Interim / Quarterly Report • Aug 9, 2024
Interim / Quarterly Report
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Half Yearly Financial Report 2024
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 | 6 |
| Risk review | 7 |
| Financial statements | 41 |
| Shareholder information | 63 |
Shareholder information
"We remain focused on supporting our customers and delivering products and services that help them make the most of their money. Our expanded digital offer including OneApp, our new mobile banking app which has new functionality for an improved customer experience - is making it easier to use our services. We're also offering competitive savings rates and improved access to mortgage financing.
We've seen an increase in customers choosing our products with more businesses using Banco Santander's global network to trade abroad and continued success with our Edge current account. We will continue to leverage the scale and expertise of Banco Santander to ensure we're offering customers innovative and sustainable products. Looking ahead, we remain well positioned to support our retail and business customers as they benefit from the fall in inflation and improving economic picture.
Our first half financial results were in line with our expectations, with a more positive trajectory reflecting improvements in the second quarter. Our continued prudent approach to risk and balance sheet management means we remain well capitalised with a CET1 capital ratio of 15.4% after dividends and we expect the impact of our pricing actions and the increasing yield from the structural hedge to provide tailwinds in H224."
Mike Regnier Chief Executive Officer
(1) Non-IFRS measure. See 'Alternative Performance Measures' in the Financial Overview for details and a reconciliation of adjusted metrics to the nearest IFRS measure.
Shareholder information
"These results reflect the hard work of all our people and the actions we have taken to improve our margins and reduce expenses, which started to gain momentum in the second quarter. Our prudent approach to risk and balance sheet management means we remain strongly capitalised and are well positioned to benefit from tailwinds in the second half of the year."
| 30 June 2024 | 30 June 2023 | |
|---|---|---|
| £m | £m | |
| Net interest income | 2,104 | 2,361 |
| Non-interest income(1) | 191 | 233 |
| Total operating income | 2,295 | 2,594 |
| Operating expenses before credit impairment charges, provisions and charges | (1,279) | (1,219) |
| Credit impairment charges | (61) | (105) |
| Provisions for other liabilities and charges | (142) | (148) |
| Total credit impairment charges, provisions and charges | (203) | (253) |
| Profit before tax | 813 | 1,122 |
| Tax on profit | (213) | (308) |
| Profit after tax | 600 | 814 |
| Equity holders of the parent | 600 | 814 |
|---|---|---|
| Profit after tax | 600 | 814 |
(1) Comprises 'Net fee and commission income' and 'Other operating income'.
A more detailed Consolidated Income Statement is contained in the Condensed Consolidated Interim Financial Statements.
Profit before tax down 28%.
Shareholder information
This section analyses customer loans and customer deposits at a consolidated level and by business segment. The customer balances below exclude Joint ventures 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 2024 | 31 December 2023 | |
|---|---|---|
| £bn | £bn | |
| Customer loans | 198.3 | 203.1 |
| Other assets(1) | 65.9 | 72.3 |
| Total assets | 264.2 | 275.4 |
| Customer deposits | 181.2 | 187.4 |
| Total wholesale funding | 52.7 | 55.6 |
| Other liabilities | 16.1 | 17.8 |
| Total liabilities | 250.0 | 260.8 |
| Shareholders' equity(2) | 14.1 | 14.6 |
| Total liabilities and equity | 264.2 | 275.4 |
(1) At 30 June 2024, included £13m (2023: £13m) of property assets classified as held for sale.
(2) Decrease in shareholders' equity largely a result of rising SONIA rates on cash flow hedging, reducing the fair value of derivatives relating to the structural hedge.
For more analysis of credit risk on customer loans, see the Credit risk section of the Risk review.
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £bn | £bn | |
| Retail & Business Banking | 151.0 | 158.3 |
| - Current accounts | 62.8 | 65.0 |
| - Savings accounts | 73.2 | 77.5 |
| - Business banking accounts | 9.7 | 10.6 |
| - Other retail products | 5.3 | 5.2 |
| Corporate & Commercial Banking | 25.4 | 24.1 |
| Corporate Centre | 4.8 | 5.0 |
| Total | 181.2 | 187.4 |
For an analysis of customer loans by segment, see the 'Credit Performance' table in the Credit risk section of the Risk review.
| Customer loans(1) |
Customer deposits |
RWA | Profit/(loss) before tax |
|
|---|---|---|---|---|
| 30 June 2024 | £bn | £bn | £bn | £m |
| Retail & Business Banking | 175.3 | 151.0 | 600 | |
| Consumer Finance | 4.9 | — | 57 | |
| Corporate & Commercial Banking | 18.1 | 25.4 | 224 | |
| Corporate Centre | — | 4.8 | (68) | |
| Total | 198.3 | 181.2 | 67.1 | 813 |
| 30 June 2023 | £bn | £bn | £bn | £m |
| Retail & Business Banking | 183.3 | 155.7 | 880 | |
| Consumer Finance | 5.3 | — | 89 | |
| Corporate & Commercial Banking | 18.4 | 23.5 | 270 | |
| Corporate Centre | — | 4.7 | (117) | |
| Total | 207.0 | 183.9 | 70.7 | 1,122 |
(1) CCB customer loans included £4.9bn of CRE loans (31 December 2023: £4.6bn).
| CEO review | Financial overview |
|---|---|
Directors responsibilities Risk review Financial statements Shareholder information
– Profitability decreased with higher costs of deposits seen across the market. Pricing actions on deposits started to impact margins in the second quarter and will provide a tailwind in H224.
– Lower lending than H123, as a decision was made to focus on value and capital generation.
– Profitability decreased in line with the factors described above that led to the decrease in profit before tax on a consolidated basis. Growth from high value new to bank clients and balance sheet management. Focus on clients' international needs, connecting 1,500 companies to our global network to support their international growth in 2024.
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 2023 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 non-IFRS measures as set out in our 2023 Annual Report.
| Non-IFRS measure | Description and calculation |
|---|---|
| Non-interest income | Net fee and commission income plus other operating income. |
| Stage 3 ratio | The sum of Stage 3 drawn and Stage 3 undrawn assets divided by the sum of total drawn assets and stage 3 undrawn assets. |
Directors responsibilities Risk review Financial statements 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:
By Order of the Board
Mike Regnier
Chief Executive Officer 8 August 2024
CEO review Financial overview
Directors responsibilities Risk review
Financial statements Shareholder information
| Risk governance | 8 |
|---|---|
| Credit risk | 9 |
| Santander UK group level | 16 |
| Retail & Business Banking | 23 |
| Consumer Finance | 27 |
| Corporate & Commercial Banking | 28 |
| Corporate Centre | 29 |
| Liquidity risk | 30 |
| Capital risk | 33 |
| Market risk | 34 |
| Pension risk | 35 |
| Strategic and business risk | 36 |
| Reputational risk | 36 |
| Non Financial Risks: | |
| Operational risk | 37 |
| Financial crime risk | 39 |
| Model risk | 39 |
| Conduct and regulatory risk | 40 |
Directors responsibilities Risk review
Financial statements 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, underpinned by 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' in the 2023 Annual Report.
In H124, our key risk types remained as described in the 2023 Annual report, except for that Operational risk and resilience is now referred to as Operational risk.
Several of our risk types also have top and/or emerging risks associated with them. For more, see 'Top and emerging risks' in the 2023 Annual Report.
In H124, there were no significant changes in our risk governance and our top and emerging risks, as described in the 2023 Annual Report, except as follows:
In H124, our focus shifted away from Inflationary and Supply Chain pressures to Margin Compression risk. UK headline inflation reduced towards the 2% UK government target and markets indicated a peak in the bank rate. Our Asset & Liability Committee approved and implemented a strategy to manage and mitigate the risks of margin compression. We also introduced Resiliency, Payments Transformation and Artificial Intelligence (AI) / Machine Learning risks as new specific top risks, although these were already monitored within the existing risk types and through our Emerging Risks assessment. We removed People risk as a top risk, though this continues to be monitored as part of our strategic transformation programme.
We continued maturing our Financial Crime (FC) oversight capabilities and our Centre of Excellence operations to further integrate FC risk management across the business. We continued to review our operations and processes to maintain an appropriate response to the fluidity and complexity of global sanctions regimes and deploying supplemental technology in our screening processes. Enhancements in fraud prevention, delivered by our Fraud Transformation Programme, led to a reduction in fraud losses in H124 compared to the same period in 2023. Our planning is progressing well to meet the Payment Systems Regulator (PSR) new mandatory reimbursement requirement implementation date of 7 October 2024.
We continued to focus on Conduct and Regulatory risk matters, with significant regulatory engagement across a number of areas. These include FC, Technology, Regulatory models, Outsourcing and Third-Party Risk Management, Data Privacy, and Operational Resiliency. We maintained our focus and attention on the Consumer Duty, with a significant number of enhancements realised for on-sale and off-sale products and services across business and support areas, aligned to the requirements of the Duty. Additionally, we enhanced and implemented processes and tools to evolve our monitoring and delivery of good customer outcomes.
Technology remains at the centre of our non financial risk activities, and we continued to progress our bank-wide programme to address key risks in our IT estate, including platform obsolescence. The programme continues to deliver risk reduction, with improvements being monitored closely through our risk governance framework. There was elevated media coverage relating to a Banco Santander Group cybersecurity incident, including access of certain information. Updates on root cause analysis are being finalised with the PRA and FCA. The incident did not have a material effect on Santander UK. The cybersecurity threat remains elevated given heightened geopolitical tensions, with additional risks presented by advances in technology (including AI).
Risks associated with our strategic transformation plans include execution risks, funding prioritisation, and risks from ongoing cost reduction and efficiency focused initiatives. We have robust governance oversight and continuous change portfolio reviews to ensure appropriate strategic and risk-based prioritisation whilst ensuring that we have the capacity and sequencing in place to deliver.
In H124 we introduced three new specific top risks. Resiliency risk reflects the importance of complying with operational resiliency requirements by the regulatory deadline of March 2025. Payment Transformation risk addresses the rapidly-evolving payments industry landscape with new regulatory requirements and scheme changes and adoption of new technology and standards. Thirdly, AI / Machine Learning risk considers our preparedness to safely manage and respond to AI developments given the pace and scale of change anticipated in this space.
Macroeconomic and geopolitical risks remain in our top areas of focus with the potential to reignite inflationary pressures and impact the UK economy and the financial services industry. Geopolitical tensions could also escalate further and increase operational resilience risks via cybersecurity attacks. We continued to enhance our threat prevention controls and test our business area recovery plans against a range of scenarios. In the UK, political risks to the banking sector are in focus, driven by potential risks from changes in government policy following the 2024 General Election, which could impact our business plans. We monitor the political landscape closely, and our Public Affairs team gives specialist insights and analysis which we use to assess potential impacts to Santander UK.
Complex regulatory agenda and fast technological change remain our other top ranked emerging risks. In H124 the Bank of England and HM Treasury published their response to the Digital Pound consultation. We monitor progress related to this initiative via our Regulatory Liaison team and will review the potential impacts on us and the wider industry, such as risks of loss of customer deposits and higher wholesale funding costs.
In H124, we enhanced our approach to how we think about risk by formally introducing Risk Pro. Risk Pro is how we think and behave when it comes to risk, and builds on the focus on processes and risk management of I AM Risk. Risk Pro will help build our risk-related skills and capabilities, so everyone has the bravery and belief in their ability to do the right thing, using our TEAMS behaviours as described in the 2023 Annual Report. Risk Pro also aligns our approach more closely with the wider Banco Santander group. To help develop a Risk Pro mindset, we re-designed our risk mandatory training to focus on the risk mindset and behaviours.
Directors responsibilities Risk review Financial statements Shareholder information
Credit risk is the risk of financial loss due to the default or credit quality deterioration of a customer or counterparty to which we provided credit, or for whom we assumed a financial obligation.
In H124, there were no significant changes in the way we manage credit risk as described in the 2023 Annual Report except for the new impairment models for Retail Mortgages and CCB, and updates to our Significant Increase In Credit Risk (SICR) rules. These are explained below.
In this section, we analyse our key credit risk metrics.
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 2023 Annual Report except for:
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 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 2024, 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 H124, there were no significant changes in our forecasting approach as described in the 2023 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 2024 sees GDP recovering after two years of trivial growth, inflation remaining slightly above the 2% target and bank rate falling further. Geopolitical events may create the potential for further inflationary episodes and with productivity growth expected to remain weak, this will limit medium-term prospects. In addition, robust wage growth remains a key risk to inflation remaining at the 2% target.
In the medium-term, the projections assume that current demographic and productivity trends will continue, limiting scope for an improvement 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 1.3%, below 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 for most of the initial five-year forecast period.
Key metrics
Stage 3 ratio of 1.59% (2023: 1.51%).
Loss allowances of £958m (2023: £992m).
Balance weighted average LTV of 65% (2023: 66%) on new mortgage lending.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
Our base case has been updated to reflect stronger growth seen in H124. We now forecast two bank rate cuts rather than three later in 2024, this contributes to a slower rise in house price growth.
For our base case, we expect the economy to recover gradually following the mild technical recession in H223. Headwinds include weak productivity growth, an unstable geopolitical environment.
The key changes to our base case assumptions in H124 were: (i) the 2024 GDP growth forecast was revised up in response to stronger growth momentum and the improvement in business and consumer confidence indicators; (ii) the strength of services inflation (linked to robust wage growth) means headline CPI remains above the 2% target for most of the forecast period; (iii) a shallower bank rate profile, with cuts starting in H224; and (iv) house prices are 2.5% higher by the end of 2024 with a further increase of 3% by the end of 2025.
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 we consider provides a range wide enough to reflect all the above potential outcomes. With risks still skewed to the downside we concluded that only one upside scenario was needed to reflect the upside risks to the base case.
The four other scenarios are:
This scenario has a quicker recovery in growth than the Baseline and is a bull case to the base forecasts. It assumes that inflation falls slightly below target at the start of the forecast period helped by lower wage growth, and rises back above 2% over the period. This allows the Bank of England to cut rates earlier, bringing them back towards what might be considered the neutral rate, earlier than the base case. This results in higher consumer and business confidence enabling higher levels of spending and investment, with savings rates returning to levels consistent with economic growth as real earnings growth returns. GDP remains stronger than the base case, with house prices remaining relatively stable despite a modest increase in unemployment and inflation falling back to target and remaining there over the forecast horizon.
Downside 1 - This scenario is a bear case to the baseline. In this scenario, consumers opt to save more rather than spend, as consumer confidence remains low, partly reflecting concerns about the unstable geopolitical environment. House prices fall as more households look to downsize to lower their mortgage repayments in case of unemployment or a squeeze on incomes due to the higher tax burden. With inflation remaining above target, the bank rate remains in restrictive territory as core inflation stays above the baseline view, before cuts start as inflation falls back.
Stubborn inflation - The scenario considers the effect on the UK economy of a persistent inflationary environment. Here inflation fluctuates but remains above the Bank of England target for the entire forecast period due to both UK specific issues such as higher wage growth but also due to external factors such as geopolitical instability. Although inflation does not rise to the peak seen in 2022, it remains stubbornly above the 2% inflation target throughout the five-year forecast period. This causes a peak to trough fall in GDP of c-2.5% and a much higher bank rate profile with a peak of 6% 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 stronger pay growth, alongside the increase in geopolitical risk which affects market sentiment and causes further fragmentation of the global economy. It also assumes that major risk events continue to occur, exposing countries' fiscal vulnerabilities and their ability to respond to such events. For this scenario, an overlay to the UK unemployment rate was also made to the model output from the OGEM. This was to account for the possibility of a recession of similar size to that of 2008/09 where the unemployment rate peaked at 8.5%.
The downside scenarios capture a range of risks, including further escalation of geopolitical events, continuing weaker investment; reflecting the unstable environment; a continuing and significant mismatch between job vacancies and skills, as well as a smaller labour force; and political uncertainty due to a change of government following the July 2024 general election.
