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Nationwide Building Society
Interim Management Statement
Q3 2018/19Nationwide Building Society – Interim Management Statement 31 December 2018
8 February 2019
Nationwide Building Society today publishes its Interim Management Statement covering the period from 5 April 2018
to 31 December 2018 (‘Q3 2018/19’).
Nationwide grows membership and leads on service1 as it attracts one in five current account switchers
Key highlights
No. 1 for customer satisfaction amongst our high street peer group, with a lead of 3.1% (March 2018: 4.6%)1, and
no. 1 for consumer trust, with a lead of 2.7% (March 2018: 1.3%)2;
More than one in five current account switchers (21.6%; Q3 2017/18: 19.5%) chose Nationwide3 as we grew current
accounts by 5% to 7.7m (4 April 2018: 7.3m);
Gross and net mortgage lending grew, to £26.8bn (Q3 2017/18: £24.1bn) and £6.1bn (Q3 2017/18: £3.9bn)
respectively; and we helped 59,400 first-time buyers into their own homes;
Deposit balances up by £5.9bn (Q3 2017/18: £2.3bn) as members chose to save more with us;
Underlying profit of £691m (Q3 2017/18: £880m) and statutory profit of £703m (Q3 2017/18: £886m);
Profits are after a charge of £167m for asset write-offs and additional technology spend in line with the Society’s
September 2018 announcement of increased investment to meet members’ future needs;
Capital further strengthened with CET1 ratio of 31.7% (4 April 2018: 30.5%) and UK leverage ratio of 5.0% (4 April
2018: 4.9%).
Nationwide Building Society Chief Executive, Joe Garner, said:
“Nationwide Building Society is owned and run for the benefit of our members - not shareholders. Our membership has
grown this year, we’ve continued to lead on service1 and trust2, helped more people into a home, and seen more
members trust us with their money. Our commitment to rewarding these members with great value products and
prioritising long-term value has encouraged more people to switch their mortgages and current accounts to us, and
save with our Single Access and Loyalty ISAs. We’ve also helped 59,400 first-time buyers into their first home.
“As a mutual we are different in having more scope to make decisions in the long-term interest of our members. In
September we took the conscious decision to increase significantly our investment in the Society in the full knowledge
that it would impact profitability in the short-to medium-term but would be of long-term benefit to our members.
Underlying profit for the first nine months of the year, at £691 million, is broadly flat year on year, excluding a charge of
£167 million relating to asset write-offs and additional technology spend. This investment is to ensure we can continue
to meet our members’ changing needs in an increasingly digital future. At the same time, consistent with member
feedback, we remain committed to and are investing in our presence on the high street.
“Additionally, in November we announced our commitment to launch a small business current account and expect to
submit a bid for £50 million from the RBS Alternative Remedies Package. Our service will combine an advanced digital
offering that integrates with our UK-wide network of branches and people to meet the needs of the many small and
micro businesses that are not currently being well-served by incumbent banks. We believe that a combination of new
technology and traditional face-to-face service will bring to life our vision for business banking – one built on excellent
levels of service, trust and value.
“Looking ahead to the fourth quarter, as consumers continue to benefit from considerable choice, we intend to remain
competitive and thus expect that lending margins will continue to moderate. We are confident that the Society’s financial
strength means we can continue to support members, as we have always done.”
1 © Ipsos MORI 2019, Financial Research Survey (FRS), 12 months ending 31 December 2018 and 12 months ending 31 March 2018, c.60,000 adults interviewed per annum, proportion of
extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across current account, mortgage and savings. High street peer group defined
as providers with main current account market share >4% (Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB).
2 Source: Nationwide Brand and Advertising tracker compiled by Independent Research Agency, 12 months ending 31 December 2018 vs 12 months ended 31 March 2018. Financial brands
included Nationwide, Barclays, Co-operative Bank, First Direct, Halifax, HSBC, Lloyds, NatWest, Santander and TSB.
