Nationwide Building Society - Q1 2018/19 Interim Management Statement
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Nationwide Building Society
Interim Management Statement
Q1 2018/19Nationwide Building Society – Interim Management Statement 30 June 2018
10 August 2018
Nationwide Building Society today publishes its Interim Management Statement covering the period from 5 April 2018
to 30 June 2018 (‘Q1 2018/19’).
Nationwide reports strong first quarter trading with good growth in lending, member deposits
and current accounts, and is named Which? Best Bank Brand 2018
Key highlights
No.1 for customer satisfaction in our high street peer group, with a lead of 4.0%1;
Gross mortgage lending up 3.7% to £8.4 billion, (Q1 2017/18: £8.1 billion); supporting a record 20,600 first time
buyers (Q1 2017/18: 19,400);
Member deposit balances2 grew by £4.2 billion (Q1 2017/18: £1.3 billion), driven by strong ISA performance;
Remained UK’s top choice for current accounts3, opening more accounts than any other brand against lower market
activity for new current accounts4;
Underlying profit of £270 million (Q1 2017/18: £301 million) well within our strategic target range; statutory profit
of £281 million (Q1 2017/18: £322 million). Q1 2017/18 profits included £26 million one-off gain from VocaLink
disposal;
Maintained financial strength with CET1 ratio of 31.3% (4 April 2018: 30.5%) and UK leverage ratio of 4.9% (4 April
2018: 4.9%).
Nationwide Building Society Chief Executive, Joe Garner, said:
“As a member-owned organisation, Nationwide is committed to delivering exceptional value and service to members
rather than seeking to maximise profits. Nationwide has made a strong start to the year, opening more current accounts
than any other brand4 and attracting higher gross mortgage lending and member deposits than last year. We are also
pleased to have been named Which? Best Banking Brand for the second year running.
“We were again number one for overall customer satisfaction within our high street peer group1, and improved our
ranking among all firms - not just financial services – from joint seventh to joint fifth in the Institute of Customer Service’s
UK Customer Satisfaction Index5.
“Consumer expectations of service continue to evolve rapidly, as digital and data redefine how people manage their
money. Therefore, we are progressing the review of our technology strategy to ensure Nationwide stays well ahead of
future needs, and that we continue to pioneer legendary service in a digital age.
“Our outlook is unchanged from the full year, and we expect the economy to grow at a modest pace over the next 12
months. We are observing consumers adapting their behaviours in response to the pressure on disposable income. The
housing market looks set to remain relatively subdued with house prices broadly flat in 2018. Against this background,
we also expect intense competition to persist in our core markets.”
1 © GfK 2018, Financial Research Survey (FRS), 12 months ending 30 June 2018 and 12 months ending 31 March 2018, 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 Member deposits include current account credit balances.
3 Source: Nationwide Brand and Advertising tracker compiled by Independent Research Agency. ‘Top choice’ is most considered ie ‘first choice’ or ‘seriously considered’ current account
provider amongst non-customers of each brand, 3 months ending June 2018. Financial brands included Nationwide, Barclays, Co-operative Bank, First Direct, Halifax, HSBC, Lloyds,
NatWest, Santander and TSB.
4 Sources: eBenchmarkers (April-June 2018), CACI (April-May 2018) and internal sources.
5 Source: Institute of Customer Service UK Customer Satisfaction Index (UKCSI), July 2018. Previous report issued January 2018.
Page 1Nationwide Building Society – Interim Management Statement 30 June 2018
Trading performance
Quarter ended Quarter ended
30 June 2018 30 June 2017
£bn % £bn %
Gross residential mortgage lending/market share 8.4 12.8 8.1 13.0
Net residential mortgage lending/market share 2.2 19.0 2.4 21.8
Member deposits balance movement2/market share 4.2 27.5 1.3 10.2
Number of new current accounts opened 186,900 202,000
At 30 June 2018 At 5 April 2018 At 4 April 2018
(adjusted)6 (reported)
£bn % £bn % £bn %
Residential lending balances7 179.3 177.1 177.2
Member deposit balances2 /market share 152.2 10.2 N/A N/A 148.0 10.0
Market share of main standard and packaged current accounts8 8.0 N/A 7.9
Trading performance in the first quarter was strong reflecting the long-term value that we offer our members.
Nationwide advanced new residential lending of £8.4 billion in the first quarter and increased member deposit balances
by £4.2 billion.
Gross mortgage lending includes £7.4 billion of prime residential mortgages (Q1 2017/18: £7.3 billion), demonstrating
good performance in spite of sustained, intense competition. We supported 20,600 first time buyers, higher than any
previous quarter. 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 £1.0 billion (Q1 2017/18: £0.8 billion).