In H124, there were no significant changes in our alternative scenarios as described in the 2023 Annual Report.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The table below sets out our macroeconomic assumptions and their evolution throughout the forecast period for each of the five scenarios at 30 June 2024:
| % % % % % % GDP(1) 2023 (actual) 0.1 0.1 0.1 0.1 0.1 0.1 2024 1.1 0.8 0.6 (0.5) (1.2) 0.5 2025 2.1 1.3 0.4 (1.4) (3.5) 0.5 2026 2.4 1.5 0.3 — — 1.0 2027 2.5 1.4 0.3 0.7 1.9 1.3 2028 2.5 1.4 0.2 0.8 2.7 1.4 5-year average increase/decrease 2.3 1.3 0.4 (0.1) 0.1 n/a Start to trough(2) n/a n/a n/a (2.4) (5.2) n/a Bank Rate(1) 2023 (actual) 5.25 5.25 5.25 5.25 5.25 5.25 2024 4.50 4.75 5.50 6.00 4.00 4.93 2025 3.50 3.75 4.25 5.75 2.00 3.85 2026 3.00 3.50 3.25 4.00 2.00 3.30 2027 3.00 3.00 3.00 3.00 2.50 2.95 2028 3.00 3.00 3.00 3.00 3.00 3.00 5-year end period 3.00 3.00 3.00 3.00 3.00 3.00 5-year peak 5.25 5.25 5.50 6.00 5.25 5.25 HPI(1) 2023 (actual) (0.7) (0.7) (0.7) (0.7) (0.7) (0.7) 2024 9.1 2.5 (1.7) (4.4) (9.2) 0.4 2025 8.7 3.0 (5.0) (9.0) (16.5) (0.8) 2026 8.0 3.0 (2.3) (4.2) (9.2) 1.0 2027 7.4 3.0 1.2 3.8 5.8 3.5 2028 4.8 3.0 2.7 5.1 8.4 3.7 5-year average increase/decrease 7.4 2.6 (1.3) (2.0) (4.7) n/a Start to trough(2) n/a n/a (10.9) (18.9) (33.0) (2.7) Unemployment(1) 2023 (actual) 3.8 3.8 3.8 3.8 3.8 3.8 2024 4.2 4.4 4.4 4.9 6.6 4.7 2025 4.1 4.3 4.7 5.8 8.3 4.9 2026 4.0 4.2 5.1 6.1 7.7 4.9 2027 4.0 4.2 5.5 6.2 7.1 4.9 |
Upside | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | ||
|---|---|---|---|---|---|---|---|---|
| 2028 | 4.0 | 4.2 | 5.8 | 6.3 | 6.5 | 4.9 | ||
| 5-year end period 4.0 4.2 5.8 6.3 6.5 n/a |
||||||||
| 5-year peak 4.3 4.4 6.0 6.3 8.5 4.9 |
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| CRE price growth(1) 2023 (actual) (5.6) (5.6) (5.6) (5.6) (5.6) (5.6) |
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| 2024 1.3 (0.5) (1.7) (4.7) (6.7) (1.6) |
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| 2025 2.2 0.5 (0.9) (1.2) (2.2) — |
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| 2026 4.2 3.1 2.0 3.9 3.3 3.1 |
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| 2027 3.4 2.7 2.4 3.9 4.2 3.0 |
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| 2028 2.6 2.3 2.4 3.3 4.3 2.6 |
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| 5-year end period 2.9 1.9 1.1 1.3 0.8 n/a |
||||||||
| Start to trough(2) n/a n/a (2.0) (5.7) (8.5) (1.4) |
(1) GDP is the calendar year annual growth rate, HPI and CRE price growth is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
(2) GDP, HPI and CRE start is taken from level at Q124.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
The table below sets out our macroeconomic assumptions and their evolution for each of the five scenarios at 31 December 2023:
| Upside | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | ||
|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | ||
| GDP(1) | 2022 (actual) | 4.3 | 4.3 | 4.3 | 4.3 | 4.3 | 4.3 |
| 2023 | 0.6 | 0.5 | 0.5 | 0.5 | 0.3 | 0.5 | |
| 2024 | 1.0 | 0.4 | (0.1) | (1.8) | (3.3) | (0.4) | |
| 2025 | 2.1 | 1.3 | 0.2 | (0.9) | (1.4) | 0.6 | |
| 2026 | 2.4 | 1.5 | 0.5 | 0.4 | 0.6 | 1.1 | |
| 2027 | 2.4 | 1.4 | 0.3 | 0.7 | 2.2 | 1.4 | |
| 5-year average increase/decrease | 2.1 | 1.2 | 0.3 | (0.2) | 0.1 | n/a | |
| Peak/(trough) at(2) | — | — | (0.2) | (2.8) | (5.1) | (1.1) | |
| Bank Rate(1) | 2022 (actual) | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 |
| 2023 | 5.25 | 5.25 | 5.25 | 5.25 | 5.25 | 5.25 | |
| 2024 | 4.25 | 4.50 | 5.25 | 6.50 | 3.75 | 4.88 | |
| 2025 | 3.25 | 3.50 | 4.00 | 5.00 | 2.00 | 3.68 | |
| 2026 | 2.75 | 3.25 | 3.25 | 3.75 | 2.00 | 3.18 | |
| 2027 | 2.75 | 3.00 | 3.00 | 3.00 | 2.50 | 2.93 | |
| 5-year end period | 2.75 | 3.00 | 3.00 | 3.00 | 2.50 | n/a | |
| Peak/(trough) at | 5.25 | 5.25 | 5.75 | 6.50 | 5.25 | 5.55 | |
| HPI(1) | 2022 (actual) | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 |
| 2023 | (1.7) | (2.2) | (4.7) | (6.3) | (7.8) | (3.8) | |
| 2024 | 2.0 | (1.0) | (11.7) | (18.8) | (25.8) | (7.8) | |
| 2025 | 6.5 | 2.5 | 3.4 | 3.6 | 3.6 | 3.3 | |
| 2026 | 5.1 | 3.0 | 2.1 | 1.6 | 1.6 | 2.7 | |
| 2027 | 4.0 | 3.0 | 3.0 | 1.6 | 1.6 | 2.7 | |
| 5-year average increase/decrease | 4.3 | 2.0 | (0.8) | (3.3) | (5.4) | n/a | |
| Peak/(trough) at(2) | (3.7) | (6.5) | (17.5) | (25.5) | (33.0) | (13.8) | |
| Unemployment(1) | 2022 (actual) | 3.7 | 3.7 | 3.7 | 3.7 | 3.7 | 3.7 |
| 2023 | 4.3 | 4.3 | 4.3 | 4.3 | 4.4 | 4.3 | |
| 2024 | 4.3 | 4.8 | 4.8 | 5.6 | 8.5 | 5.3 | |
| 2025 | 3.7 | 4.4 | 4.9 | 5.9 | 8.0 | 5.1 | |
| 2026 | 3.4 | 4.3 | 5.2 | 6.2 | 7.4 | 5.0 | |
| 2027 | 3.0 | 4.3 | 5.4 | 6.1 | 6.8 | 4.9 | |
| 5-year end period | 3.0 | 4.2 | 5.3 | 5.8 | 6.2 | n/a | |
| Peak/(trough) at | 4.5 | 4.8 | 5.5 | 6.2 | 8.5 | 5.5 |
(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.
(2) GDP peak taken from GDP level at Q2-23 and HPI peak taken from HPI level at Q3-22.
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 find out 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 provides an estimate of the probability of a given GDP scenario occurring based on past experience and therefore assign a provisional weight to that scenario.
The scenario weights we applied for 30 June 2024 and 31 December 2023 were:
| Upside | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | |
|---|---|---|---|---|---|---|
| Scenario weights | % | % | % | % | % | % |
| 30 June 2024 | 10 | 50 | 20 | 10 | 10 | 100 |
| 31 December 2023 | 10 | 50 | 10 | 20 | 10 | 100 |
Now that the effects of the pandemic in terms of large GDP growth swings have passed, the Monte Carlo analysis returns to being based on data in the post GFC period from 2009 onwards in line with how it was being used pre-pandemic. For H124, all downside scenarios sit between the 60th and 80th percentiles suggesting a lower weight than the base case remains appropriate.
We also need to consider the UK's economic and political environment when applying the weights. With risks still heavily skewed to the downside we believe it is appropriate to weigh the scenarios to reflect this. These risks include: the ongoing cost of living challenges for households given the c.25% rise in prices since the start of the pandemic; a further escalation in geopolitical tensions creating extra challenges for economies globally including the UK; a continuation of upside inflation surprises causing inflation to stay above target for longer; continuing weak investment reflecting the uncertain economic environment, and a continuing and significant mismatch between vacancies and skills alongside a smaller labour force.
In H124, we increased the weight on the Downside 1 scenario by 10% with a corresponding decrease in our Stubborn Inflation scenario to rebalance the overall weighted ECL and to reflect the fact that the economic growth outlook has improved since the end of 2023.
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
Loans which have suffered a SICR since origination are subject to a lifetime ECL assessment which extends to a maximum of the contractual term of the loan, or the behavioural term for a revolving facility. Loans which have not experienced a SICR are subject to 12-month ECL. We assess the credit risk profile of each facility to determine which of three stages to allocate them to:
We use quantitative, qualitative and backstop criteria to identify exposures that suffer a SICR. The Credit Risk Provisions Forum (CRPF) reviews and approves our SICR thresholds periodically. The Board Audit Committee reviews and challenges their appropriateness each year, or more often if we change them.
In H124, alongside our new ECL models, we updated our SICR criteria to enhance and improve consistency across portfolios. As a result, we now treat the following accounts as Stage 2:
These changes increased the number of accounts in Stage 2 for Credit Cards and Overdrafts mainly due to the lower absolute PD thresholds with no material increase in ECL.
We use quantitative criteria to identify where an exposure has increased in credit risk. We base our criteria on whether any increase in the lifetime PD since origination exceeds a threshold in relative and absolute terms. We base the value anticipated at origination on similar assumptions and data to the ones we use at the reporting date, adjusted to reflect the account surviving to that date. The comparison uses either an annualised lifetime PD, where the lifetime PD is divided by the forecast period, or the absolute change in lifetime PD since origination.
The criteria for H124 and 2023 were: accounts above the lower absolute PD thresholds below, where the PD has doubled since origination, are treated as Stage 2. At 30 June 2024, any account above the upper threshold (i.e. 20%) is also treated as Stage 2:
| Retail and Business Banking Everyday Banking(1) |
Consumer | Corporate & | Corporate Centre | ||||
|---|---|---|---|---|---|---|---|
| Mortgages | Personal loans | Credit cards | Overdrafts | Finance(2) | Commercial Banking |
||
| 30 June 2024 | 30bps | 30bps | 30bps | 30bps | 300bps | 30bps | Internal rating method |
| 31 December 2023 | 30bps | 30bps | 340bps | 260bps | 300bps | 30bps | Internal rating method |
(1) For larger business banking customers, we apply the same criteria as we use for CCB. Credit cards and Overdrafts lower PD thresholds aligned with the rest of Everyday Banking at 30 June 2024 for consistency. (2) Consumer Finance use the comparison of lifetime PDs to determine Stage allocation, unlike other products which first turn the lifetime PD into an average yearly PD (annualised) and then do the comparison. In addition, Consumer Finance does not apply the upper absolute PD threshold criteria.
We also use qualitative criteria to identify where an exposure has increased in credit risk, independent of changes in PD. The criteria forH124 and 2023 were:
| Retail and Business Banking | ||||||
|---|---|---|---|---|---|---|
| Everyday Banking(1) | Consumer Finance | Corporate & Commercial Banking |
Corporate Centre | |||
| Mortgages | Personal loans | Credit cards | Overdrafts | |||
| – In forbearance – Default in last 24m – 30 Days Past Due (DPD) in last 12m – Bankrupt – £100+ arrears New in H124: – Over-indebted customers – Interest Only accounts 24m pre-maturity |
– In Collections – Default in last 12m – £50+ arrears |
– In forbearance – Default in last 12m – In Collections – £100+ arrears – Behaviour score indicators |
– Fees suspended – Default in last 12m – Debit dormant >35 days – Any excess in month |
– In forbearance – Deceased or Insolvent – Court 'Return of goods' order or Police watchlist – Agreement terminated – Payment holiday – Cash Collection |
– In forbearance – Default in last 12m – Watchlist: proactive management – Default at proxy origination – New in H124: Customers in a high-risk sector |
– Watchlist: proactive management |
(1) For larger business banking customers, we apply the same criteria that we use for Corporate & Commercial Banking.
If needed, we apply additional qualitative assessment as part of Judgemental Adjustments in response to situations where known or expected risk factors and information are not considered in the modelling process. See 'Judgemental Adjustments (JAs)' below for more on this.
As a backstop, we classify all exposures more than 30 or 90 DPD in at least Stage 2 or in Stage 3, respectively. This means that we do not rebut the backstop presumptions in IFRS 9 (i.e. credit risk has significantly increased if contractual payments are more than 30 DPD) relating to either a SICR or default.
We transfer Stage 3 exposures to Stage 2 or Stage 1 when we no longer consider them to be credit impaired. We transfer Stage 2 exposures to Stage 1 when we no longer consider them to have suffered a SICR. Where we identified a SICR using quantitative criteria, we transfer the exposures to Stage 1 when they no longer meet the original PD-based transfer criteria. Where we identified a SICR using qualitative criteria, the issues that led to the transfer must be cured before we transfer the exposure to Stage 1. For a loan to exit forbearance, it must meet the conditions set out in the section 'Forbearance' in the 'Credit risk' section of the Risk review in the 2023 Annual Report.
| CEO review | Financial overview |
|---|---|
Directors
responsibilities Risk review
Financial statements Shareholder information
| Retail & Business Banking | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Everyday Banking | Consumer | Corporate & | Corporate | ||||||
| Mortgages | Credit Cards | Other | Finance | Commercial Banking |
Centre | Total | |||
| 30 June 2024 | £m | £m | £m | £m | £m | £m | £m | ||
| Modelled ECL | 170 | 152 | 119 | 67 | 178 | — | 686 | ||
| Individually assessed | 3 | — | — | — | 175 | — | 178 | ||
| ECL before JAs | 173 | 152 | 119 | 67 | 353 | — | 864 | ||
| JAs (excluding Affordability and Cost of Living JAs) | |||||||||
| UPL loss floor | — | — | 20 | — | — | — | 20 | ||
| Mortgages LGD | 20 | — | — | — | — | — | 20 | ||
| Corporate single large exposure | — | — | — | — | 10 | — | 10 | ||
| Other | — | 1 | 6 | 3 | — | — | 10 | ||
| Total JAs (excluding Affordability and Cost of Living JAs) | 20 | 1 | 26 | 3 | 10 | — | 60 | ||
| Affordability and Cost of Living JAs | |||||||||
| Corporate lending to segments affected by supply chain pressures | — | — | — | — | 14 | — | 14 | ||
| Mortgage refinancing risk | 14 | — | — | — | — | — | 14 | ||
| SME debt burden | — | — | 6 | — | — | — | 6 | ||
| Total Affordability and Cost of Living JAs | 14 | — | 6 | — | 14 | — | 34 | ||
| Total JAs | 34 | 1 | 32 | 3 | 24 | — | 94 | ||
| Total ECL | 207 | 153 | 151 | 70 | 377 | — | 958 | ||
| 31 December 2023 | £m | £m | £m | £m | £m | £m | £m | ||
| Modelled ECL | 132 | 123 | 123 | 62 | 240 | — | 680 | ||
| Individually assessed | 4 | — | — | — | 124 | — | 128 | ||
| ECL before JAs | 136 | 123 | 123 | 62 | 364 | — | 808 | ||
| JAs (excluding Affordability and Cost of Living JAs) | |||||||||
| Long-term indeterminate arrears | 16 | — | — | — | — | — | 16 | ||
| 12+ months in arrears | 14 | — | — | — | — | — | 14 | ||
| UPL loss floor | — | — | 6 | — | — | — | 6 | ||
| Model underestimation | 36 | — | — | — | — | — | 36 | ||
| Corporate single large exposure | — | — | — | — | 23 | — | 23 | ||
| Other | 12 | 1 | 3 | 4 | (31) | — | (11) | ||
| Total JAs (excluding Affordability and Cost of Living JAs) | 78 | 1 | 9 | 4 | (8) | — | 84 | ||
| Affordability and Cost of Living JAs | |||||||||
| Corporate lending to segments affected by supply chain pressures | — | — | — | — | 24 | — | 24 | ||
| Secured affordability | 9 | — | — | 4 | — | — | 13 | ||
| Unsecured affordability | — | 16 | 22 | — | — | — | 38 | ||
| Mortgage refinancing risk | 19 | — | — | — | — | — | 19 | ||
| SME debt burden | — | — | 6 | — | — | — | 6 | ||
| Total Affordability and Cost of Living JAs | 28 | 16 | 28 | 4 | 24 | — | 100 | ||
| Total JAs | 106 | 17 | 37 | 8 | 16 | — | 184 | ||
| Total ECL | 242 | 140 | 160 | 70 | 380 | — | 992 |
In H124, we implemented new Retail Mortgages and CCB impairment models, which now embed Long-term underlying arrears, 12+months arrears, Model Underestimation, and Mortgages Secured Affordability JAs. The new CCB model also captures the risks associated with Corporate customers operating within higher risk sectors reducing the level of CCB JAs.
In response to the improved economic data, specifically inflation, we re-assessed the need for cost of living JAs and retired the Secured and Unsecured Affordability JAs.
In H124, we introduced a new Mortgage LGD JA which adjusts the historically observed experience for Stage 3 accounts due to specific factors which have temporarily suppressed possession and litigation activity.