3 Source: CASS BACS Payments Schemes monthly CASS switching market data, Apr-Dec 2018.
Page 1Nationwide Building Society – Interim Management Statement 31 December 2018
Trading performance
9 months ended 9 months ended
31 December 2018 31 December 2017
£bn % £bn %
Gross residential mortgage lending/market share (note i) 26.8 12.9 24.1 12.3
Net residential mortgage lending/market share (note i) 6.1 15.2 3.9 10.4
Member deposits balance4 movement/market share (note i) 5.9 13.5 2.3 4.1
Number of new current accounts opened 588,000 617,000
At 31 December 2018 At 5 April 2018 At 4 April 2018
(adjusted)5 (reported)
£bn % £bn % £bn %
Residential lending balances6 183.3 177.1 177.2
Member deposit balances4/market share 153.9 10.1 148.0 10.0
Market share of main standard and packaged current accounts7 7.9 7.9
Note:
i. The calculation of market share for mortgage lending and deposit balances has been refined to better reflect the position at the reporting date, with comparatives
restated accordingly. Market data is available at calendar month ends and therefore market share for Q3 2018/19 and Q3 2017/18 is for the period 1 April to 31
December.
Trading performance for the period has been strong with gross lending of £26.8 billion (Q3 2017/18: £24.1 billion), and
growth in member deposit balances of £5.9 billion (Q3 2017/18: £2.3 billion).
Gross mortgage lending includes £23.4 billion of prime residential mortgages (Q3 2017/18: £21.6 billion), demonstrating
our competitively priced products and the long-term value that we continue to offer members. Following enhancements
to our buy to let (BTL) product range, the flow of advances has improved with gross BTL mortgage lending for the period
of £3.4 billion (Q3 2017/18: £2.5 billion).
Net mortgage lending was £6.1 billion (Q3 2017/18: £3.9 billion), reflecting higher gross mortgage advances. Net lending
for prime mortgages was £5.7 billion (Q3 2017/18: £4.3 billion), and for specialist mortgages was £0.4 billion (£0.4
billion net redemption).
Member deposits grew by £5.9 billion following the success of our Single Access and Loyalty ISAs, together with higher
current account balances. This increased our market share of deposits to 10.1% (31 March 2018: 10.0%). Our stock of all
current accounts continues to grow and now stands at 7.7 million and we’ve maintained our share of main standard and
packaged current accounts of 7.9%. Our market share of switchers increased to 21.6% (Q3 2017/18: 19.5%) with 1 in 5
of all switchers1 moving to Nationwide.
4 Member deposits include current account credit balances.
5 Figures have been adjusted to reflect the impact of applying IFRS 9 from 5 April 2018. On 5 April 2018, Nationwide implemented IFRS 9 Financial Instruments. As a result, impairment
provisions increased by £172 million. Further information is provided in our Report on Transition to IFRS 9: Financial Instruments, which can be found on nationwide.co.uk
6 Residential lending balances are stated net of impairment provisions.
7 Source: CACI (November 2018) and internal calculations. In June 2018, the size of the market reported for main standard and packaged current accounts increased due to updates of
participant data. Had this change been applied in the March 2018 data, we estimate that Nationwide’s market share of standard and packaged current accounts would have been 7.8%.
Page 2Nationwide Building Society – Interim Management Statement 31 December 2018
Financial performance
9 months ended 9 months ended
31 December 2018 31 December 2017
£m % £m %
Underlying profit before tax (note i) 691 880
Statutory profit before tax 703 886
Statutory profit after tax 535 664
Net interest margin 1.26 1.33
Underlying cost income ratio (note i) 68.4 59.7
Statutory cost income ratio 68.4 59.7
At 31 December 2018 At 5 April 2018 At 4 April 2018
(adjusted)5 (reported)
£bn % £bn % £bn %
Total assets 240.1 228.9 229.1
Loans and advances to customers 197.6 191.5 191.7
Common Equity Tier 1 (CET1) ratio8 31.7 30.4 30.5
UK leverage ratio9 5.0 4.9 4.9
CRR leverage ratio10 4.6 4.6 4.6
Liquidity coverage ratio 152.5 130.3
Wholesale funding ratio 28.8 28.2
Note:
i. The following items are excluded from statutory profit to arrive at underlying profit:
FSCS costs arising from institutional failures, which are included within provisions for liabilities and charges.
