Capital Securities | 6.75 | June 2024 | 496 | 496 |
| - £500m Perpetual Capital Securities | 6.30 | March 2025 | 500 | 500 |
| - £210m Perpetual Capital Securities | 4.25 | March 2026 | 210 | 210 |
| - £750m Perpetual Capital Securities | 6.50 | June 2027 | 750 | 750 |
| 1,956 | 1,956 |
As described in Note 14, to the Consolidated Financial Statements in the 2022 Annual Report and Note 10, Santander UK plc and certain of its subsidiaries issue securitisations and covered bonds. At 30 June 2023, there were £25,646m (2022: £24,984m) of gross assets in these secured programmes and £775m (2022: £829m) of these related to internally retained issuances that were available for use as collateral for liquidity purposes in the future.
At 30 June 2023, £2,875m (2022: £1,725m) of notes issued under securitisation and covered bond programmes had been retained internally, a proportion of which had been used as collateral via third party bilateral secured funding transactions, which totalled £1,500m at 30 June 2023 (2022: £500m), or for use as collateral for liquidity purposes in the future.
The financial position and performance of the Santander UK group were not materially affected in H123 by any related party transactions, or changes to related party transactions, other than as disclosed herein.
Disclosures relating to fair value measurement and hierarchy, valuation techniques and the control framework and related aspects pertaining to financial instruments at fair value are included in the 2022 Annual Report. Valuation, sensitivity methodologies and inputs at 30 June 2023 are consistent with those described in Note 39 to the Consolidated Financial Statements in the 2022 Annual Report. Details regarding fair value measurement under a valuation technique of groups of financial assets and liabilities with offsetting positions in market risks or credit risks, on the basis of net exposure using the exception under IFRS 13, can be found in Note 39(a) to the Consolidated Financial Statements in the 2022 Annual Report.
The following tables analyse the fair value of the financial instruments carried at amortised cost at 30 June 2023 and 31 December 2022. Cash and balances at central banks, which consist of demand deposits with the Bank of England, together with cash in tills and ATMs, have been excluded from the table as the carrying amount is deemed an appropriate approximation of fair value. Details of the valuation methodology of the financial assets and financial liabilities carried at amortised cost can be found in Note 39(d) to the Consolidated Financial Statements in the 2022 Annual Report.
| 30 June 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| Fair | Carrying | Fair | Carrying | |
| value | value | value | value | |
| £m | £m | £m | £m | |
| Assets | ||||
| Loans and advances to customers | 203,871 | 211,055 | 212,479 | 219,716 |
| Loans and advances to banks | 1,173 | 1,173 | 992 | 992 |
| Reverse repurchase agreements - non trading | 12,007 | 12,024 | 7,341 | 7,348 |
| Other financial assets at amortised cost | 138 | 152 | 144 | 156 |
| 217,189 | 224,404 | 220,956 | 228,212 | |
| Liabilities | ||||
| Deposits by customers | 187,885 | 187,934 | 195,534 | 195,568 |
| Deposits by banks | 25,637 | 25,580 | 28,034 | 28,525 |
| Repurchase agreements - non trading | 9,853 | 9,853 | 7,982 | 7,982 |
| Debt securities in issue | 31,241 | 31,831 | 30,505 | 31,531 |
| Subordinated liabilities | 2,424 | 2,150 | 2,601 | 2,332 |
| 257,040 | 257,348 | 264,656 | 265,938 |
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 30 June 2023 and 31 December 2022, analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
| 30 June 2023 31 December 2022 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Valuation | ||
| £m | £m | £m | £m | £m | £m | £m | £m technique | |||
| Assets | ||||||||||
| Derivative financial instruments | Exchange rate contracts | — | 1,446 | — | 1,446 | — | 2,044 | — | 2,044 | A |
| Interest rate contracts | — | 3,232 | 3 | 3,235 | — | 2,399 | 7 | 2,406 | A & C | |
| Equity and credit contracts | — | 104 | 33 | 137 | — | 100 | 30 | 130 | B & D | |
| Netting | — | (2,262) | — | (2,262) | — | (2,173) | — | (2,173) | ||
| — | 2,520 | 36 | 2,556 | — | 2,370 | 37 | 2,407 | |||
| Other financial assets at FVTPL | Loans and advances to customers | — | — | 42 | 42 | — | — | 45 | 45 | A |
| Debt securities | — | 159 | 60 | 219 | — | 12 | 72 | 84 | A, B & D | |
| — | 159 | 102 | 261 | — | 12 | 117 | 129 | |||
| Financial assets at FVOCI | Debt securities | 6,968 | 104 | — | 7,072 | 5,996 | 28 | — | 6,024 | D |
| 6,968 | 104 | — | 7,072 | 5,996 | 28 | — | 6,024 | |||
| Total assets at fair value | 6,968 | 2,783 | 138 | 9,889 | 5,996 | 2,410 | 154 | 8,560 | ||
| Liabilities | ||||||||||
| Derivative financial instruments | Exchange rate contracts | — | 440 | — | 440 | — | 471 | — | 471 | A |
| Interest rate contracts | — | 3,345 | — | 3,345 | — | 2,624 | 4 | 2,628 | A & C | |
| Equity and credit contracts | — | 11 | 9 | 20 | — | 17 | 8 | 25 | B & D | |
| Netting | — | (2,262) | — | (2,262) | — | (2,173) | — | (2,173) | ||
| — | 1,534 | 9 | 1,543 | — | 939 | 12 | 951 | |||
| Other financial liabilities at FVTPL | Debt securities in issue | — | 463 | — | 463 | — | 477 | 3 | 480 | A |
| Structured deposits | — | 401 | — | 401 | — | 321 | — | 321 | A | |
| Collateral and associated financial | ||||||||||
| guarantees | — | — | — | — | — | 2 | — | 2 | D | |
| — | 864 | — | 864 | — | 800 | 3 | 803 | |||
| Total liabilities at fair value | — | 2,398 | 9 | 2,407 | — | 1,739 | 15 | 1,754 |
In H123 there were no significant (H122: no significant) transfers of financial instruments between levels of the fair value hierarchy.