As a result, JAs reduced from £184m to £94m. The proportion of JAs to total ECL decreased from 19% to 10%.
| 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 | Base case | Downside 1 | Stubborn Inflation |
Downside 2 | Weighted | |
|---|---|---|---|---|---|---|
| 30 June 2024 | £m | £m | £m | £m | £m | £m |
| Exposure | 288,999 | 288,999 | 288,999 | 288,999 | 288,999 | 288,999 |
| Retail & Business Banking | 199,685 | 199,685 | 199,685 | 199,685 | 199,685 | 199,685 |
| Of which: | ||||||
| – Mortgages | 179,088 | 179,088 | 179,088 | 179,088 | 179,088 | 179,088 |
| Consumer Finance | 4,880 | 4,880 | 4,880 | 4,880 | 4,880 | 4,880 |
| Corporate & Commercial Banking | 30,838 | 30,838 | 30,838 | 30,838 | 30,838 | 30,838 |
| Corporate Centre | 53,596 | 53,596 | 53,596 | 53,596 | 53,596 | 53,596 |
| ECL | 779 | 842 | 992 | 1,137 | 1,545 | 958 |
| Retail & Business Banking | 381 | 435 | 565 | 653 | 1,038 | 511 |
| Of which: | ||||||
| – Mortgages | 99 | 146 | 241 | 322 | 705 | 207 |
| Consumer Finance | 69 | 69 | 70 | 72 | 72 | 70 |
| Corporate & Commercial Banking | 329 | 338 | 357 | 412 | 435 | 377 |
| Corporate Centre | — | — | — | — | — | — |
| 31 December 2023 | £m | £m | £m | £m | £m | £m |
|---|---|---|---|---|---|---|
| Exposure | 294,877 | 294,877 | 294,877 | 294,877 | 294,877 | 294,877 |
| Retail & Business Banking | 201,977 | 201,977 | 201,977 | 201,977 | 201,977 | 201,977 |
| Of which: | ||||||
| – Mortgages | 181,188 | 181,188 | 181,188 | 181,188 | 181,188 | 181,188 |
| Consumer Finance | 5,228 | 5,228 | 5,228 | 5,228 | 5,228 | 5,228 |
| Corporate & Commercial Banking | 27,277 | 27,277 | 27,277 | 27,277 | 27,277 | 27,277 |
| Corporate Centre | 60,395 | 60,395 | 60,395 | 60,395 | 60,395 | 60,395 |
| ECL | 833 | 896 | 991 | 1,176 | 1,410 | 992 |
| Retail & Business Banking | 419 | 465 | 536 | 689 | 889 | 542 |
| Of which: | ||||||
| – Mortgages | 141 | 174 | 234 | 363 | 562 | 242 |
| Consumer Finance | 68 | 69 | 70 | 72 | 72 | 70 |
| Corporate & Commercial Banking | 346 | 362 | 385 | 415 | 449 | 380 |
| Corporate Centre | — | — | — | — | — | — |
ECL reduced by £34m since 31 December 2023. Mortgages, CCB and EDB - Other all decreased due to an improved economic outlook driving ECL model releases. The ECL on Credit Cards increased due to updated SICR rules. The value of JAs decreased in H124 due to the implementation of new impairment models for Mortgages and CCB, as well as the release of the cost of living JAs on the Unsecured portfolio.
Shareholder information
Directors
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 2023 Annual Report.
| Santander UK risk grade | Loss | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1)(2) | allowance | Total | |
| 30 June 2024 | £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) | 4.9 | 32.5 | 84.4 | 47.5 | 14.1 | 7.5 | 5.8 | 7.2 | (0.9) | 203.0 |
| –Stage 1 | 4.8 | 31.3 | 79.7 | 41.5 | 11.1 | 2.9 | 0.6 | 7.0 | (0.1) | 178.8 |
| –Stage 2 | 0.1 | 1.2 | 4.7 | 6.0 | 2.9 | 4.5 | 2.5 | 0.1 | (0.4) | 21.6 |
| –Stage 3 | — | — | — | — | 0.1 | 0.1 | 2.7 | 0.1 | (0.4) | 2.6 |
| Of which mortgages: | 4.4 | 30.3 | 78.2 | 42.0 | 6.7 | 3.7 | 3.3 | — | (0.2) | 168.4 |
| –Stage 1 | 4.4 | 29.2 | 73.6 | 36.0 | 4.3 | 0.7 | — | — | — | 148.2 |
| –Stage 2 | — | 1.1 | 4.6 | 6.0 | 2.4 | 2.9 | 1.4 | — | (0.1) | 18.3 |
| –Stage 3 | — | — | — | — | — | 0.1 | 1.9 | — | (0.1) | 1.9 |
| Santander UK risk grade | Coverage | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1)(2) | Total | Ratio | |
| 30 June 2024 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | % |
| ECL - On balance sheet | ||||||||||
| Financial assets at amortised cost: | ||||||||||
| – Loans and advances to customers(2) | — | — | — | 0.1 | 0.2 | 0.1 | 0.5 | — | 0.9 | 0.4 |
| – Stage 1 | — | — | — | — | 0.1 | — | — | — | 0.1 | 0.1 |
| – Stage 2 | — | — | — | 0.1 | 0.1 | 0.1 | 0.1 | — | 0.4 | 1.8 |
| – Stage 3 | — | — | — | — | — | — | 0.4 | — | 0.4 | 13.3 |
| Of which mortgages: | — | — | — | — | 0.1 | — | 0.1 | — | 0.2 | 0.1 |
| – Stage 1 | — | — | — | — | — | — | — | — | — | — |
| – Stage 2 | — | — | — | — | 0.1 | — | — | — | 0.1 | 0.5 |
| – Stage 3 | — | — | — | — | — | — | 0.1 | — | 0.1 | 5.0 |
| Santander UK risk grade | Loss | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1)(2) | allowance | Total | |
| 31 December 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) | 5.3 | 34.2 | 84.4 | 48.9 | 14.6 | 8.3 | 5.4 | 7.2 | (0.9) | 207.4 |
| – Stage 1 | 5.3 | 33.1 | 80.4 | 43.6 | 10.3 | 2.8 | 0.3 | 6.9 | (0.1) | 182.6 |
| – Stage 2 | — | 1.1 | 4.0 | 5.3 | 4.3 | 5.4 | 2.4 | 0.1 | (0.4) | 22.2 |
| – Stage 3 | — | — | — | — | — | 0.1 | 2.7 | 0.2 | (0.4) | 2.6 |
| Of which mortgages: | 5.2 | 32.5 | 79.9 | 41.5 | 6.6 | 3.7 | 3.5 | — | (0.2) | 172.7 |
| – Stage 1 | 5.2 | 31.4 | 75.9 | 36.3 | 3.6 | 0.4 | 0.2 | — | — | 153.0 |
| – Stage 2 | — | 1.1 | 4.0 | 5.2 | 3.0 | 3.2 | 1.4 | — | (0.1) | 17.8 |
| – Stage 3 | — | — | — | — | — | 0.1 | 1.9 | — | (0.1) | 1.9 |
| Santander UK risk grade | Coverage | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 9 | 8 | 7 | 6 | 5 | 4 | 3 to 1 | Other(1)(2) | Total | Ratio | |
| 31 December 2023 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | % |
| ECL - On balance sheet | ||||||||||
| Financial assets at amortised cost: | ||||||||||
| – Loans and advances to customers(2) | — | — | — | — | 0.2 | 0.2 | 0.5 | — | 0.9 | 0.4 |
| – Stage 1 | — | — | — | — | 0.1 | — | — | — | 0.1 | 0.1 |
| – Stage 2 | — | — | — | — | 0.1 | 0.2 | 0.1 | — | 0.4 | 1.8 |
| – Stage 3 | — | — | — | — | — | — | 0.4 | — | 0.4 | 13.3 |
| Of which mortgages: | — | — | — | — | — | 0.1 | 0.1 | — | 0.2 | 0.1 |
| – Stage 1 | — | — | — | — | — | — | — | — | — | — |
| – Stage 2 | — | — | — | — | — | 0.1 | — | — | 0.1 | 0.6 |
| – Stage 3 | — | — | — | — | — | — | 0.1 | — | 0.1 | 5.0 |
(1) Includes Joint Ventures and Bounce Back Loans (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 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| % | % | |
| Mortgages | 0.85 | 0.80 |
| Credit Cards | 0.54 | 0.51 |
| UPL | 0.85 | 0.73 |
| Overdrafts | 2.58 | 2.43 |
| Business Banking | 4.13 | 4.15 |
| Consumer Finance | 0.52 | 0.43 |
| Corporate & Commercial Banking | 1.30 | 1.04 |
Mortgage assets continued to fall following further disciplined pricing actions to optimise the balance sheet given higher funding costs continuing to contribute to a reduction in mortgage lending. In H124, early and late arrears remained at low levels despite a slight increase across the portfolio over the period.
Loans in Stage 2 and 3 remain low compared to historic trends although, as expected we saw an increase in arrears in H124. While underlying asset quality remains good, we saw an impact from changes to our SICR criteria. These were updated in H124 and increased Stage 2 loans for mortgages and credit cards.
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 2024 comprised £198.3bn of customer loans, loans and advances to banks of £1.0bn, £17.1bn of sovereign assets measured at amortised cost £8.6bn of assets measured at FVOCI, and £26.9bn of cash and balances at central banks.
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| 30 June 2024 | £m | £m | £m | £m |
| Exposures | ||||
| On-balance sheet | ||||
| Retail & Business Banking | 153,690 | 19,375 | 2,197 | 175,262 |
| Consumer Finance | 4,539 | 305 | 36 | 4,880 |
| Corporate & Commercial Banking | 14,966 | 2,339 | 779 | 18,084 |
| Corporate Centre | 53,596 | — | — | 53,596 |
| Total on-balance sheet | 226,791 | 22,019 | 3,012 | 251,822 |
| Off-balance sheet | ||||
| Retail & Business Banking(1) | 23,568 | 793 | 62 | 24,423 |
| Consumer Finance | — | — | — | — |
| Corporate & Commercial Banking | 12,229 | 449 | 76 | 12,754 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet(2) | 35,797 | 1,242 | 138 | 37,177 |
| Total exposures | 262,588 | 23,261 | 3,150 | 288,999 |
| On-balance sheet | ||||
|---|---|---|---|---|
| Retail & Business Banking | 55 | 258 | 154 | 467 |
| Consumer Finance | 16 | 28 | 26 | 70 |
| Corporate & Commercial Banking | 45 | 73 | 205 | 323 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 116 | 359 | 385 | 860 |
| Off-balance sheet | ||||
| Retail & Business Banking | 14 | 29 | 1 | 44 |
| Consumer Finance | — | — | — | — |
| Corporate & Commercial Banking | 21 | 16 | 17 | 54 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet | 35 | 45 | 18 | 98 |
| Total ECL | 151 | 404 | 403 | 958 |
| Coverage ratio(3) | % | % | % | % |
| On-balance sheet | ||||
| Retail & Business Banking | — | 1.3 | 7.0 | 0.3 |
| Consumer Finance | 0.4 | 9.3 | 70.3 | 1.4 |
| Corporate & Commercial Banking | 0.3 | 3.1 | 26.3 | 1.8 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 0.1 | 1.6 | 12.8 | 0.3 |
| Off-balance sheet | ||||
| Retail & Business Banking | 0.1 | 3.7 | 2.8 | 0.2 |
| Consumer Finance | — | — | — | — |
| Corporate & Commercial Banking | 0.2 | 3.5 | 21.7 | 0.4 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet | 0.1 | 3.6 | 13.3 | 0.3 |
| Total coverage | 0.1 | 1.7 | 12.8 | 0.3 |
(1) Off-balance sheet exposures include£5.6bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 24.
(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 2023 comprised £203.1bn of customer loans, loans and advances to banks of £1.1bn, £12.6bn of sovereign assets measured at amortised cost, £8.5bn of assets measured at FVOCI, and £38.2bn of cash and balances at central banks.
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| 31 December 2023 | £m | £m | £m | £m |
| Exposures | ||||
| On-balance sheet | ||||
| Retail & Business Banking | 158,782 | 18,866 | 2,239 | 179,887 |
| Consumer Finance | 4,870 | 330 | 28 | 5,228 |
| Corporate & Commercial Banking | 13,822 | 3,418 | 699 | 17,939 |
| Corporate Centre | 60,395 | — | — | 60,395 |
| Total on-balance sheet | 237,869 | 22,614 | 2,966 | 263,449 |
| Off-balance sheet | ||||
| Retail & Business Banking(1) | 21,597 | 434 | 59 | 22,090 |
| Consumer Finance | — | — | — | — |
| Corporate & Commercial Banking | 8,745 | 547 | 46 | 9,338 |
| Corporate Centre | — | — | — | — |
| Total off-balance sheet(2) | 30,342 | 981 | 105 | 31,428 |
| Total exposures | 268,211 | 23,595 | 3,071 | 294,877 |
| ECL | ||||
| On-balance sheet | ||||
| Retail & Business Banking | 57 | 273 | 169 | 499 |
| Consumer Finance | 21 | 30 | 19 | 70 |
| Corporate & Commercial Banking | 64 | 118 | 163 | 345 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 142 | 421 | 351 | 914 |
| Off-balance sheet | ||||
| Retail & Business Banking | 16 | 26 | 1 | 43 |
| Consumer Finance | — | — | — | — |
| Corporate & Commercial Banking | 12 | 14 | 9 | 35 |
| Total off-balance sheet | 28 | 40 | 10 | 78 |
| Total ECL | 170 | 461 | 361 | 992 |
| Coverage ratio(3) | % | % | % | % |
| On-balance sheet | ||||
| Retail & Business Banking | — | 1.4 | 7.5 | 0.3 |
| Consumer Finance | 0.4 | 9.0 | 68.5 | 1.3 |
| Corporate & Commercial Banking | 0.5 | 3.5 | 23.4 | 1.9 |
| Corporate Centre | — | — | — | — |
| Total on-balance sheet | 0.1 | 1.9 | 11.8 | 0.3 |
| Off-balance sheet | ||||
| Retail & Business Banking | 0.1 | 6.0 | 2.8 | 0.2 |
| Consumer Finance | — | — | — | — |
| Corporate & Commercial Banking | 0.1 | 2.5 | 20.2 | 0.4 |
| Total off-balance sheet | 0.1 | 4.1 | 10.4 | 0.2 |
(1) Off-balance sheet exposures include £3.3bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 24.
(3) ECL as a percentage of the related exposure.
The ECL provision at 30 June 2024 decreased by £34m to £958m (2023: £992m) with a £37m release of JAs related to cost of living and a change in our economic assumptions and weightings.
Total coverage 0.1 2.0 11.8 0.3
6-month gross write-off utilisation of £98m (H123: £97m) largely driven by unsecured retail.
Key movements in exposures and ECL in H124 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.
| Backstop | Quantitative | Qualitative | JAs | |||||
|---|---|---|---|---|---|---|---|---|
| 30 June 2024 | 30 DPD | PD deterioration | PD threshold | Forbearance(1) | Other(2) | Mortgage Refinancing |
Total | |
| Retail & Business | Exposure £m | 714 | 9,911 | 482 | 377 | 4,086 | 3,805 | 19,375 |
| Banking | ECL £m | 26 | 155 | 28 | 6 | 29 | 14 | 258 |
| Of which | Exposure £m | 578 | 9,299 | 366 | 374 | 4,016 | 3,805 | 18,438 |
| -Mortgages | ECL £m | 9 | 65 | 5 | 5 | 13 | 14 | 111 |
| Consumer Finance | Exposure £m | 28 | 146 | — | — | 131 | — | 305 |
| ECL £m | 10 | 11 | — | — | 7 | — | 28 | |
| Corporate & | Exposure £m | 18 | 1,342 | — | 82 | 897 | — | 2,339 |
| Commercial Banking | ECL £m | 3 | 54 | — | 1 | 15 | — | 73 |
| Corporate Centre | Exposure £m | — | — | — | — | — | — | — |
| ECL £m | — | — | — | — | — | — | — | |
| Total Drawn | Exposure £m | 760 | 11,399 | 482 | 459 | 5,114 | 3,805 | 22,019 |
| ECL £m | 39 | 220 | 28 | 7 | 51 | 14 | 359 | |
| Undrawn | ECL £m | 1 | 32 | 5 | 1 | 6 | — | 45 |
| Total Reported | Exposure £m | 765 | 12,174 | 534 | 492 | 5,489 | 3,807 | 23,261 |
| ECL £m | 40 | 252 | 33 | 8 | 57 | 14 | 404 |
| 31 December 2023 | Backstop | Quantitative | Qualitative | JAs | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 30 DPD | PD deterioration |
Forbearance(1) | Other | Secured affordability |
Unsecured affordability |
Mortgage Refinancing |
High risk corporate |
Total | ||
| Retail & Business Banking |
Exposure £m | 738 | 6,421 | 516 | 301 | 2,889 | 232 | 7,769 | — | 18,866 |
| ECL £m | 33 | 164 | 2 | 11 | 9 | 35 | 19 | — | 273 | |
| Of which | Exposure £m | 560 | 5,877 | 516 | 265 | 2,889 | — | 7,769 | — | 17,876 |
| -Mortgages | ECL £m | 11 | 65 | 2 | 3 | 9 | — | 19 | — | 109 |
| Consumer Finance | Exposure £m | 25 | 115 | — | 126 | 64 | — | — | — | 330 |
| ECL £m | 11 | 10 | — | 5 | 4 | — | — | — | 30 | |
| Corporate & Commercial Banking |
Exposure £m | 93 | 1,809 | 85 | 533 | — | — | — | 898 | 3,418 |
| ECL £m | 2 | 75 | 2 | 17 | — | — | — | 22 | 118 | |
| Corporate Centre | Exposure £m | — | — | — | — | — | — | — | — | — |
| ECL £m | — | — | — | — | — | — | — | — | — | |
| Total Drawn | Exposure £m | 856 | 8,345 | 601 | 960 | 2,953 | 232 | 7,769 | 898 | 22,614 |
| ECL £m | 46 | 249 | 4 | 33 | 13 | 35 | 19 | 22 | 421 | |
| Undrawn | ECL £m | 3 | 28 | — | 4 | — | 3 | — | 2 | 40 |
| Total Reported | Exposure £m | 893 | 9,160 | 601 | 1,152 | 2,889 | 233 | 7,769 | 898 | 23,595 |
| ECL £m | 49 | 277 | 4 | 37 | 13 | 38 | 19 | 24 | 461 |
(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.