Gains or losses from derivatives and hedge accounting, which are presented separately within total income.
The components of underlying profit have been changed in the period to reflect more appropriately ongoing business performance and now include the bank levy
and FSCS management expenses, which were previously excluded. The comparative for the prior period has been reduced by £3 million to reflect this change.
The impact will be more significant for the full financial year as the bank levy expense (£45 million in 2017/18) is incurred in the last quarter of the year.
Underlying profit for the period has reduced, principally due to a charge of £167 million driven by asset write-offs and
additional investment in technology, in line with our technology strategy announcement in September 2018. This has
also impacted cost income ratios, increasing the underlying cost income ratio to 68.4%.
Net interest margin was 7 basis points lower than for the same period last year, and 5 basis points lower than for the
2017/18 full year. As consumers continue to benefit from considerable choice, we intend to remain competitive and thus
expect that margins will continue to moderate in retail lending markets generally, and particularly in relation to both
prime and buy to let mortgages. Attractive new business pricing, combined with a base rate change in the period, has
encouraged product switching as well as refinancing with our legacy base mortgage rate (BMR) balances continuing to
run off. BMR balances have fallen by 14% to £19.5 billion over the nine-month period.
Costs are flat period on period, excluding asset write-offs and our additional technology investment, and we are on track
to deliver £100 million of sustainable saves within the 2018/19 year.
Asset quality remains strong, with an average loan to value (LTV) of loan stock for total residential lending of 57% (4
April 2018: 56%). The average LTV of new lending in the period of 71% is consistent with the prior period.
Arrears performance for residential mortgages is stable with the number of cases more than three months in arrears at
0.43% of the total portfolio (4 April 2018: 0.43%).
8 Common Equity Tier 1 (CET1) ratio has been calculated under CRD IV on an end point basis. For 31 December 2018 and 5 April 2018, IFRS 9 transitional adjustments have been applied.
9 The UK leverage ratio is shown on the basis of measurement announced by the Prudential Regulation Authority (PRA) and excludes eligible central bank reserves from the leverage
exposure measure. For 31 December 2018 and 5 April 2018, IFRS 9 transitional adjustments have been applied.
10 The Capital Requirements Regulation (CRR) leverage ratio is calculated using the CRR definition of Tier 1 for the capital amount and the delegated act definition of the exposure measure
and is reported on an end point basis. For 31 December 2018 and 5 April 2018, IFRS 9 transitional adjustments have been applied.
Page 3Nationwide Building Society – Interim Management Statement 31 December 2018
Impairment losses on loans and advances of £69 million (Q3 2017/18: £79 million reported under IAS 3911) reflect strong
asset quality and stable credit performance.
We continue to review compliance with ongoing and emerging regulatory matters. During the period there has been a
net release of £11 million of provisions for customer redress (Q3 2017/18: £25 million charge), reflecting latest estimates
of the liabilities.
Capital ratios have remained comfortably in excess of regulatory requirements with a CET1 ratio of 31.7% (4 April 2018:
30.5%12) and a UK leverage ratio of 5.0% (4 April 2018: 4.9%). The improvement in our CET1 ratio was predominantly
due to profits after tax in the period, partially offset by an increase in risk weighted assets. As future regulatory
developments come into force, we expect risk weighted assets to be higher and our CET1 ratio therefore to reduce on a
pro forma basis. Further information on our capital position can be found in Appendix 1.
Publication of Interim Management Statements
Nationwide’s core purpose as a building society enables us to take long term decisions which are in the best interest of
current and future members. Our recent external financial reporting has emphasised the importance of long-term
sustainability and the prioritisation of security, service and delivering value to members over pure profit generation.
Following a careful review, we’ve decided that we will discontinue the publication of an Interim Management Statement
for Q1 and Q3, given the short-term focus of these updates. This Interim Management Statement for Q3 2018/19 will
therefore be the last one routinely issued by the Society.