The main valuation techniques employed in internal models to measure the fair value of the financial instruments are disclosed in Note 39(b) to the Consolidated Financial Statements in the 2022 Annual Report. Santander UK did not make any material changes to the valuation techniques and internal models it used in H123.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The internal models incorporate assumptions that Santander UK believes would be made by a market participant to establish fair value. Fair value adjustments are adopted when Santander UK considers that there are additional factors that would be considered by a market participant that are not incorporated in the valuation model.
Santander UK classifies fair value adjustments as either 'risk-related' or 'model-related'. The fair value adjustments form part of the portfolio fair value and are included in the balance sheet values of the product types to which they have been applied.
The fair value adjustments are set out in the following table:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Risk-related: | ||
| - Bid-offer and trade specific adjustments | (8) | (12) |
| - Uncertainty | 7 | 12 |
| - Credit risk adjustment | — | 2 |
| - Funding fair value adjustment | — | 1 |
| (1) | 3 | |
| Day One profit | — | 1 |
| (1) | 4 |
Risk-related adjustments are driven, in part, by the magnitude of Santander UK's market or credit risk exposure, and by external market factors, such as the size of market spreads. For more details, see 'Risk-related adjustments' in Note 39(f) to the Consolidated Financial Statements in the 2022 Annual Report.
There have been no significant changes to the valuation techniques as set out in Note 39(g) to the Consolidated Financial Statements in the 2022 Annual Report.
The following table sets out the movements in Level 3 financial instruments in H123:
| Assets | Liabilities | |||||
|---|---|---|---|---|---|---|
| Derivatives | Other financial assets at FVTPL |
Total | Derivatives | Other financial liabilities at FVTPL |
Total | |
| £m | £m | £m | £m | £m | £m | |
| At 1 January 2023 | 37 | 117 | 154 | (12) | (3) | (15) |
| Total (losses)/gains recognised: | ||||||
| Fair value movements(2) | 7 | (7) | — | (1) | — | (1) |
| Purchases | — | 1 | 1 | — | — | — |
| Netting(1) | — | (2) | (2) | — | — | — |
| Settlements | (8) | (7) | (15) | 4 | 3 | 7 |
| At 30 June 2023 | 36 | 102 | 138 | (9) | — | (9) |
| Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets and liabilities held at the end of the period(2) |
7 | (7) | — | (1) | — | (1) |
(1) This relates to the effect of netting on the fair value of the credit linked notes due to a legal right of set-off between the principal amounts of the senior notes and the associated cash deposits. For more, see 'ii) Credit protection entities' in Note 19 to the Consolidated Financial Statements in the 2022 Annual Report
(2) Fair value movements relating to derivatives and other financial assets at FVTPL are recognised in other operating income in the income statement.
There has been no significant change to the unobservable inputs and sensitivities used in Level 3 fair values as set out in Note 39(g) to the Consolidated Financial Statements in the 2022 Annual Report.
Directors
Financial statements Shareholder information
The following tables show the notional amounts of assets, liabilities and off-balance sheet commitments at 30 June 2023 and 31 December 2022 affected by IBOR reform that have yet to transition to an alternative benchmark interest rate as provided internally to key management personnel.
| 30 June 2023 | |||
|---|---|---|---|
| GBP(2) | USD(2) | ||
| LIBOR | LIBOR | Total | |
| £m | £m | £m | |
| Assets | |||
| Financial assets at amortised cost | 7 | 1 | 8 |
| 7 | 1 | 8 | |
| Liabilities | |||
| Derivatives(1) | — | 49 | 49 |
| — | 49 | 49 |
| 31 December 2022 | |||
|---|---|---|---|
| Assets | |||
| Derivatives(1) | — | 1,665 | 1,665 |
| Financial assets at amortised cost | 76 | 57 | 133 |
| 76 | 1,722 | 1,798 | |
| Liabilities | |||
| Derivatives(1) | 66 | 1,846 | 1,912 |
| 66 | 1,846 | 1,912 | |
| Off-balance sheet commitments given | 2 | — | 2 |
(1) Many of the Santander UK group's derivatives subject to IBOR reform are standard ISDA contracts and are subject to supplementary ISDA fallback provisions which became effective on 25 January 2021.