(2) Mainly consists of the former Affordability JAs now embedded into the model.
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.
| 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 2024 | £m | £m | £m | £m | £m | |
| Retail & Business Banking(1) | 175,262 | 467 | 174,795 | 24,423 | 44 | |
| Consumer Finance | 4,880 | 70 | 4,810 | — | — | |
| Corporate & Commercial Banking | 18,084 | 323 | 17,761 | 12,754 | 54 | |
| Corporate Centre | 53,596 | — | 53,596 | — | — | |
| Total exposures presented in Credit Quality tables | 251,822 | 860 | 250,962 | 37,177 | 98 | |
| Joint ventures | 4,901 | |||||
| Other items | 776 | |||||
| Adjusted net carrying amount | 256,639 | |||||
| Assets classified at FVTPL | 1,380 | |||||
| Non-financial assets(2) | 6,169 | |||||
| Total assets per the Consolidated Balance Sheet | 264,188 | |||||
| 31 December 2023 | ||||||
| Retail & Business Banking(1) | 179,887 | 499 | 179,388 | 22,090 | 43 | |
| Consumer Finance | 5,228 | 70 | 5,158 | — | — | |
| Corporate & Commercial Banking | 17,939 | 345 | 17,594 | 9,338 | 35 | |
| Corporate Centre | 60,395 | — | 60,395 | — | — | |
| Total exposures presented in Credit Quality tables | 263,449 | 914 | 262,535 | 31,428 | 78 | |
| Joint ventures | 4,544 | |||||
| Other items | 751 | |||||
| Adjusted net carrying amount | 267,830 | |||||
| Assets classified at FVTPL | 1,694 | |||||
| Non-financial assets(2) | 5,924 | |||||
| Total assets per the Consolidated Balance Sheet | 275,448 |
(1) Off-balance sheet exposures include offers in the pipeline, undrawn flexible mortgage products and credit cards.
(2) Non-financial assets include £1,034m (2023: £632m) 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) | ECL | Exposures(1) | ECL | Exposures(1) | ECL | Exposures(1) | ECL | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2024 | 268,211 | 170 | 23,595 | 461 | 3,071 | 361 | 294,877 | 992 |
| Transfers from Stage 1 to Stage 2(3) | (10,701) | (14) | 10,701 | 14 | — | — | — | — |
| Transfers from Stage 2 to Stage 1(3) | 7,780 | 112 | (7,780) | (112) | — | — | — | — |
| Transfers to Stage 3(3) | (221) | (1) | (688) | (37) | 909 | 38 | — | — |
| Transfers from Stage 3(3) | 12 | — | 304 | 24 | (316) | (24) | — | — |
| Transfers of financial instruments | (3,130) | 97 | 2,537 | (111) | 593 | 14 | — | — |
| Net ECL remeasurement on stage transfer(4) | — | (98) | — | 115 | — | 101 | — | 118 |
| Change in economic scenarios(2) | — | (9) | — | (19) | — | 1 | — | (27) |
| Change to ECL models | (2,287) | (5) | 2,361 | 37 | (74) | (26) | — | 6 |
| New lending and assets purchased(5) | 18,165 | 31 | 721 | 31 | 122 | 27 | 19,008 | 89 |
| Redemptions, repayments and assets sold(7) | (23,128) | (30) | (2,574) | (41) | (652) | (52) | (26,354) | (123) |
| Changes in risk parameters and other movements(6) | 4,757 | (5) | (3,379) | (69) | 225 | 75 | 1,603 | 1 |
| Assets written off(7) | — | — | — | — | (135) | (98) | (135) | (98) |
| At 30 June 2024 | 262,588 | 151 | 23,261 | 404 | 3,150 | 403 | 288,999 | 958 |
| Net movement in the period | (5,623) | (19) | (334) | (57) | 79 | 42 | (5,878) | (34) |
| ECL (release)/charge to the Income Statement | (19) | (57) | 140 | 64 | ||||
| Less: Discount unwind | — | — | (11) | (11) | ||||
| Less: Recoveries net of collection costs | — | — | 8 | 8 | ||||
| Total ECL (release)/charge to the Income Statement | (19) | (57) | 137 | 61 | ||||
| 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) |
| Change to ECL models | — | — | — | — | — | — | — | — |
| 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 |
(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.
| CEO review | Financial overview |
|---|---|
| ------------ | -------------------- |
Shareholder information
We provide detailed credit risk analysis for Retail & Business Banking in separate sections below for Mortgages, our largest portfolio, and our Everyday Banking portfolio.
| Stock | New business | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 30 June 2024 | 31 December 2023 | 30 June 2024 | 30 June 2023 | ||||||
| £m | % | £m | % | £m | % | £m | % | ||
| Home movers(1) | 70,315 | 41 | 71,931 | 42 | 2,909 | 43 | 1,753 | 43 | |
| Remortgagers(2) | 46,575 | 28 | 48,475 | 28 | 1,950 | 29 | 1,163 | 29 | |
| First-time buyers | 36,571 | 22 | 36,868 | 21 | 1,799 | 26 | 1,028 | 26 | |
| Buy-to-let | 15,128 | 9 | 15,585 | 9 | 156 | 2 | 70 | 2 | |
| 168,589 | 100 | 172,859 | 100 | 6,814 | 100 | 4,014 | 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 £18.1bn (H123: £15.4bn) of remortgages where we moved our customers with maturing mortgages onto new ones. We also provided £0.4bn (H123: £0.4bn) of further advances and flexible mortgage drawdowns. 77% (2023: 77%) of customers with a maturing mortgage were retained, which applied to mortgages three months post maturity, based on a 12-month average of retention rates to March 2024.
In H124, mortgage asset stock decreased across all sectors, with the stock borrower profile unchanged. Our new business increased year-on-year in all sectors due to increased lending appetite as economic pressures continued to ease, allowing for improved lending margins. However, this increase in new business lending has not offset repayments and redemptions in the period, so the book continued to deleverage. In H124, we helped first-time buyers buy their new home with £1.8bn of gross lending (H123: £1.0bn).
The interest rate profile of our maturing mortgage asset stock was:
| 30 June 2024 | 31 December 2023 | |||
|---|---|---|---|---|
| £m | % | £m | % | |
| Fixed rate | 149,904 | 89 | 153,207 | 89 |
| Of which maturing: | ||||
| – < 12 months | 32,221 | 19 | 37,630 | 22 |
| – Later than 1 year but no later than 3 years | 79,535 | 47 | 65,502 | 38 |
| – Later than 3 years but no later than 4 years | 21,691 | 13 | 34,725 | 20 |
| – Later than 4 years but no later than 5 years | 12,374 | 7 | 10,977 | 6 |
| – Later than 5 years | 4,083 | 3 | 4,373 | 3 |
| Variable rate | 13,335 | 8 | 13,761 | 8 |
| Standard Variable Rate (SVR) | 3,506 | 2 | 3,915 | 2 |
| Follow on Rate (FoR) | 1,844 | 1 | 1,976 | 1 |
| 168,589 | 100 | 172,859 | 100 |
In H124, we continued to see customers refinance from SVR and FoR to fixed rate products influenced by continued higher interest rates, with a slight increase in demand for variable rate products tracking the Bank of England base rate. We continued to see more customers choosing shorter-term fixed rate products in H124.
The geographical distribution of our mortgage asset stock and new business was:
| Stock | New business | ||||
|---|---|---|---|---|---|
| 30 June 2024 | 31 December 2023 | 30 June 2024 | 30 June 2023 | ||
| Region | £bn | £bn | £bn | £bn | |
| London | 43.0 | 44.0 | 1.7 | 1.0 | |
| Midlands and East Anglia | 23.6 | 24.2 | 1.0 | 0.6 | |
| North | 22.3 | 22.9 | 0.9 | 0.5 | |
| Northern Ireland | 2.5 | 2.6 | 0.1 | 0.0 | |
| Scotland | 6.2 | 6.4 | 0.3 | 0.2 | |
| South East excluding London | 53.5 | 54.8 | 2.1 | 1.3 | |
| South West, Wales and other | 17.5 | 18.0 | 0.7 | 0.4 | |
| 168.6 | 172.9 | 6.8 | 4.0 |
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 the period, based on average earnings of new business at inception, was 2.93 (2023: 2.98).
| 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 2024 | 31 December 2023 |
|---|---|---|
| >£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) (1) | £190k | £187k |
| Average loan size (new business) | £234k | £228k |
(1) Average initial advance of existing stock.
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 2024 | 31 December 2023 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Stock | Stage 3 | New | 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% | 76,214 | 38 | 1,052 | 15 | 1,588 | 78,673 | 31 | 1,106 | 12 | 2,616 |
| >50-60% | 32,291 | 24 | 337 | 9 | 1,003 | 32,837 | 24 | 347 | 10 | 1,604 |
| >60-70% | 29,469 | 30 | 254 | 11 | 965 | 30,874 | 40 | 246 | 16 | 1,977 |
| >70-80% | 18,497 | 31 | 155 | 12 | 1,501 | 18,721 | 48 | 138 | 19 | 2,736 |
| >80-90% | 9,272 | 24 | 80 | 9 | 1,277 | 8,893 | 35 | 67 | 15 | 2,318 |
| >90-100% | 2,440 | 17 | 44 | 8 | 472 | 2,416 | 20 | 39 | 11 | 900 |
| >100% | 406 | 43 | 56 | 21 | 8 | 445 | 44 | 65 | 25 | 13 |
| 168,589 | 207 | 1,978 | 85 | 6,814 | 172,859 | 242 | 2,008 | 108 | 12,164 | |
| Collateral value (1) | 168,537 | 1,968 | 6,814 | 172,803 | 1,997 | 12,164 | ||||
| % | % | % | % | % | % | |||||
| Average LTV - Balance weighted(2) | 52 | 50 | 65 | 51 | 49 | 66 |
(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 £355m (2023: £389m). (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 2024, the parts of loans in negative equity which were effectively uncollateralised before deducting loss allowances was £52m (2023: £56m). The balance weighted average LTV of new business in the period in London was 64% (2023: 65%). £70.5bn of new business and internal transfers were priced in 2023 and H124, and by the end of the year a further £17bn will reach the end of the incentive period. Arrears from recent internal transfers remain low, with less than 1% of customers entering arrears within 12 months.
There were no significant changes in collateral quality in H124. Balance weighted average LTVs of stock and new business were broadly flat as economic pressures eased and mortgage market trends remain steady. 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 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Mortgage loans and advances to customers | 168,589 | 172,859 |
| of which: | ||
| – Stage 1 | 148,173 | 152,975 |
| – Stage 2 | 18,438 | 17,876 |
| – Stage 3 | 1,978 | 2,008 |
| Loss allowances(1) | 207 | 242 |
| % | % | |
| Stage 1 ratio(2) | 87.89 | 88.50 |
| Stage 2 ratio(2) | 10.94 | 10.34 |
| Stage 3 ratio | 1.19 | 1.17 |
(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 22 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 2024 | 161,163 | 24 | 17,997 | 110 | 2,028 | 108 | 181,188 | 242 |
| Transfers from Stage 1 to Stage 2(3) | (8,703) | (2) | 8,703 | 2 | — | — | — | — |
| Transfers from Stage 2 to Stage 1(3) | 6,184 | 22 | (6,184) | (22) | — | — | — | — |
| Transfers to Stage 3(3) | (113) | — | (402) | (8) | 515 | 8 | — | — |
| Transfers from Stage 3(3) | 3 | — | 244 | 8 | (247) | (8) | — | — |
| Transfers of financial instruments | (2,629) | 20 | 2,361 | (20) | 268 | — | — | — |
| Net ECL remeasurement on stage transfer(4) | — | (22) | — | 38 | — | 7 | — | 23 |
| Change in economic scenarios(2) | — | (7) | — | (11) | — | 2 | — | (16) |
| Change to ECL models | (1,859) | (3) | 1,869 | 21 | (10) | (37) | — | (19) |
| New lending and assets purchased(5) | 12,720 | 3 | 71 | 1 | 11 | 1 | 12,802 | 5 |
| Redemptions, repayments and assets sold(7) | (11,368) | (2) | (1,736) | (7) | (316) | (13) | (13,420) | (22) |
| Changes in risk parameters and other movements(6) | 335 | (2) | (1,834) | (21) | 33 | 22 | (1,466) | (1) |
| Assets written off (7) | — | — | — | — | (16) | (5) | (16) | (5) |
| At 30 June 2024 | 158,362 | 11 | 18,728 | 111 | 1,998 | 85 | 179,088 | 207 |
| Net movement in the period | (2,801) | (13) | 731 | 1 | (30) | (23) | (2,100) | (35) |
| ECL (release)/charge to the Income Statement | (13) | 1 | (18) | (30) | ||||
| Less: Discount unwind | — | — | (1) | (1) | ||||
| Less: Recoveries net of collection costs | — | — | 15 | 15 | ||||
| Total ECL (release)/charge to the Income Statement | (13) | 1 | (4) | (16) | ||||
| 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) |
| Change to ECL models | — | — | — | — | — | — | — | — |
| 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) |
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 2024 | £m | £m | £m | £m | £m | £m | £m |
| Mortgage portfolio | 168,589 | 37,261 | 12,158 | 4,850 | 406 | 15,128 | 116,870 |
| – Stage 1 | 148,173 | 29,987 | 10,135 | 3,638 | 116 | 13,657 | 106,048 |
| – Stage 2 | 18,438 | 6,354 | 1,772 | 975 | 234 | 1,420 | 10,055 |
| – Stage 3 | 1,978 | 920 | 251 | 237 | 56 | 51 | 767 |
| Stage 3 ratio | 1.19% | 2.49% | 2.07% | 5.30% | 13.90% | 0.34% | 0.66% |
| Properties in possession | 32 | 17 | 5 | 4 | 6 | 1 | 10 |
| Balance weighted LTV (indexed) | 52% | 49% | 52% | 37% | 116% | 60% | 53% |
(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 £9,244m (2023: £9,531m) and the non-interest-only part of the loan.
In H124, the combined total proportion of interest-only loans, part interest-only, part repayment loans and flexible loans was broadly stable at 32.2% (2023: 32.9%).
BTL mortgage balances decreased £0.5bn to £15.1bn (2023: £15.6bn) driven by our strategy to deleverage our mortgage portfolio and changes in market dynamics. In H124, the balance weighted average LTV of mortgage total new BTL lending was 56% (2023: 58%).
Directors
Financial statements
| Business banking |
Personal loans |
Credit cards |
Overdrafts | Total other unsecured |
Total | |
|---|---|---|---|---|---|---|
| 30 June 2024 | £m | £m | £m | £m | £m | £m |
| Loans and advances to customers | 1,504 | 2,136 | 2,597 | 436 | 5,169 | 6,673 |
| of which: | ||||||
| – Stage 1 | 1,297 | 1,927 | 2,081 | 212 | 4,220 | 5,517 |
| – Stage 2 | 101 | 177 | 464 | 195 | 836 | 937 |
| – Stage 3 | 106 | 32 | 52 | 29 | 113 | 219 |
| Loss allowances(1) | 16 | 67 | 153 | 68 | 288 | 304 |
| Stage 3 undrawn exposures | 2 | — | 36 | 4 | 40 | 42 |
| Stage 3 ratio | 7.16 % | 1.48 % | 3.32 % | 7.55 % | 2.92 % | 3.87 % |
| Gross write-offs (6 months) | 5 | 29 | 25 | 14 | 68 | 73 |
| 31 December 2023 | ||||||
|---|---|---|---|---|---|---|
| Loans and advances to customers | 1,819 | 2,064 | 2,674 | 471 | 5,209 | 7,028 |
| of which: | ||||||
| – Stage 1 | 1,574 | 1,743 | 2,283 | 207 | 4,233 | 5,807 |
| – Stage 2 | 115 | 294 | 345 | 236 | 875 | 990 |
| – Stage 3 | 130 | 27 | 46 | 28 | 101 | 231 |
| Loss allowances(1) | 16 | 66 | 140 | 78 | 284 | 300 |
| Stage 3 undrawn exposures | 2 | — | 33 | 4 | 37 | 39 |
| Stage 3 ratio | 7.25 % | 1.32 % | 2.95 % | 6.73 % | 2.65 % | 3.83 % |
| Gross write-offs (12 months) | 11 | 48 | 46 | 25 | 119 | 130 |
(1) The ECL allowance is for both on and off–balance sheet exposures.