Additional information
The financial information on which this Interim Management Statement is based is unaudited and has been prepared
on the basis of International Financial Reporting Standards, incorporating IFRS 9 and its consequential amendments to
other standards including IFRS 7, as endorsed by the EU, and including transitional arrangements for regulatory capital
as appropriate. The Group’s full statement of accounting policies is disclosed within the Annual Report and Accounts
2018. The revised accounting policies following adoption of IFRS 9 can be found in the Interim Results for the period
ended 30 September 2018. Additional information on the transition to IFRS 9 can be found in Nationwide’s ‘Report on
Transition to IFRS 9: Financial Instruments’, available on the Society’s website at nationwide.co.uk.
The Group’s first full year set of financial statements prepared under IFRS 9 will be published in the Annual Report and
Accounts for the year ending 4 April 2019.
For further information please contact:
Investor queries: Alex Wall, 0207 2616568 or 07917 093632, alexander.wall@nationwide.co.uk
Media contact: Tanya Joseph, 020 72616503 or 07826 922102, tanya.joseph@nationwide.co.uk
Sara Batchelor, 01793 657770 or 07785 344137, sara.batchelor@nationwide.co.uk
11Under IFRS 9, the recognition and measurement of expected credit losses differs from under IAS 39. As prior periods have not been restated, impairment losses on loans and advances in
the comparative periods are not necessarily comparable to impairment losses recorded for the current period.
12The Common Equity Tier 1 (CET1) ratio reported at 4 April 2018 is based on profits reported in accordance with IAS 39.
Page 4Nationwide Building Society – Interim Management Statement 31 December 2018
Underlying profit
Profit before tax shown on a statutory and underlying basis is set out on page 3. Statutory profit before tax of £703 million has been adjusted to
derive an underlying profit before tax of £691 million. The purpose of this measure is to reflect management’s view of the Group’s underlying
performance and to assist with like for like comparisons of performance across periods. Underlying profit is not designed to measure sustainable
levels of profitability as that potentially requires exclusion of non-recurring items even though they are closely related to (or even a direct
consequence of) the Group’s core business activities. The components of underlying profit have changed in the period to more accurately reflect
underlying performance. For more information see page 3.
Nationwide has developed a financial performance framework based on the fundamental principle of maintaining its capital at a prudent level in
excess of regulatory requirements. The framework provides parameters which allow it to calibrate future performance and help ensure that it
achieves the right balance between distributing value to members, investing in the business and maintaining financial strength. The most
important of these parameters is underlying profit which is a key component of Nationwide’s capital. We believe that a level of underlying profit of
approximately £0.9 billion to £1.3 billion per annum over the medium-term would meet the Board’s objective for sustainable capital strength. This
range will vary from time to time, and whether our profitability falls within or outside this range in any given financial year or period will depend
on a number of external and internal factors, including conscious decisions to return value to members or to make investments in the business. It
should not be construed as a forecast of the likely level of Nationwide’s underlying profit for any financial year or period within a financial year.
Forward looking statements
Certain statements in this document are forward looking with respect to plans, goals and expectations relating to the future financial position,
business performance and results of Nationwide. Although Nationwide believes that the expectations reflected in these forward-looking statements
are reasonable, Nationwide can give no assurance that these expectations will prove to be an accurate reflection of actual results. By their nature,
all forward looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of
Nationwide including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuation
in interest rates and exchange rates, inflation/deflation, the impact of competition, changes in customer preferences, risks concerning borrower
credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within
relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions
in which Nationwide operates. The economic outlook also remains unusually uncertain due to Brexit. As a result, Nationwide’s actual future
financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these
forward-looking statements. Due to such risks and uncertainties Nationwide cautions readers not to place undue reliance on such forward-looking
statements.
Nationwide undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
This document does not constitute or form part of an offer of securities for sale in the United States. Securities may not be offered or sold in the
United States absent registration or an exemption from registration. Any public offering to be made in the United States will be made by means of
a prospectus that may be obtained from Nationwide and will contain detailed information about Nationwide and its management as well as
financial statements.
Page 5Nationwide Building Society – Interim Management Statement 31 December 2018
Appendix 1 – Supplementary capital disclosures
IFRS 9, implemented on 5 April 2018, impacted capital requirements and resources. The capital ratios as at 5 April 2018
are disclosed on page 3.