(2) Settings for GBP, JPY & NOK LIBOR & 1-week and 2-month USD LIBOR ceased on 31 December 2021 and for EONIA on 3 January 2022. For certain legacy contracts, while 1-month, 3-month and 6-month settings for JPY LIBOR ceased on 31 December 2022 and 1-month and 6-month synthetic GBP LIBOR settings ceased on 31 March 2023, the 3-month synthetic GBP LIBOR setting has been extended until the end of March 2024. Overnight, and 12-month USD LIBOR settings ceased on 30 June 2023. For certain legacy contracts, 1-month, 3-month and 6-month synthetic USD LIBOR settings will cease on 30 September 2024.
The table below shows the notional amount of derivatives in hedging relationships directly affected by uncertainties related to IBOR reform.
| 30 June 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| USD LIBOR |
Total | USD LIBOR |
Total | |
| £m | £m | £m | £m | |
| Total notional value of hedging instruments | ||||
| – Cash flow hedges | — | — | 2,906 | 2,906 |
| – Fair value hedges | — | — | 178 | 178 |
| — | — | 3,084 | 3,084 | |
| Maturing after cessation date(1) | ||||
| – Cash flow hedges | — | — | 2,906 | 2,906 |
| – Fair value hedges | — | — | 178 | 178 |
| — | — | 3,084 | 3,084 | |
(1) Overnight and 12-month USD LIBOR settings ceased on 30 June 2023. For certain legacy contracts, 1-month, 3-month and 6-month synthetic USD LIBOR settings will cease at the end of September 2024.
For more details on interest rate benchmark reform and the Santander UK group's transition from IBORs to alternative benchmark rates, see Note 41 to the Consolidated Financial Statements in the 2022 Annual Report.
Shareholder information
Management considered the sale of Santander House and Shenley Wood freehold land and buildings, part of an agreement with the developer for the construction of Unity Place, to be highly probable at the balance sheet date. As such, the Santander UK group classified these properties, which are included in the Corporate Centre segment and carried at their sales prices, as held for sale. The sale is expected to complete in H2 2023 with no gain or loss.
At 30 June 2023, assets held for sale comprised:
| 30 June 2023 | 31 December 2022 | |
|---|---|---|
| £m | £m | |
| Assets | ||
| Property, plant and equipment | 49 | 49 |
| Total assets held for sale | 49 | 49 |
There have been no significant events between 30 June 2023 and the date of approval of these financial statements which would require a change to or additional disclosure in the financial statements.
Shareholder information
| Board changes | 69 |
|---|---|
| Glossary | 69 |
| Forward-looking statements | 69 |
Shareholder information
Financial statements
A number of changes to the Board of Directors of Santander UK Group Holdings plc and Santander UK plc have taken effect in the year to date or will do so in the next few months:
As part of our Board succession planning and to ensure an orderly handover of responsibilities ahead of retirements later in the year, Michelle Hinchliffe and Jose Maria Roldan joined the Boards of the two companies with effect from 1 June 2023 as independent Non-Executive Directors (INED).
Antonio Simoes will resign from the Boards of Santander UK Group Holdings plc and Santander UK plc with effect from 31 August 2023 and be succeeded by Pedro Castro e Almeida with effect from 1 September 2023 as a Banco Santander SA nominated Non-Executive Director (subject to regulatory approval).
Duke Dayal, Executive Director and Chief Financial Officer, will resign from the Boards of both companies with effect from 27 September 2023 and will leave both companies later in the year. A successor for him in his role as Chief Financial Officer will be announced in due course.
As their nine-year terms draw to a close, Chris Jones (INED) will retire from the Boards of both companies with effect from 30 September 2023 and Annemarie Durbin (INED) will retire from the Board of Santander UK plc with effect from 15 December 2023.
The Board thank all those leaving for their contributions and wish them well in their new roles.
There have been no significant changes from the glossary in the 2022 Annual Report.
The Company and its subsidiaries (together Santander UK) may from time to time make written or oral forward-looking statements. The Company makes written forward-looking statements in this Half Yearly Financial Report and may also make forward-looking statements in its periodic reports to the SEC on Forms 20-F and 6-K, in its offering circulars and prospectuses, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties.
By their very nature, forward-looking statements are not statements of historical or current facts; they cannot be objectively verified, are speculative and involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Santander UK cautions readers that a number of important factors, could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by Santander UK or on its behalf. For more, see 'Forward-looking statements' in the Shareholder information section of the 2022 Annual Report.
Please also refer to our latest filings with the SEC (including, without limitation, our Annual Report on Form 20-F for the year ended 31 December 2022) for a discussion of certain risk factors and forward-looking statements. Undue reliance should not be placed on forward-looking statements when making decisions with respect to any Santander UK member and/or its securities. Investors and others should take into account the inherent risks and uncertainties of forwardlooking statements and should carefully consider the non-exhaustive list of important factors in the 2022 Annual Report, and how it could affect our operations and financial position. Forward-looking statements speak only as of the date on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; such knowledge, information and views may change at any time. Santander UK does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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