Business Banking assets continued to reduce primarily due to the pay down of the BBLs portfolio. Total Stage 2 assets also reduced driven by Personal Loans and Overdrafts, due to the release of the cost of living JAs. However, Credit Cards saw an increase due to the updated SICR rules. 57% (2023: 55%) of credit card customers repay their balance in full each month and UPL average customer balances remained unchanged at £6,000.
| 30 June 2024 | 31 December 2023 |
|---|---|
| £m | £m |
| Loans and advances to customers 4,880 |
5,228 |
| of which: | |
| – Stage 1 4,539 |
4,870 |
| – Stage 2 305 |
330 |
| – Stage 3 36 |
28 |
| Loss allowances(1) 70 |
70 |
| Stage 3 ratio 0.75 % |
0.53 % |
| Gross write-offs 11 |
23 |
(1) The ECL allowance is for both on and off–balance sheet exposures.
In H124, we maintained our prudent Consumer (auto) finance underwriting criteria. The product mix was broadly unchanged, with wholesale balances decreasing slightly.
Lower lending in H124 than H123, as a decision was made to focus on value and capital generation. At 30 June 2024, Consumer (auto) finance gross lending (new business) was £752m (H123: £1,114m). Wholesale loans (Stock finance) to car dealerships at 30 June 2024 were approximately 8.6% (2023: 9.9%) of the Consumer loan book. At 30 June 2024, the average Consumer (auto) finance loan size was £15,484 (2023: £17,308).
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 2024 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| SME and mid corporate | — | 241 | 870 | 2,869 | 3,822 | 3,120 | 1,551 | 112 | 12,585 |
| Commercial Real Estate | — | — | 641 | 1,774 | 2,238 | 713 | 215 | — | 5,581 |
| Social Housing | 9 | 2,968 | 5,067 | — | — | — | — | — | 8,044 |
| 9 | 3,209 | 6,578 | 4,643 | 6,060 | 3,833 | 1,766 | 112 | 26,210 | |
| Of which: | |||||||||
| – Stage 1 | 9 | 3,209 | 6,577 | 4,577 | 5,552 | 2,351 | 184 | 107 | 22,566 |
| – Stage 2 | — | — | 1 | 66 | 508 | 1,482 | 727 | 5 | 2,789 |
| – Stage 3 | — | — | — | — | — | — | 855 | — | 855 |
| 31 December 2023 | |||||||||
| SME and mid corporate | — | 166 | 911 | 2,970 | 3,497 | 3,575 | 1,439 | 118 | 12,676 |
| Commercial Real Estate | — | — | 360 | 1,684 | 2,132 | 972 | 209 | 1 | 5,358 |
| Social Housing | 43 | 3,032 | 4,881 | — | — | — | — | — | 7,956 |
| 43 | 3,198 | 6,152 | 4,654 | 5,629 | 4,547 | 1,648 | 119 | 25,990 | |
| Of which: | |||||||||
| – Stage 1 | 43 | 3,130 | 6,152 | 4,618 | 4,715 | 2,363 | 141 | 118 | 21,280 |
| – Stage 2 | — | 68 | — | 36 | 914 | 2,184 | 762 | 1 | 3,965 |
| – Stage 3 | — | — | — | — | — | — | 745 | — | 745 |
(1) Typically smaller exposures which use scorecards instead of a rating model.
In H124, committed exposure increased by less than 1%, driven by an increase in the Commercial Real Estate portfolio, which was up by 4.2%. The rating distribution saw a slight improvement in Commercial Real Estate, with the SME and mid corporate portfolios broadly stable.
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 2024 and 31 December 2023.
| Watchlist | ||||||
|---|---|---|---|---|---|---|
| Fully performing |
Enhanced monitoring |
Proactive management |
Stage 3 | Total(1) | Loss allowances |
|
| 30 June 2024 | £m | £m | £m | £m | £m | £m |
| SME and mid corporate | 10,168 | 466 | 1,202 | 749 | 12,585 | 339 |
| Commercial Real Estate | 5,064 | 21 | 390 | 106 | 5,581 | 37 |
| Social Housing | 7,775 | — | 269 | — | 8,044 | 1 |
| 23,007 | 487 | 1,861 | 855 | 26,210 | 377 | |
| 31 December 2023 | ||||||
| SME and mid corporate | 10,140 | 462 | 1,447 | 627 | 12,676 | 341 |
| Commercial Real Estate | 4,734 | 10 | 496 | 118 | 5,358 | 39 |
| Social Housing | 7,752 | — | 204 | — | 7,956 | — |
| 22,626 | 472 | 2,147 | 745 | 25,990 | 380 |
(1) Includes committed facilities and derivatives.
In H124, Watchlist exposures decreased by £271m, driven by reductions in Proactive Management of 13.3%. The 31.9% (£65m) increase in Proactive Management in the Social Housing portfolio was driven by a single borrower which was downgraded following concerns raised by the Social Housing regulators rather than financial concerns.
In H124, committed exposure in our CRE portfolio increased by 4.2% and the rating distribution improved slightly. Watchlist exposures decreased by 18.8%, driven by a small number of borrowers returning to fully performing.
Directors
Financial statements Shareholder information
Corporate Centre committed exposures mainly comprise Sovereign exposures and Structured Products (High Quality Liquid Assets, mainly Asset Backed Securities and covered bonds) managed as part of our Eligible Liquidity Pool. These are low risk, high quality, investment grade exposures with a credit rating of 8 or 9 according to our internal rating scale (see the 'Santander UK group level – credit risk review' section).
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. At 30 June 2024 and 31 December 2023 this is mainly focused in the UK.
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 2024 and 31 December 2023.
Directors responsibilities Risk review
statements
Financial
Shareholder information
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 get them at high cost.
In H124, there were no significant changes in the way we manage liquidity risk as described in the 2023 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 2024 and 31 December 2023.
| This table shows our LCR at 30 June 2024 and 31 December 2023. | ||
|---|---|---|
| 30 June 2024 | 31 December 2023 | |
| RFB DoLSub LCR(2) | £bn | £bn |
| Eligible liquidity pool (liquidity value)(1) | 45.1 | 47.8 |
| Net stress outflows | (32.2) | (30.4) |
| Surplus | 12.9 | 17.4 |
| Eligible liquidity pool as a percentage of anticipated net cash flows | 140 % | 157 % |
(1) The liquidity value is calculated as applying an applicable haircut to the carrying value.
Strong LCR of 140% (2023: 157%), reduced following TFSME repayments.
(2) The RFB LCR was 142% (2023:159%).
RFB DolSub LCR eligible liquidity pool of £45.7bn (2023: £48.3bn) includes £26.0bn cash and central bank reserves (2023: £36.1bn).
Term duration in the LCR eligible liquidity pool is hedged with swaps to offset mark to market movements from interest rate changes.
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| % | % | |
| RFB DoLSub NSFR | 132 | 136 |
We remained in a strong liquidity position. We held sufficient liquid resources and had adequate governance and controls in place to manage the liquidity risks arising from our business and strategy. At 30 June 2024 and 31 December 2023, the LCR and NSFR significantly exceeded regulatory requirements.
In H124, Santander UK purchased UK Gilts on a 'Hold-To-Collect-Cash-flows' basis. The notional value at 30 June 2024 was £1.5bn (2023: £nil).This means that there is an increased allocation of liquid assets to longer-dated UK sovereign bonds to support ongoing HQLA requirements. In line with the rest of the LCR eligible liquidity pool, term duration is hedged with swaps to offset mark to market movements from interest rate changes.
RFB DoLSub NSFR of 132% (2023: 136%)
RFB DoLSub LCR of 140% (2023: 157%)
Wholesale funding with maturity <1 year £10.1bn (2023: £11.9bn)
RFB DoLSub LCR eligible liquidity pool of £45.7bn (2023: £48.3bn)
statements
Financial
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 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 28 to the Condensed Consolidated Interim Financial Statements.
| ≤ 1 month |
>1 and ≤ 3 months |
>3 and ≤ 6 months |
>6 and ≤ 9 months |
>9 and ≤ 12 months |
Sub-total ≤ 1 year |
>1 and ≤ 2 years |
>2 and ≤ 5 years |
>5 years | Total | ||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 30 June 2024 | £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 | — | — | — | — | 0.4 | 0.4 | 3.2 | 5.6 | 0.5 | 9.7 | |
| –privately placed | — | — | — | — | — | — | — | 0.1 | — | 0.1 | |
| Subordinated liabilities and equity (incl. AT1) | — | — | — | 0.5 | — | 0.5 | 0.4 | 1.5 | 0.9 | 3.3 | |
| — | — | — | 0.5 | 0.4 | 0.9 | 3.6 | 7.2 | 1.4 | 13.1 | ||
| Other Santander UK plc | |||||||||||
| Deposits by banks | 0.4 | 1.1 | — | — | — | 1.5 | — | — | — | 1.5 | |
| Certificates of deposit and commercial paper | 1.8 | 2.6 | — | — | — | 4.4 | — | — | — | 4.4 | |
| Senior unsecured – public benchmark | — | — | — | 0.4 | — | 0.4 | — | — | 0.3 | 0.7 | |
| –privately placed | — | — | — | — | — | — | — | 0.3 | 0.5 | 0.8 | |
| Covered bonds | — | 0.4 | 1.0 | 0.9 | — | 2.3 | 3.8 | 9.6 | 1.2 | 16.9 | |
| Securitisation & structured issuance(2) | — | — | 0.1 | — | — | 0.1 | — | 2.1 | 0.8 | 3.0 | |
| TFSME | — | — | — | — | — | — | 9.1 | 3.9 | — | 13.0 | |
| Subordinated liabilities | — | — | — | — | — | — | — | — | 0.7 | 0.7 | |
| 2.2 | 4.1 | 1.1 | 1.3 | — | 8.7 | 12.9 | 15.9 | 3.5 | 41.0 | ||
| Other group entities | |||||||||||
| Securitisation & structured issuance(3) | — | — | — | — | 0.5 | 0.5 | — | — | — | 0.5 | |
| Total at 30 June 2024 | 2.2 | 4.1 | 1.1 | 1.8 | 0.9 | 10.1 | 16.5 | 23.1 | 4.9 | 54.6 | |
| Of which: | |||||||||||
| – Secured | — | 0.4 | 1.1 | 0.9 | 0.5 | 2.9 | 12.9 | 15.6 | 2.0 | 33.4 | |
| – Unsecured | 2.2 | 3.7 | — | 0.9 | 0.4 | 7.2 | 3.6 | 7.5 | 2.9 | 21.2 | |
| Total at 31 December 2023 | 1.4 | 7.3 | 1.6 | 0.5 | 1.1 | 11.9 | 22.3 | 19.7 | 3.7 | 57.6 | |
| Of which: | |||||||||||
| – Secured | 0.1 | 1.0 | 0.9 | 0.4 | 1.1 | 3.5 | 18.6 | 11.3 | 1.1 | 34.5 | |
| – Unsecured | 1.3 | 6.3 | 0.7 | 0.1 | — | 8.4 | 3.7 | 8.4 | 2.6 | 23.1 |
(1) 95% 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 H124, our external term issuance (sterling equivalent) was:
| Sterling | US Dollar | Euro | Other | Total H124 | Total H123 | |
|---|---|---|---|---|---|---|
| £bn | £bn | £bn | £bn | £bn | £bn | |
| Downstreamed from Santander UK Group Holdings plc to Santander UK plc | ||||||
| Senior unsecured – public benchmark | — | — | — | — | — | 1.0 |
| Subordinated debt and equity (inc. AT1) | 0.4 | — | — | — | 0.4 | 0.3 |
| 0.4 | — | — | — | 0.4 | 1.3 | |
| Other Santander UK plc | ||||||
| Securitisations and other secured funding | 0.8 | — | — | — | 0.8 | 0.8 |
| Covered bonds | 1.3 | — | 2.6 | 0.2 | 4.1 | 1.5 |
| Senior unsecured – privately placed | 0.2 | — | — | — | 0.2 | — |
| 2.3 | — | 2.6 | 0.2 | 5.1 | 2.3 | |
| Other group entities | ||||||
| Securitisations | — | — | — | — | — | 0.5 |
| Total gross issuances | 2.7 | — | 2.6 | 0.2 | 5.5 | 4.1 |
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 2023 Annual Report.
Our level of encumbrance from external and internal issuance of securitisations and covered bonds increased in H124 to £33.2bn (2023: £27.9bn). For more, see Note 14 to the Consolidated Financial Statements in the 2023 Annual Report and Note 10 to the Condensed Consolidated Interim Financial Statements.
Directors responsibilities Risk review
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 H124, there were no significant changes in the way we manage capital risk as described in the 2023 Annual Report.
In this section, we analyse our capital resources and key capital ratios.
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).
| 30 June 2024 | 31 December 2023 |
|---|---|
| % | % |
| CET1 capital ratio 15.4 |
15.4 |
| AT1 2.7 |
2.9 |
| Tier 2 3.2 |
3.2 |
| Total capital ratio 21.3 |
21.5 |
The total subordination available to Santander UK plc senior unsecured bondholders was 21.3% (2023: 21.5%) of RWAs.
Return on assets - profit after tax divided by average total assets was 0.22% (H123: 0.29%).
The CET1 capital ratio remained stable at 15.4%, following interim dividends paid in H124.
This table shows our qualifying regulatory capital:
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| CET1 capital | 10,305 | 10,443 |
| AT1 capital | 1,860 | 1,956 |
| Tier 1 capital | 12,165 | 12,399 |
| Tier 2 capital | 2,147 | 2,172 |
| Total regulatory capital(1) | 14,312 | 14,571 |
(1) Capital resources include a transitional IFRS 9 benefit at 30 June 2024 of £15m (2023: £43m).
We paid £554m interim dividends (2023: £1.5bn).
Total Risk-weighted assets at 30 June 2024 were £67.1bn (2023: £67.8bn), which are consistent with our regulatory filings.
We completed a Significant Risk Transfer securitisation transaction covering a portfolio of CCB corporate and commercial real estate exposures. Further risk reduction transactions will be considered to manage risk exposure and RWA levels.
CET1 capital ratio of 15.4% (2023: 15.4%)
Total qualifying regulatory capital of £14.3bn (2023: £14.6bn)
Directors
responsibilities Risk review
Financial statements Shareholder information
Market risk comprises banking market risk and trading market risk.
In H124, there were no significant changes in the way we manage market risk as described in the 2023 Annual Report.
In this section, we analyse our key banking and trading market risk metrics.
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 2024 and 31 December 2023. Sensitivity to parallel shifts represents the amount of risk in a way that we think is both simple and scalable.
| 30 June 2024 | 31 December 2023 | |||
|---|---|---|---|---|
| +100bps -100bps |
+100bps | -100bps | ||
| £m | £m | £m | £m | |
| NII sensitivity(1) | 119 | (119) | 220 | (220) |
| EVE sensitivity | (621) | 599 | (299) | 265 |
(1) Based on modelling assumptions of repricing behaviour.
In H124, we continued to actively manage the structural position in line with non-rate sensitive liabilities in order to manage interest rate risk.
NII sensitivity is adversely exposed to down shock-scenarios driven by margin compression of core liabilities, offset by the structural position. EVE sensitivity is adversely exposed to rising interest rate scenarios. In H124 EVE sensitivity increased and NII sensitivity decreased mainly reflecting the overall increase in the structural position relative to non-rate sensitive liabilities.
In H124, there were no significant changes to our traded market risk exposures. The Internal VaR for exposure to traded market risk at 30 June 2024 was less than £1m (2023: less than £1m).
Net Interest Income (NII) sensitivity to +100bps was £119m and to ‑100bps was £(119)m (2023: £220m and £(220)m).
Economic Value of Equity (EVE) sensitivity to +100bps was £(621)m and to ‑100bps was £599m (2023: £(299)m and £265m).
Directors responsibilities Risk review 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 H124, there were no significant changes in the way we manage pension risk as described in the 2023 Annual Report.
In this section, we give an update on key movements in pension risk profile in H124.
The underlying level of risk in the Scheme reduced during H124, primarily driven by increased interest and inflation hedging and the continuing disposals of illiquid assets, including the sale of some private equity assets.