Key Metrics (KM1 and IFRS 9 – FL)
31 Dec 30 Sep 30 Jun 4 Apr 31 Dec
2018 2018 2018 201813 201713
£m £m £m £m £m
Available Capital
Common Equity Tier 1 (CET1) 10,542 10,423 10,154 9,925 9,907
Common Equity Tier 1 if IFRS 9 transitional arrangements not applied 10,483 10,364 10,095
Tier 1 11,534 11,415 11,146 10,917 10,899
Tier 1 if IFRS 9 transitional arrangements not applied 11,476 11,356 11,087
Total capital 14,644 14,511 14,263 13,936 15,124
Total capital if IFRS 9 transitional arrangements not applied 14,640 14,513 14,243
Risk-weighted assets (RWA) £m £m £m £m £m
Total risk- weighted assets 33,243 32,868 32,430 32,509 32,492
Total risk- weighted assets if IFRS 9 transitional arrangements not applied 33,279 32,903 32,465
Risk- based capital ratios as a percentage of RWA % % % % %
Common Equity Tier (CET1) ratio 31.7 31.7 31.3 30.5 30.5
CET1 as if IFRS 9 transitional arrangements not applied 31.5 31.5 31.1
Tier 1 ratio 34.7 34.7 34.4 33.6 33.5
Tier 1 ratio if IFRS 9 transitional arrangements not applied 34.5 34.5 34.2
Total regulatory capital 44.1 44.2 44.0 42.9 46.5
Total regulatory capital if IFRS 9 transitional arrangements not applied 44.0 44.1 43.9
Additional CET1 buffer requirements as a percentage of RWA % % % % %
Capital conservation buffer requirement 1.9 1.9 1.9 1.9 1.3
Countercyclical buffer requirement 1.0 0.5 0.5 0.0 0.0
D–SIB additional requirements 0.0 0.0 0.0 0.0 0.0
Total of CET1 specific buffer requirements 2.9 2.4 2.4 1.9 1.3
CET1 available after meeting minimum capital requirements, but before buffer
27.2 27.2 26.8 26.0 26.0
requirements
UK leverage ratio
UK leverage exposure measure (£m) 231,901 227,646 227,943 221,992 222,573
UK leverage exposure measure if IFRS 9 transitional arrangements not
231,843 227,587 227,884
applied (£m)
UK leverage ratio (%) 5.0 5.0 4.9 4.9 4.9
UK leverage ratio if IFRS 9 transitional arrangements not applied (%) 4.9 5.0 4.9
CRR leverage ratio
CRR leverage ratio exposure measure (£m) 249,531 246,193 244,652 236,468 242,398
CRR leverage ratio exposure measure if IFRS 9 transitional arrangements not
249,472 246,134 244,594
applied (£m)
CRR leverage ratio (%) 4.6 4.6 4.6 4.6 4.5
CRR leverage ratio (%) if IFRS 9 transitional arrangements not applied 4.6 4.6 4.5
Liquidity Coverage Ratio (LCR)14
Total high quality liquid assets (HQLA) (£m) 27,484 27,568 27,229 27,145 27,152
Total net cash outflows (£m) 19,944 20,301 20,510 20,555 20,400
Liquidity coverage ratio (%) 138 136 133 132 133
Note: Capital metrics are on a CRD IV end-point basis.
The 4 April 2018 and 31 December 2017 figures are presented on an IAS 39 basis. IFRS 9 was adopted on 5 April 2018.
13
These values are calculated on a simple average basis using the preceding 12 month-end LCR observations, on a consolidated currency basis. Nationwide’s LCR was 152.5 % as at the 31
14
December 2018, whilst the average LCR over 12 months ending 31 December 2018 was 138%.
Page 6Nationwide Building Society – Interim Management Statement 31 December 2018
The UK leverage ratio has increased to 5.0% (4 April 2018: 4.9%), with 0.4% provided by Additional Tier 1 resources.
Minimum leverage requirements are monitored by the PRA on a UK leverage basis with the current regulatory threshold
set at 3.65%, composed of a minimum requirement of 3.25% and a countercyclical leverage ratio buffer of 0.4%.