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 2024, the Funding Deficit at Risk decreased to £860m (2023: £980m), mainly due to the hedging noted above with the interest rate hedge ratio at 98% (2023: 89%) and the inflation hedge ratio at 97% (2023: 82%) on a funding basis.
The impact from variations in the IAS 19 position on CET1 capital was not significant in H124. For more on the impact of our defined benefit schemes on capital, see the 'Capital risk' section.
In H124, we adopted a new version of the model that we use to set the IAS19 discount rate. The updated model is based on an expanded data set which is expected to improve the stability of the model. We also updated the mortality improvement assumption we use to value the floating leg of the longevity swap following a mortality basis review carried out by the insurer and the Trustee.
The accounting position deteriorated in H124. The Scheme sections in surplus had an aggregate surplus of £622m at 30 June 2024 (2023: £723m) while there was one section which had a deficit of £6m (2023: £41m). The overall funded position was a £616m surplus (2023: £682m surplus). We reported unfunded liabilities of £24m at 30 June 2024 (2023: £25m). A number of factors caused the position to deteriorate over H124, with notable drivers being rises in gilt yields reducing the value of the assets; a reduction in the value of the longevity swap following a change in the mortality assumption used to value the floating leg; some decreases in return seeking asset values; and deterioration caused by pension increases being higher than expected based on our assumptions. These factors were partially offset by a fall in the liability value, driven by the rise in the gilt yields and an increase in credit spreads, deficit contributions paid over the period, and a change in Scheme actuarial factors following a review by the Trustee. 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 23 to the Condensed Consolidated Interim Financial Statements.
Funding Deficit at Risk was £860m (2023: £980m)
Funded defined benefit pension scheme accounting surplus was £622m (2023: £723m)
Shareholder information
Strategic and business risk is the risk of significant loss or underperformance against planned objectives; damage arising from strategic decisions or their poor implementation; an inability to adapt to external developments that impact the long-term interests of our key stakeholders.
In H124, there were no significant changes in the way we manage strategic and business risk as described in the 2023 Annual Report.
In this section, we give an update on key movements in strategic and business risk in H124.
We are in a constantly changing environment, and this impacts the way we do business. The geopolitical uncertainty continued due to the ongoing conflicts in Ukraine and in the Middle East, as well as the outcomes of significant elections around the world. This slowed the pace of economic recovery. We managed our balance sheet in a higher for longer interest rate environment and continued to simplify our operating model, which supports the transformation of our organisation. We proactively reached out to our customers and gave them financial support where needed. We also helped our customers manage their finances by providing them with multiple planning tools and financial health checks.
Our business model is focused on building customer loyalty, through being digital first with a human touch. We made progress in executing our transformation programme with a key focus on improving customer experience, simplifying our products, digitalisation, automation and consolidation of platforms by leveraging the Group's common platforms. We continued to prioritise our customers' needs, underlining our commitment to Consumer Duty.
Our climate ambitions and commitment to managing climate-related impacts are strategically important to our business. So far, we raised and facilitated £15bn of Green Finance against our 2025 target of £20bn. Aligned to our commitment to support our customers, we launched three test and learn propositions. These are a smart heating controls partnership with Tado, a solar partnership with Octopus and an enhanced EPC offering with Vibrant to support our mortgage customers to decarbonise their homes.
Competitive pressures continued in H124, and we saw a renewed focus on Mergers and Acquisition activity with several relevant transactions in the UK banking market in recent months. We remained competitive by launching new products such as our Edge Credit Card which offers cashback, 95% loan to value mortgages for new builds and an improved mobile app for all our retail customers. We grew our business and corporate customers and gave them connections to our global network to support their ambitions of overseas expansion. We continued to invest in our technology to provide a high-quality customer experience.
Overall, we remain focused on securing good customer outcomes, improving efficiency, and building a responsible and sustainable business, while continuing to progress with our agenda to tackle climate change. This will allow us to meet the changing needs of our customers and deliver improved returns over the longterm.
Reputational risk is the risk of damage to the way our reputation and brand are perceived by the public, clients, government, colleagues, investors, or any other interested party.
In H124, there were no significant changes in the way we manage reputational risk as described in the 2023 Annual Report.
In this section, we provide an update on key movements in reputational risk in H124.
In H124, our key reputational risks arose from prolonged cost of living pressures and a changing political landscape. To manage this, we regularly and proactively shared information with key external stakeholders on the actions we took to support customers, colleagues and communities. Particular areas of external focus included our support for customers facing financial difficulties and for mortgage holders.
We also faced significant scrutiny from the UK media on financial crime. To manage this, we responded promptly to enquiries and increased our engagement with key journalists to proactively set our position.
We faced significant reputational risks arising from the Santander global data breach, even though the breach had no material effect on Santander UK. To manage this, we worked closely with colleagues across the Group to develop communications for both external and internal audiences in order to mitigate risks.
CEO review Financial overview
Directors responsibilities Risk review
Financial statements Shareholder information
Operational risk is the risk of loss due to inadequate or failed internal processes, people and systems, or external events.
In H124, there were no significant changes in the way we manage operational risk as described in the 2023 Annual Report.
In this section, we give an update on key movements in operational risk in H124.
H124 losses remained within our risk appetite. We did not experience any material (greater than £10m) operational risk losses, with the exception of overall fraud losses. We continued to maintain provisions to cover customer remediation programmes and their associated costs.
We continued to address the vulnerabilities identified as part of complying with the Operational Resilience regulatory requirements by March 2025, as described in the 2023 Annual Report. This included embedding resilience through our business disruption response, including communication to our customers and stakeholders. We continued acting on lessons learned from the analysis of live events and severe but plausible scenario tests. We progressed implementation of a target operating model to support operational resilience. The Board approved our last annual operational resilience self-assessment in March 2024 and regularly monitors our progress on enhancing all our operational resilience capabilities.
Information and cybersecurity remain a key focus. In H124 we experienced a reportable data breach at one of our suppliers affecting staff personal information. We also responded to a number of other third-party incidents that did not result in notable impacts. We continued to enhance our threat prevention controls and test our business area recovery plans against a range of scenarios. We continued to see increasing ransomware attacks across all sectors, driven by compromises in supply chain tools, and we expect this trend to remain. We continued 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 H124, we continued to monitor and mitigate data risk through enhanced governance structures and processes. The key focus is on continuing to build a strong data foundation for the future by prioritising the critical data universe, supported by a new operating model including business process ownership with enhanced focus on end-to-end controls. Our multiyear data programme is delivering in line with the data strategy driven by the Chief Data Officer, with a renewed focus on improving the quality and architecture of the key data underpinning our critical business and regulatory processes.
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 are outside of our controls. Authorised Push Payment (APP) fraud is our largest fraud type, and we focus on preventative measures in response to increasing fraud attacks. In H124, we continued to enhance our preventative capabilities and our controls, including further changes to our dynamic 'scam warnings' in our online banking payment process. We continued to focus on customer education, and a key part of our strategy is presenting customers with tailored questions and warnings specific to their payment journey. We also played 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 continued 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 two-year period and we closely monitor improvements.
Our legal risk profile remained heightened but broadly stable in H124, reflecting the number and value of legal risks that we continue to manage. We continued to evaluate and respond to the evolving legal and regulatory environment, including the implementation of the Consumer Duty in relation to off-sale products, the introduction of the access to cash regime and APP fraud mandatory reimbursement regime under the Financial Services and Markets Act 2023 and the Digital Markets, Competition and Consumer Act 2024. We expect the new government will introduce new legislation that is likely to impact the Santander UK group's business. We made substantial progress to align material third party contracts to PRA Supervisory Statement 2/21 and to enable international data transfers in line with the Schrems II judgement. While litigated PPI claim volumes remained stable, we continued to prepare for the trial in March 2025 of the on-going large scale complex PPI related litigation brought by AXA and to respond to initiatives by claimant law firms to re-open cases subject to the FCA redress regime for PPI complaints. Litigation, FOS complaints and the FCA review relating to historical motor finance discretionary commission arrangements remained an area of focus. There were no material developments in H124 in relation to the German criminal and tax investigation relating to historical dividend tax arbitrage transactions. We continued to manage our legal risk in relation to thematic Court actions and FOS complaints related to fraud, mortgages and unaffordable lending. For more, see Note 24 to the Condensed Consolidated Interim Financial Statements.
People risk continues to be affected by changes in our operating models and the execution of our strategies. We continued to adapt and respond to these risks; in particular, the risks associated with the phased relocation of our Head Office to Unity Place in Milton Keynes, which are under close monitoring and management. H124 continued to show lower levels of wellbeing-related absence. Attrition rates stabilised after periods of successive rises in 2022 reflecting the buoyant job market. We continued to advocate hybrid working and encourage colleagues to attend our offices regularly. We also give support in response to the impact of external economic factors on some colleagues.
Operational risk losses (over £10,000) reduced by 45% compared to H123.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
We continued to rely extensively on third parties for a range of goods and services, provided by both Banco Santander and external suppliers. In H124, we reassessed our major suppliers against a revised set of controls and implemented new metrics to manage our risk exposure.
We continued our transformation to simplify, digitise processes and customer journeys, reduce costs, extend internal capabilities and ensure a resilient operating model. This includes delivery against a broad transformation agenda with focus on cloud migration, further digitalisation and managing obsolescence. We are also focusing on ensuring transformation and change is safely and sustainably transitioned into business as usual without unacceptable impact on our risk profile underpinning strategic decisions.
Shareholder information
Financial crime (FC) risk is the risk that we are used to further financial crime, including money laundering, terrorist financing, sanctions evasion, bribery and corruption, and the facilitation of tax evasion.
In H124, there were no significant changes in the way we manage financial crime risk as described in the 2023 Annual Report.
In this section, we give an update on key developments in financial crime risk in H124.
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 everchanging criminal methods influencing the risks we face. In H124, we:
Model risk is the risk that the predictions from models may be inaccurate, causing sub-optimal decisions to be made; or that a model may be used inappropriately. These potential adverse consequences can lead to reputational damage, regulatory non-compliance, a deterioration in prudential position, or financial losses.
In H124, there were no significant changes in the way we manage model risk as described in the 2023 Annual Report.
In this section, we give an update on key developments in model risk in H124.
We maintain a risk-based approach to management and control, focusing on model monitoring and independent model reviews of our more material models, such as those for credit losses and those with defined regulatory standards.
We continued work to fully embed requirements relating to the regulations introduced by the PRA in 2023 (Supervisory Statement SS1/23) that increased focus on model risk management across the industry. We carried on developing our regulatory model suite in line with supervisory expectations, focusing on capital adequacy. In H124, we implemented new impairment models for Retail Mortgages and CCB to embed long standing JAs into the models.
As part of our ESG commitment and the overall industry focus, we continued to develop our internal risk models that consider climate change risk factors with longer forecast horizons. We intend to increase internal climate change risk expertise to reduce reliance on our external providers and to continue evolving the models. This allows us to future proof capabilities for future regulation.
As the use of AI tools is increasing within the industry, we continued to develop a robust control environment to support these tools.
responsibilities Risk review
Directors
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 H124, there were no significant changes in the way we manage conduct and regulatory risk as described in the 2023 Annual Report.
In this section, we give an update on key developments in conduct and regulatory risk in H124.
The Conduct and Regulatory environment continues to see a demanding agenda. To fully consider customer and conduct impacts across our business, our customers remain at the centre of our culture and purpose. We monitor and regularly review our customers' experiences and take action to ensure they receive good outcomes.
As part of this, we:
Like all UK banks, we continued to see a demanding regulatory agenda focused on consumer outcomes and customer vulnerability, including Consumer Duty. We continued to evaluate the evolving regulatory environment, particularly given the Financial Services and Markets Act. 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 under the Consumer Duty framework.
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. Our data protection policy and processes reflect current data protection laws and regulations, and all employees, businesses and third-party suppliers are required to comply with them.
For key movements in our financial crime risk profile, see the 'Financial crime risk review' section.
For more on our provisions, see Note 22 to the Condensed Consolidated Interim Financial Statements. For more on our contingent liabilities, see Note 24 to the Condensed Consolidated Interim Financial Statements.
Customer remediation provision was £73m (2023: £106m)
Litigation and other regulatory provision was £104m (2023: £132m)
Shareholder information
| Independent review report | 42 |
|---|---|
| Primary financial statements | 43 |
| Condensed Consolidated Income Statement | 43 |
| Condensed Consolidated Statement of Comprehensive Income |
44 |
| Condensed Consolidated Balance Sheet | 45 |
| Condensed Consolidated Cash Flow Statement | 46 |
| Condensed Consolidated Statement of Changes in Equity |
47 |
| Notes to the financial statements | 48 |
Shareholder information
Directors
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 2024 (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 group 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 8 August 2024
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
| For the half year to | |||
|---|---|---|---|
| 30 June 2024 | 30 June 2023 | ||
| Notes | £m | £m | |
| Interest and similar income | 6,279 | 5,346 | |
| Interest expense and similar charges | (4,175) | (2,985) | |
| Net interest income | 2,104 | 2,361 | |
| Fee and commission income | 370 | 401 | |
| Fee and commission expense | (242) | (251) | |
| Net fee and commission income | 128 | 150 | |
| Other operating income | 63 | 83 | |
| Total operating income | 2,295 | 2,594 | |
| Operating expenses before credit impairment charges, provisions and charges | 3 | (1,279) | (1,219) |
| Credit impairment charges | 4 | (61) | (105) |
| Provisions for other liabilities and charges | 4 | (142) | (148) |
| Total credit impairment charges, provisions and charges | (203) | (253) | |
| Profit before tax | 813 | 1,122 | |
| Tax on profit | 5 | (213) | (308) |
| Profit after tax | 600 | 814 | |
| Attributable to: | |||
| Equity holders of the parent | 600 | 814 | |
| Profit after tax | 600 | 814 |
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 2024 | 30 June 2023 | |
|---|---|---|
| £m | £m | |
| Profit after tax | 600 | 814 |
| Other comprehensive (expense)/income that may be reclassified to profit or loss subsequently: | ||
| Movement in fair value reserve (debt instruments): | ||
| - Change in fair value | (29) | (12) |
| - Income statement transfers | 39 | 8 |
| - Taxation | (3) | 1 |
| 7 | (3) | |
| Cash flow hedges: | ||
| - Effective portion of changes in fair value | (412) | (1,187) |
| - Income statement transfers | 72 | 1,112 |
| - Taxation | 95 | 21 |
| (245) | (54) | |
| Net other comprehensive expense that may be reclassified to profit or loss subsequently | (238) | (57) |
| Other comprehensive (expense)/income that will not be reclassified to profit or loss subsequently: | ||
| Pension remeasurement: | ||
| - Change in fair value | (159) | (160) |
| - Taxation | 45 | 45 |
| (114) | (115) | |
| Own credit adjustment: | ||
| - Change in fair value | (11) | (7) |
| - Taxation | 3 | 2 |
| (8) | (5) | |
| Net other comprehensive expense that will not be reclassified to profit or loss subsequently | (122) | (120) |
| Total other comprehensive expense net of tax | (360) | (177) |
| Total comprehensive income | 240 | 637 |
| Attributable to: | ||
| Equity holders of the parent | 240 | 637 |
| Total comprehensive income | 240 | 637 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
Shareholder information
At 30 June 2024
| 30 June 2024 | 31 December 2023 | ||
|---|---|---|---|
| Notes | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 26,875 | 38,214 | |
| Derivative financial instruments | 7 | 1,131 | 1,432 |
| Other financial assets at fair value through profit or loss | 8 | 249 | 262 |
| Loans and advances to customers | 9 | 203,043 | 207,435 |
| Loans and advances to banks | 1,040 | 1,080 | |
| Reverse repurchase agreements - non-trading | 11 | 15,319 | 12,468 |
| Other financial assets at amortised cost | 12 | 1,744 | 152 |
| Macro hedge of interest rate risk | (1,034) | (632) | |
| Financial assets at fair value through other comprehensive income | 8,618 | 8,481 | |
| Interests in other entities | 13 | 266 | 245 |
| Intangible assets | 14 | 1,521 | 1,548 |
| Property, plant and equipment | 15 | 1,455 | 1,494 |
| Current tax assets | 5 | 557 | 490 |
| Retirement benefit assets | 23 | 622 | 723 |
| Other assets | 2,769 | 2,043 | |
| Assets held for sale | 29 | 13 | 13 |
| Total assets | 264,188 | 275,448 | |
| Liabilities | |||
| Derivative financial instruments | 7 | 741 | 818 |
| Other financial liabilities at fair value through profit or loss | 16 | 973 | 899 |
| Deposits by customers | 17 | 184,874 | 190,850 |
| Deposits by banks | 18 | 16,499 | 20,332 |
| Repurchase agreements - non-trading | 19 | 6,623 | 8,411 |
| Debt securities in issue | 20 | 34,053 | 33,910 |
| Subordinated liabilities | 21 | 2,397 | 2,386 |
| Macro hedge of interest rate risk | 52 | 86 | |
| Other liabilities | 3,269 | 2,479 | |
| Provisions | 22 | 380 | 402 |
| Deferred tax liabilities | 5 | 154 | 186 |
| Retirement benefit obligations | 23 | 30 | 66 |
| Total liabilities | 250,045 | 260,825 | |
| Equity | |||
| Share capital | 3,105 | 3,105 | |
| Share premium | 5,620 | 5,620 | |
| Other equity instruments | 25 | 1,860 | 1,956 |
| Retained earnings | 4,149 | 4,295 | |
| Other reserves | (591) | (353) | |
| Total equity | 14,143 | 14,623 | |
| Total liabilities and equity | 264,188 | 275,448 |
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 8 August 2024 and signed on its behalf by:
Chief Executive Officer Chief Financial Officer
Mike Regnier Angel Santodomingo
Company Registered Number: 02294747
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
For the half year to
| 30 June 2024 | 30 June 2023 | |
|---|---|---|
| £m | £m | |
| Cash flows from operating activities | ||
| Profit before tax | 813 | 1,122 |
| Adjustments for: | ||
| Non-cash items included in profit | 327 | 1,029 |
| Change in operating assets | 4,724 | 8,032 |
| Change in operating liabilities | (10,898) | (9,355) |
| Corporation taxes paid | (171) | (295) |
| Effects of exchange rate differences | 154 | (437) |
| Net cash flows from operating activities | (5,051) | 96 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment and intangible assets | (176) | (235) |
| Proceeds from sale of property, plant and equipment and intangible assets | 91 | 78 |
| Purchase of financial assets at amortised cost and financial assets at FVOCI | (7,017) | (3,417) |
| Proceeds from sale and redemption of financial assets at amortised cost and financial assets at FVOCI | 4,875 | 2,088 |
| Net cash flows from investing activities | (2,227) | (1,486) |
| Cash flows from financing activities | ||
| Issue of other equity instruments | 400 | — |
| Issue of debt securities and subordinated notes | 5,135 | 2,326 |
| Issuance costs of debt securities and subordinated notes | (14) | (10) |
| Repayment of debt securities and subordinated notes | (4,791) | (1,598) |
| Repurchase of other equity instruments | (500) | — |
| Dividends paid on ordinary shares | (554) | (410) |
| Dividends paid on preference shares and other equity instruments | (66) | (61) |
| Principal elements of lease payments | (20) | (34) |
| Net cash flows from financing activities | (410) | 213 |
| Change in cash and cash equivalents | (7,688) | (1,177) |
| Cash and cash equivalents at beginning of the period | 42,502 | 46,484 |
| Effects of exchange rate changes on cash and cash equivalents | (14) | (197) |
| Cash and cash equivalents at the end of the period | 34,800 | 45,110 |
| Cash and cash equivalents consist of: | ||
| Cash and balances at central banks | 26,875 | 39,612 |
| Less: restricted balances | (1,330) | (2,076) |
| 25,545 | 37,536 | |
| Other cash equivalents: Loans and advances to banks - Non-trading | 859 | 925 |
| Other cash equivalents: Reverse repurchase agreements | 8,396 | 6,649 |
| Cash and cash equivalents at the end of the period | 34,800 | 45,110 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
Shareholder information
Directors
For the half year to
| Other reserves | ||||||||
|---|---|---|---|---|---|---|---|---|
| Share capital |
Share premium |
Other equity instruments |
Fair value | Cash flow hedging |
Currency translation |
Retained earnings |
Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2024 | 3,105 | 5,620 | 1,956 | (6) | (348) | 1 | 4,295 | 14,623 |
| Profit after tax | — | — | — | — | — | — | 600 | 600 |
| Other comprehensive income/(expense), net of tax: | ||||||||
| - Fair value reserve (debt instruments) | — | — | — | 7 | — | — | — | 7 |
| - Cash flow hedges | — | — | — | — | (245) | — | — | (245) |
| - Pension remeasurement | — | — | — | — | — | — | (114) | (114) |
| - Own credit adjustment | — | — | — | — | — | — | (8) | (8) |
| Total other comprehensive income/(expense) | — | — | — | 7 | (245) | — | (122) | (360) |
| Total comprehensive income/(expense) | — | — | — | 7 | (245) | — | 478 | 240 |
| Issue of other equity instruments | — | — | 400 | — | — | — | — | 400 |
| Repurchase of other equity instruments | — | — | (496) | — | — | — | (4) | (500) |
| Dividends on ordinary shares | — | — | — | — | — | — | (554) | (554) |
| Dividends on preference shares and other equity instruments | — | — | — | — | — | — | (66) | (66) |
| At 30 June 2024 | 3,105 | 5,620 | 1,860 | 1 | (593) | 1 | 4,149 | 14,143 |
| At 1 January 2023 | 3,105 | 5,620 | 1,956 | 5 | (1,128) | 1 | 4,848 | 14,407 |
| Profit after tax | — | — | — | — | — | — | 814 | 814 |
| Other comprehensive (expense), net of tax: | ||||||||
| - Fair value reserve (debt instruments) | — | — | — | (3) | — | — | — | (3) |
| - Cash flow hedges | — | — | — | — | (54) | — | — | (54) |
| - Pension remeasurement | — | — | — | — | — | — | (115) | (115) |
| - Own credit adjustment | — | — | — | — | — | — | (5) | (5) |
| Total other comprehensive (expense) | — | — | — | (3) | (54) | — | (120) | (177) |
| Total comprehensive (expense)/income | — | — | — | (3) | (54) | — | 694 | 637 |
| Dividends on ordinary shares | — | — | — | — | — | — | (410) | (410) |
| Dividends on preference shares and other equity instruments | — | — | — | — | — | — | (61) | (61) |
| At 30 June 2023 | 3,105 | 5,620 | 1,956 | 2 | (1,182) | 1 | 5,071 | 14,573 |
The accompanying Notes to the Financial Statements form an integral part of these Condensed Consolidated Interim Financial Statements.
Directors responsibilities Risk review 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 2023 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 2023 which were prepared in accordance with UK-adopted International Accounting Standards (IAS). Those consolidated financial statements were also prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee, as there were no applicable differences from IFRS 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 2023 Annual Report.
The IASB issued the following new/amended accounting standards which are not yet effective and have not been endorsed for use in the UK:
The Santander UK group is assessing these new/amended accounting standards to determine the potential impacts on the financial statements when they become effective or if they are otherwise earlier adopted when available.
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 Santander UK's condensed consolidated 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 2023 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 22 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 24 provides disclosure relating to ongoing factual issues and reviews that could impact the timing and amount of any outflows. It 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. It also includes disclosure relating to the historical use of discretionary commission arrangements by Santander Consumer (UK) plc.
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 each of these key judgements and estimates, see Notes 22 and 24.
| – Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate | ||
|---|---|---|
| – Determining the methodology for setting the inflation assumption | ||
| – 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 23.
For detailed disclosures, see 'Actuarial assumption sensitivities' in Note 23.
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 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 14.
For detailed disclosures, see 'Sensitivities of key assumptions in calculating VIU' in Note 20 to the Consolidated Financial Statements in the 2023 Annual Report.
Directors responsibilities Risk review 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.
For the half year to Retail & Business Banking Consumer Finance Corporate & Commercial Banking Corporate Centre Total 30 June 2024 £m £m £m £m £m Net interest income/(expense) 1,684 74 383 (37) 2,104 Non-interest income/(expense) 62 83 67 (21) 191 Total operating income/(expense) 1,746 157 450 (58) 2,295 Operating expenses before credit impairment charges, provisions and charges (999) (77) (205) 2 (1,279) Credit impairment charges (49) (8) (3) (1) (61) Provisions for other liabilities and charges (98) (15) (18) (11) (142) Total credit impairment charges, provisions and charges (147) (23) (21) (12) (203) Profit/(loss) before tax 600 57 224 (68) 813 Revenue/(expense) from external customers 1,686 360 264 (15) 2,295 Inter-segment revenue/(expense) 60 (203) 186 (43) — Total operating income/(expense) 1,746 157 450 (58) 2,295 Revenue from external customers includes the following fee and commission income:(1) – Current account and debit card fees 212 — 26 — 238 – Insurance, protection and investments 25 — — — 25 – Credit cards 45 — — — 45 – Non-banking and other fees(2) 2 14 37 9 62 Total fee and commission income 284 14 63 9 370 Fee and commission expense (221) (4) (6) (11) (242) Net fee and commission income/(expense) 63 10 57 (2) 128 Customer loans 175,262 4,880 18,084 — 198,226 Customer deposits 150,982 — 25,372 4,794 181,148 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 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 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
Net fee/(expense) and commission income 85 9 58 (2) 150 31 December 2023 Customer loans 179,887 5,228 17,939 — 203,054 Customer deposits 158,329 — 24,066 5,050 187,445
Total fee and commission income 301 12 84 4 401 Fee and commission expense (216) (3) (26) (6) (251)
(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.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
The table below shows the relationship between Customer assets and Loans and advances to customers as presented in the Condensed Consolidated Balance Sheet. Customer assets 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. It also shows the relationship between customer liabilities (see above) and Deposits by customers as presented in the Condensed Consolidated Balance Sheet.
| Net carrying amount | ||||
|---|---|---|---|---|
| Assets | Liabilities | |||
| 30 June 2024 | 31 December 2023 | 30 June 2024 | 31 December 2023 | |
| £m | £m | £m | £m | |
| Customer balances (gross) | 198,226 | 203,054 | 181,148 | 187,445 |
| Loan loss allowance | (860) | (914) | — | — |
| Customer balances (net) | 197,366 | 202,140 | 181,148 | 187,445 |
| Intercompany balances | 4,901 | 4,544 | 3,406 | 2,825 |
| Accrued interest | 434 | 739 | 1,002 | 830 |
| Other items | 342 | 12 | (682) | (250) |
| Loans and advances to customers / Deposits by customers | 203,043 | 207,435 | 184,874 | 190,850 |
| 30 June 2024 | 30 June 2023 | |
|---|---|---|
| £m | £m | |
| Staff costs | 641 | 611 |
| Other administration expenses | 488 | 474 |
| Depreciation, amortisation and impairment | 150 | 134 |
| 1,279 | 1,219 |
| 30 June 2024 | 30 June 2023 | |
|---|---|---|
| £m | £m | |
| Credit impairment charges: | ||
| Loans and advances to customers | 33 | 98 |
| Recoveries of loans and advances, net of collection costs | 8 | 4 |
| Off-balance sheet credit exposures (See Note 22) | 20 | 3 |
| 61 | 105 | |
| Provisions for other liabilities and charges (excluding off-balance sheet credit exposures) (See Note 22) | 141 | 149 |
| Charge/(release) for residual value and voluntary termination | 1 | (1) |
| 142 | 148 | |
| 203 | 253 |
In H124 and H123 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.
| CEO review |
|---|
responsibilities Risk review
Directors
Financial statements Shareholder information
The Santander UK group's effective tax rate for H124 was 26.2% (H123: 27.5%). Tax on profit differs from that calculated at the statutory rate as follows:
| For the half year to | ||
|---|---|---|
| 30 June 2024 | 30 June 2023 | |
| £m | £m | |
| Profit before tax | 813 | 1,122 |
| Tax calculated at the statutory rate of 25% (H123: 23.5%) | 203 | 264 |
| Bank surcharge on profits | 23 | 44 |
| Non-deductible preference dividends paid | 4 | 5 |
| Non-deductible UK Bank Levy | 5 | 8 |
| Non-deductible conduct remediation, fines and penalties | — | 3 |
| Other non-deductible costs and non-taxable income | 2 | 3 |
| Tax relief on dividends in respect of other equity instruments | (20) | (19) |
| Adjustment to prior year provisions | (4) | — |
| Tax on profit | 213 | 308 |
Interim period corporation tax is accrued based on the estimated average annual effective corporation tax for the year.
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 has consistently applied the UK's Code of Practice on Taxation for Banks following first adoption in 2010.
An interim dividend of £554m was declared on the Company's ordinary shares in issue (H123: £410m).
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
| 30 June 2024 Fair value |
31 December 2023 | |||||
|---|---|---|---|---|---|---|
| Fair value | ||||||
| Notional amount |
Assets | Liabilities | Notional amount |
Assets | Liabilities | |
| £m | £m | £m | £m | £m | £m | |
| Derivatives held for trading: | ||||||
| Exchange rate contracts | 13,170 | 91 | 97 | 12,927 | 92 | 217 |
| Interest rate contracts(1) | 25,892 | 326 | 549 | 28,351 | 389 | 583 |
| Equity and credit contracts | 727 | 141 | 19 | 765 | 133 | 20 |
| Total derivatives held for trading | 39,789 | 558 | 665 | 42,043 | 614 | 820 |
| Derivatives held for hedging Designated as fair value hedges: |
||||||
| Exchange rate contracts | 1,398 | 40 | 1 | 1,145 | 29 | 2 |
| Interest rate contracts | 137,260 | 1,101 | 488 | 107,540 | 1,275 | 839 |
| 138,658 | 1,141 | 489 | 108,685 | 1,304 | 841 | |
| Designated as cash flow hedges: | ||||||
| Exchange rate contracts | 20,544 | 729 | 288 | 21,618 | 1,008 | 289 |
| Interest rate contracts(1) | 62,615 | 468 | 1,064 | 50,896 | 553 | 915 |
| 83,159 | 1,197 | 1,352 | 72,514 | 1,561 | 1,204 | |
| Total derivatives held for hedging | 221,817 | 2,338 | 1,841 | 181,199 | 2,865 | 2,045 |
| Derivative netting(2) | — | (1,765) | (1,765) | — | (2,047) | (2,047) |
| Total derivatives | 261,606 | 1,131 | 741 | 223,242 | 1,432 | 818 |
(1) Interest rate contracts include inflation rate contracts.
(2) 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 £682m (2023: £472m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was £1m (2023: £12m).
At 30 June 2024, the fair value of derivative assets included amounts due from Banco Santander group entities of £484m (2023: £762m) and the fair value of derivative liabilities included amounts due to Banco Santander group entities of £254m (2023: £230m).
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Loans and advances to customers | 44 | 46 |
| Debt securities | 165 | 167 |
| Other debt instruments | 40 | 49 |
| 249 | 262 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Loans and advances to customers | 203,925 | 208,370 |
| Credit impairment loss allowances on loans and advances to customers | (860) | (914) |
| Residual value and voluntary termination provisions on finance leases | (22) | (21) |
| Net loans and advances to customers | 203,043 | 207,435 |
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 2024 and 31 December 2023 were:
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Mortgage-backed master trust structures: | ||
| – Holmes | 4,669 | 3,242 |
| – Fosse | 2,724 | 2,048 |
| 7,393 | 5,290 | |
| Other asset-backed securitisation structures: | ||
| – Repton | 766 | 757 |
| 766 | 757 | |
| Total securitisation programmes | 8,159 | 6,047 |
| Covered bond programme: | ||
| – Euro 35bn Global Covered Bond Programme | 25,030 | 21,880 |
| Total securitisation and covered bond programmes | 33,189 | 27,927 |
The following table sets out the internal and external issuances and redemptions in H124 and H123 for each securitisation and covered bond programme.
| Internal issuances | External issuances | Internal redemptions | External redemptions | |||||
|---|---|---|---|---|---|---|---|---|
| H124 | H123 | H124 | H123 | H124 | H123 | H124 | H123 | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Mortgage-backed master trust structures: | ||||||||
| – Holmes | 106 | 118 | 750 | 750 | — | 30 | — | 142 |
| – Fosse | 760 | — | — | — | — | — | — | — |
| Other asset-backed securitisation structures: | ||||||||
| – Motor | — | — | — | — | — | — | — | 7 |
| – Repton | — | — | — | 550 | — | — | — | — |
| Covered bond programme: | ||||||||
| – Euro 35bn Global Covered Bond Programme | — | 1,100 | 4,099 | 1,500 | 41 | 5 | 1,962 | 1,017 |
| 866 | 1,218 | 4,849 | 2,800 | 41 | 35 | 1,962 | 1,166 |
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Agreements with banks | 1,949 | 2,397 |
| Agreements with customers | 13,370 | 10,071 |
| 15,319 | 12,468 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Debt securities | 1,744 | 152 |
| 1,744 | 152 |
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. In H124, Santander UK increased the allocation of liquid assets to longer-dated, duration-hedged UK Gilts to support ongoing HQLA requirements. Detailed disclosures can be found in the 'Liquidity risk' section of the Risk review.
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 2023 Annual Report.
At 30 June 2024, intangible assets comprised goodwill of £1,199m (2023: £1,199m) and computer software of £322m (2023: £349m).
At 30 June 2024, 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.