Following the release of CP14/18 in July 2018, we will be subject to an additional leverage ratio buffer (ALRB) in 2019,
aligned to the implementation of the systemic risk buffer. Our current expectation is that the ALRB will be 0.35%.
Therefore, the leverage ratio requirement is expected to be 4.0% during 2019. We remain confident in the strength of
our capital position to meet the increased requirements.
The average UK leverage ratio for the three months to 31 December 2018 was 5.0%, with an average exposure measure
of £231,673 million.
Common Equity Tier 1 (CET1) capital resources have increased by approximately £0.6 billion predominantly due to profits
after tax for the period of £0.5 billion. The impact of the introduction of IFRS 9 has been largely offset by the reduction
in net expected loss deduction and further, by the adoption of the transitional adjustments. RWAs increased over the
period by approximately £0.7 billion. These movements have strengthened our CET1 ratio to 31.7% (4 April 2018:
30.5%).
Capital structure
31 December 2018 4 April 201813
£m £m
Common Equity Tier 1 capital before regulatory adjustments 11,765 11,351
Total regulatory adjustments to Common Equity Tier 1 (1,223) (1,426)
Common Equity Tier 1 capital 10,542 9,925
Additional Tier 1 capital before regulatory adjustments 992 992
Total regulatory adjustments to Additional Tier 1 capital - -
Additional Tier 1 capital 992 992
Total Tier 1 capital 11,534 10,917
Tier 2 capital before regulatory adjustments 3,110 3,019
Total regulatory adjustments to Tier 2 capital - -
Tier 2 capital 3,110 3,019
Total capital 14,644 13,936
Note: Capital metrics are on a CRD IV end-point basis, with the application of IFRS 9 transitional arrangements for 31 December 2018.
Page 7Nationwide Building Society – Interim Management Statement 31 December 2018
Overview of RWAs (EU OV1)
Minimum capital
RWAs
requirements15
31 December 4 April 31 December 4 April
2018 201813 2018 201813
£m £m £m £m
1 Credit risk 26,031 25,875 2,083 2,070
2 Of which standardised approach 1,973 2,364 158 189
3 Of which the foundation IRB approach 6,025 5,843 482 468
4 Of which the advanced IRB approach 17,819 17,500 1,426 1,400
Of which Equity IRB under the simple risk-weight or
5 214 168 17 13
the internal models approach
6 Counterparty credit risk 1,902 1,184 152 95
7 Of which marked to market 778 512 62 41
Of which standardised approach for counterparty
9 33 28 3 2
credit risk
Of which risk exposure for contributions to the
11 150 9 12 1
default fund of a CCP
12 Of which CVA 941 635 75 51
13 Settlement risk - - - -
14 Securitisation exposures in banking book (after cap) 255 290 20 23
15 Of which IRB ratings-based approach 255 290 20 23
19 Market risk16 - - - -
23 Operational risk 4,901 4,901 392 392
25 Of which Standardised approach 4,901 4,901 392 392
Amounts below the thresholds for deduction (subject to
27 154 259 12 21
250% risk weight)
29 Total 33,243 32,509 2,659 2,601
RWA flow statements of credit risk exposures (EU CR8)
IRB credit risk Standardised credit risk Counterparty credit risk
RWA Capital RWA Capital RWA Capital
amounts requirements amounts requirements amounts requirements
£m £m £m £m £m £m
1 RWA as at 4 April 201813 23,511 1,881 2,364 189 1,184 95
2 Asset size 930 75 (389) (31) 645 51
3 Asset quality (383) (31) (2) - 73 6
9 RWA as at 31 December 2018 24,058 1,925 1,973 158 1,902 152
IRB credit risk RWAs have increased due to continued lending whilst standardised credit risk RWAs have fallen due to
the runoff of closed books. Counterparty credit risk RWAs have increased due to higher regulatory exposures. Total
RWAs have increased by £0.7 billion.
15 Capital is also held to meet Pillar 2 and capital buffer requirements. Further details on Pillar 2 requirements can be found in the Pillar 3 Disclosure 2018 at nationwide.co.uk
16 Market risk has been set to zero as permitted by the CRR as exposure is below the threshold of 2% of own funds.
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