Details of the sensitivity of value in use (VIU) to changes in assumptions, including changes required to achieve nil headroom, are set out in Note 20 to the Consolidated Financial Statements in the 2023 Annual Report.
| Property | Office fixtures and equipment |
Computer software | Operating lease assets |
Right-of-use assets | Total(1) | |
|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | |
| Cost: | ||||||
| At 1 January 2024 | 918 | 877 | 67 | 635 | 263 | 2,760 |
| Additions | — | 21 | — | 104 | 16 | 141 |
| Disposals | (3) | (16) | — | (117) | (13) | (149) |
| At 30 June 2024 | 915 | 882 | 67 | 622 | 266 | 2,752 |
| Accumulated depreciation: | ||||||
| At 1 January 2024 | 226 | 653 | 67 | 147 | 173 | 1,266 |
| Charge for the period | 11 | 32 | — | 37 | 9 | 89 |
| Disposals | (2) | (15) | — | (41) | — | (58) |
| At 30 June 2024 | 235 | 670 | 67 | 143 | 182 | 1,297 |
| Carrying amount | 680 | 212 | — | 479 | 84 | 1,455 |
(1) Property, plant and equipment includes investment properties of £16m (2023: £17m).
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Structured Notes Programmes | 362 | 369 |
| Structured deposits | 518 | 426 |
| Zero Amortising Guaranteed Notes | 93 | 104 |
| 973 | 899 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Demand and time deposits(1) | 181,468 | 188,004 |
| Amounts due to other Santander UK Group Holdings plc subsidiaries | 123 | 114 |
| Amounts due to Santander UK Group Holdings plc(2) | 1,778 | 1,772 |
| Amounts due to fellow Banco Santander subsidiaries and joint ventures | 1,505 | 960 |
| 184,874 | 190,850 |
(1) Includes capital amount guaranteed / protected equity index-linked deposits of £232m (2023: £304m). (2) Includes downstreamed funding from our immediate parent company Santander UK Group Holdings plc.
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Items in the course of transmission | 973 | 732 |
| Deposits held as collateral | 578 | 860 |
| Other deposits(1) | 14,944 | 18,737 |
| Amounts due to Santander UK subsidiaries | 4 | 3 |
| 16,499 | 20,332 |
(1) Includes balance drawn from the TFSME of £13.0bn (2023: £17.0bn).
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Agreements with banks | 616 | 551 |
| Agreements with customers | 6,007 | 7,860 |
| 6,623 | 8,411 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Medium-term notes | 8,879 | 11,656 |
| Euro €35bn Global Covered Bond Programme | 16,896 | 15,000 |
| US \$20bn Commercial Paper Programmes | 2,968 | 2,761 |
| Certificates of deposit | 1,397 | 1,530 |
| Credit linked notes | 387 | 194 |
| Securitisation programmes | 3,526 | 2,769 |
| 34,053 | 33,910 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| £325m Sterling preference shares | 343 | 343 |
| Undated subordinated liabilities | 205 | 205 |
| Dated subordinated liabilities | 1,849 | 1,838 |
| 2,397 | 2,386 |
In H124, no subordinated liabilities were repurchased as part of ongoing liability management exercises. In H123, certain subordinated liabilities were repurchased, resulting in a profit of £3m.
| Customer remediation |
Litigation and other regulatory |
Regulatory levies and fees |
Bank Levy | Property | ECL on undrawn facilities and guarantees |
Restructuring | Other | Total | |
|---|---|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2024 | 106 | 132 | — | — | 47 | 78 | 32 | 7 | 402 |
| Additional provisions (See Note 4) | 6 | 4 | 41 | — | — | 20 | 13 | 83 | 167 |
| Provisions released (See Note 4) | — | (4) | — | — | (1) | — | — | — | (5) |
| Utilisation and other | (39) | (28) | (1) | — | (13) | — | (27) | (76) | (184) |
| At 30 June 2024 | 73 | 104 | 40 | — | 33 | 98 | 18 | 14 | 380 |
Net provisions of £6m were recognised in H124 for customer remediations, relating to our mortgage book. The provisions remain subject to change as additional data becomes available and remediation boundaries are finalised.
Litigation and other regulatory provisions principally comprised amounts in respect of litigation and other regulatory charges, operational loss and operational risk provisions, and related expenses. A number of uncertainties exist with respect to these provisions given the uncertainties inherent in litigation and other regulatory matters, that affect the amount and timing of any potential outflows with respect to which provisions have been established. These provisions are reviewed at least quarterly.
In H124 there were charges of £4m for legal provisions. The balance also includes an amount in respect of our best estimate of liability relating to legal dispute regarding allocation of responsibility for a specific PPI portfolio of complaints, further described in Note 24. No further information on the best estimate is provided on the basis that it would be seriously prejudicial.
Regulatory levies and fees are payable to regulatory bodies such as the FCA, PRA and Bank of England in the ordinary course of business. In H124 there were charges of £37m relating to the new Bank of England levy.
In H124, other provisions included charges for operational risk provisions of £71m (H123: £87m), including fraud losses of £54m (H123: £75m).
The amounts recognised in the balance sheet were as follows:
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Assets/(liabilities) | ||
| Funded defined benefit pension scheme - surplus | 622 | 723 |
| Funded defined benefit pension scheme - deficit | (6) | (41) |
| Unfunded pension and post-retirement medical benefits | (24) | (25) |
| Total net assets | 592 | 657 |
An expense of £40m (H123: £33m) was recognised for defined contribution plans in the period and is included in staff costs within operating expenses (see Note 3).
The total amount charged to the income statement was £6m (H123: charge of £16m).
The amounts recognised in other comprehensive income were as follows:
| 30 June 2024 | 30 June 2023 | |
|---|---|---|
| £m | £m | |
| Return on plan assets (excluding amounts included in net interest expense) | 634 | 470 |
| Actuarial (gains) arising from changes in demographic assumptions | (88) | — |
| Actuarial losses arising from experience adjustments | 64 | 89 |
| Actuarial (gains) arising from changes in financial assumptions | (451) | (399) |
| Pension remeasurement | 159 | 160 |
The net assets recognised in the balance sheet were determined as follows:
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Present value of defined benefit obligations | (7,725) | (8,201) |
| Fair value of scheme assets | 8,317 | 8,858 |
| Net defined benefit assets | 592 | 657 |
| Directors | Financial | Shareholder | |||
|---|---|---|---|---|---|
| CEO review | Financial overview | responsibilities | Risk review | statements | information |
The principal actuarial assumptions used for the Scheme were:
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| % | % | |
| To determine benefit obligations(1) : |
||
| – Discount rate for scheme liabilities | 5.2 | 4.6 |
| – General price inflation | 3.1 | 3.0 |
| – General salary increase | 1 | 1.0 |
| – Expected rate of pension increase | 2.9 | 3.0 |
| Years | Years | |
| Longevity at 60 for current pensioners, on the valuation date: | ||
| – Males | 27.1 | 27.0 |
| – Females | 29.8 | 29.8 |
| Longevity at 60 for future pensioners currently aged 40, on the valuation date: | ||
| – Males | 28.7 | 28.6 |
| – Females | 31.4 | 31.3 |
(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 H124 was due to increased fixed interest gilt yields.
In H124, we adopted a new version of the model that we currently use to set the discount rate. The updated model is based on an expanded data set which improves stability of the model.
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 2024 | 31 December 2023 | ||
| Assumption | Change in pension obligation at period end from | £m | £m |
| Discount rate | 50bps increase | (460) | (507) |
| General price inflation | 50bps increase | 348 | 385 |
| Mortality | Each additional year of longevity assumed | 201 | 223 |
| 30 June 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Guarantees given to third parties | 420 | 452 |
| Formal standby facilities, credit lines and other commitments | 36,757 | 30,976 |
| 37,177 | 31,428 |
Where the items set out below can be reliably estimated, they are disclosed in the table above.
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, Santander UK is subject to audits, reviews, challenges and tax, regulatory or law enforcement investigations or proceedings by relevant regulators or government agencies 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.
CEO review Financial overview Directors responsibilities Risk review Financial statements Shareholder information
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 22 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 22 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 H124 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 practicable 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.
Following the FCA's Motor Market review in 2019 which resulted in a change in rules in January 2021, Santander Consumer (UK) plc (SCUK) has received a number of county court claims and complaints in respect of its historical use of discretionary commission arrangements (DCAs) prior to the 2021 rule changes. In the context of the complaints made to the Financial Ombudsman Service relating to such commission arrangements, the FCA commenced in January a review of the use of DCAs between lenders and credit brokers (the FCA review). A claim has also 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. In July 2024, the FCA extended the timeline for its review to May 2025 and proposed an extension of the current pause on complaints handling related to discretionary commission arrangements from September 2024 to 4 December 2025. While it is possible that certain charges may be incurred in relation to the FCA's review or related existing or future county court claims, Financial Ombudsman Service (FOS) complaints and the Competition Appeal Tribunal (CAT) proceedings, it is not considered that a legal or constructive obligation has been incurred in relation to these matters that would require a provision to be recognised at this stage. The resolution of such matters is not possible to predict with any certainty and there remain significant inherent uncertainties regarding the existence, scope and timing of any possible outflow which make it impracticable to disclose the extent of any potential financial impact.
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. Conversion of the preferred stock into Class A Common Stock of Visa Inc. depends on the outcome of litigation against Visa involving UK & Ireland multilateral interchange fees (UK&I MIFs). The convertible preferred stock is now held by Santander Equity Investments Limited (SEIL), outside the ring-fenced bank.
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.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
| Interest rate | 30 June 2024 | 31 December 2023 | ||
|---|---|---|---|---|
| % | Next call date | £m | £m | |
| AT1 securities: | ||||
| - £500m Perpetual Capital Securities | 6.75 | June 2024 | — | 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 |
| - £400m Perpetual Capital Securities | 8.75 | Sept 2029 | 400 | — |
| 1,860 | 1,956 |
As described in Note 14, to the Consolidated Financial Statements in the 2023 Annual Report, Santander UK plc and certain of its subsidiaries issue securitisations and covered bonds through or involving structured entities. At 30 June 2024, there were £33,189m (2023: £27,927m) of gross assets in these secured programmes and £1,637m (2023: £839m) of these related to internally retained issuances that were available for use as collateral for liquidity purposes in the future.
At 30 June 2024, £3,753m (2023: £2,928m) 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 2024 (2023: £1,500m), or for use as collateral for liquidity purposes in the future.
Related party transactions in the period were similar in nature to those in Note 38 to the Consolidated Financial Statements in the 2023 Annual Report. The financial position and performance of the Santander UK group were not materially affected in H124 by any related party transactions, or changes to related party transactions, other than as disclosed herein.
Directors
Financial statements
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 2023 Annual Report. Valuation, sensitivity methodologies and inputs at 30 June 2024 are consistent with those described in Note 39 to the Consolidated Financial Statements in the 2023 Annual Report.
The following tables analyse the fair value of the financial instruments carried at amortised cost at 30 June 2024 and 31 December 2023. 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 2023 Annual Report.
| 30 June 2024 | 31 December 2023 | |||
|---|---|---|---|---|
| Fair | Carrying | Fair | Carrying | |
| value | value | value | value | |
| £m | £m | £m | £m | |
| Assets | ||||
| Loans and advances to customers | 200,648 | 203,043 | 205,917 | 207,435 |
| Loans and advances to banks | 1,040 | 1,040 | 1,080 | 1,080 |
| Reverse repurchase agreements - non-trading | 15,315 | 15,319 | 12,470 | 12,468 |
| Other financial assets at amortised cost | 1,737 | 1,744 | 144 | 152 |
| 218,740 | 221,146 | 219,611 | 221,135 | |
| Liabilities | ||||
| Deposits by customers | 184,436 | 184,874 | 190,632 | 190,850 |
| Deposits by banks | 16,524 | 16,499 | 20,382 | 20,332 |
| Repurchase agreements - non-trading | 6,626 | 6,623 | 8,413 | 8,411 |
| Debt securities in issue | 34,059 | 34,053 | 33,621 | 33,910 |
| Subordinated liabilities | 2,613 | 2,397 | 2,800 | 2,386 |
| 244,258 | 244,446 | 255,848 | 255,889 |
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 30 June 2024 and 31 December 2023, analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
| 30 June 2024 | 31 December 2023 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | — | 860 | — | 860 | — | 1,129 | — | 1,129 | A | |
| Interest rate contracts | — | 1,895 | — | 1,895 | — | 2,216 | 1 | 2,217 | A & C | ||
| Equity and credit contracts | — | 104 | 37 | 141 | — | 98 | 35 | 133 | B & D | ||
| Netting | — | (1,765) | — | (1,765) | — | (2,047) | — | (2,047) | |||
| — | 1,094 | 37 | 1,131 | — | 1,396 | 36 | 1,432 | ||||
| Other financial assets at FVTPL | Loans and advances to customers | — | — | 44 | 44 | — | — | 46 | 46 | A | |
| Debt securities | — | 165 | 40 | 205 | — | 167 | 49 | 216 | A, B & D | ||
| — | 165 | 84 | 249 | — | 167 | 95 | 262 | ||||
| Financial assets at FVOCI | Debt securities | 8,293 | 325 | — | 8,618 | 8,293 | 188 | — | 8,481 | D | |
| 8,293 | 325 | — | 8,618 | 8,293 | 188 | — | 8,481 | ||||
| Total assets at fair value | 8,293 | 1,584 | 121 | 9,998 | 8,293 | 1,751 | 131 | 10,175 | |||
| Liabilities | |||||||||||
| Derivative financial instruments | Exchange rate contracts | — | 386 | — | 386 | — | 508 | — | 508 | A | |
| Interest rate contracts | — | 2,101 | — | 2,101 | — | 2,336 | 1 | 2,337 | A & C | ||
| Equity and credit contracts | — | 6 | 13 | 19 | — | 11 | 9 | 20 | B & D | ||
| Netting | — | (1,765) | — | (1,765) | — | (2,047) | — | (2,047) | |||
| — | 728 | 13 | 741 | — | 808 | 10 | 818 | ||||
| Other financial liabilities at FVTPL | Debt securities in issue | — | 362 | — | 362 | — | 369 | — | 369 | A | |
| Structured deposits | — | 518 | — | 518 | — | 426 | — | 426 | A | ||
| Zero Amortising Guaranteed Notes | — | 93 | — | 93 | — | 104 | — | 104 | D | ||
| — | 973 | — | 973 | — | 899 | — | 899 | ||||
| Total liabilities at fair value | — | 1,701 | 13 | 1,714 | — | 1,707 | 10 | 1,717 |
In H124 there were no significant (H123: no significant) transfers of financial instruments between levels of the fair value hierarchy.
| CEO review | Financial overview | Directors responsibilities |
Risk review | Financial statements |
Shareholder information |
|---|---|---|---|---|---|
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 2023 Annual Report.
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 2024 | 31 December 2023 | |
|---|---|---|
| £m | £m | |
| Risk-related: | ||
| - Bid-offer and trade specific adjustments | 8 | (6) |
| - Uncertainty | 5 | 6 |
| - Credit risk adjustment | — | 1 |
| - Funding fair value adjustment | — | 1 |
| 13 | 2 | |
| Day One profit | 1 | 1 |
| 14 | 3 |
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 2023 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 2023 Annual Report.
The following table sets out the movements in Level 3 financial instruments in H124:
| Assets | Liabilities | ||||
|---|---|---|---|---|---|
| Derivatives | Other financial assets at FVTPL |
Total | Derivatives | Total | |
| £m | £m | £m | £m | £m | |
| At 1 January 2024 | 36 | 95 | 131 | (10) | (10) |
| Total gains/(losses) recognised: | |||||
| Fair value movements(1) | 6 | (1) | 5 | (4) | (4) |
| Settlements | (5) | (10) | (15) | 1 | 1 |
| At 30 June 2024 | 37 | 84 | 121 | (13) | (13) |
| Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets and liabilities held at the end of the period(1) |
6 | (1) | 5 | (4) | (4) |
(1) 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 2023 Annual Report.
Directors
Financial statements Shareholder information
Management considered the sale of part of Santander House (Milton Keynes) under a proposed transaction with the developer for the construction of Unity Place and Buckingham House (Bletchley), 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. Both sales are expected to complete in 2024 with no gain or loss.
At 30 June 2024 and 31 December 2023, assets held for sale comprised:
| 30 June 2024 31 December 2023 | ||
|---|---|---|
| £m | £m | |
| Assets | ||
| Property, plant and equipment | 13 | 13 |
| Total assets held for sale | 13 | 13 |
There have been no significant events between 30 June 2024 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 | 64 |
|---|---|
| Glossary | 64 |
| Forward-looking statements | 64 |
| CEO review | Financial overview |
|---|---|
Directors responsibilities Risk review
Financial statements Shareholder information
The following 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 have been announced as a future change:
Angel Santodomingo was appointed to the Boards of the two companies as an Executive Director with effect from 5 March 2024, following receipt of regulatory approval. Angel joined the two companies as Chief Financial Officer in December 2023.
David Gledhill will join the Boards of the two companies as an Independent Non-Executive Director (INED) with effect from 1 September 2024.
There have been no significant changes from the glossary in the 2023 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 2023 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 2023) 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 2023 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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