Net prime residential mortgage lending decreased slightly to £2.2 billion for the period (Q1 2017/18: £2.4 billion) due to
increased mortgage redemptions in a highly competitive market, with no net growth in respect of specialist mortgages.
This represented a 19.0% (Q1 2017/18: 21.8%) market share of all net lending.
Our member deposit balances grew by £4.2 billion following the success of our Single Access and Loyalty ISAs and
higher current account balances. This increased our market share of deposits to 10.2% (4 April 2018: 10.0%).
Nationwide remained the UK’s top choice for current accounts3, attracting 21% of all switchers9 in the period. Against
lower market activity for new current accounts, we have maintained market share of both current account openings10
and the stock of main standard and packaged current accounts8.
6 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, reducing net loans and advances to customers. The total impact on member’s interests and equity from IFRS 9 transition at 5 April 2018, net of deferred
tax, was a reduction of £162 million. Further information is provided in our Report on Transition to IFRS 9: Financial Instruments, which can be found on nationwide.co.uk
7 Residential lending balances are stated net of impairment provisions.
8 Source: CACI (May 2018).
9 Source: CASS BACS Payments Schemes monthly CASS switching market data, Apr-June 2018.
10 Sources: eBenchmarkers (April-June 2018), CACI (April-May 2018).
Page 2Nationwide Building Society – Interim Management Statement 30 June 2018
Financial performance
Quarter ended Quarter ended
30 June 2018 30 June 2017
£m % £m %
Underlying profit before tax 270 301
Statutory profit before tax 281 322
Statutory profit after tax 210 240
Net interest margin 1.28 1.35
Underlying cost income ratio 63.7 58.8
Statutory cost income ratio 62.8 57.4
At 30 June 2018 At 5 April 2018 At 4 April 2018
(adjusted)6 (reported)
£bn % £bn % £bn %
Total assets 236.0 228.9 229.1
Loans and advances to customers 195.1 191.5 191.7
Common Equity Tier 1 (CET1) ratio11 31.3 30.4 30.5
UK leverage ratio12 4.9 4.9 4.9
CRR leverage ratio13 4.6 4.6 4.6
Liquidity coverage ratio 139.2 N/A 130.3
Wholesale funding ratio 28.2 N/A 28.2
Note: Underlying profit represents management’s view of underlying performance and is presented to aid comparability across reporting periods, as explained on
page 5.
Underlying profit before tax of £270 million (Q1 2017/18: £301 million) has reduced by 10% predominately due to the
inclusion of a one-off gain of £26 million in the prior period from the sale of the Society’s investment in VocaLink.
Statutory profit before tax of £281 million (Q1 2017/18: £322 million) includes £11 million (Q1 2017/18: £20 million) of
derivative and hedge accounting gains14 which are excluded from underlying profit.
Net interest margin (NIM) was 7 basis points lower than for the same period last year, and 3 basis points lower than for
the 2017/18 full year. This was in line with our expectations, as we continue to see borrowers switching onto lower priced
products in a highly competitive market. This trend includes the continued run-off in our legacy base mortgage rate
(BMR) balances which have fallen to £22.0 billion. We are anticipating that market conditions will remain competitive,
and the run-off of BMR balances will continue, and consequently we expect our reported margin to trend lower during
the remainder of the year.
Costs for the year to date are in line with expectations. We remain committed to our efficiency programme, targeting
sustainable saves of £300 million by 2022; we will provide an update on progress in our Interim Results announcement
in November 2018.
Asset quality remains strong, with an average loan to value (LTV) of loan stock for total residential lending of 56% at the
end of the period, consistent with that reported at the year end. The average LTV of new lending in the period of 71%
was slightly higher compared to the same period last year (Q1 2017/18: 70%).
The number of cases more than three months in arrears as a percentage of the total book improved marginally to 0.33%
(4 April 2018: 0.34%) for prime lending and to 0.81% (4 April 2018: 0.83%) for specialist lending.
11 Common Equity Tier 1 (CET1) ratio has been calculated under CRD IV on an end point basis. For 30 June 2018 and 5 April 2018, IFRS 9 transitional adjustments have been applied.
12 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 30 June 2018 and 5 April 2018, IFRS 9 transitional adjustments have been applied.
13 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 30 June 2018 and 5 April 2018, IFRS 9 transitional adjustments have been applied.
14 Although we only use derivatives to hedge market risks, income statement volatility can still arise due to hedge accounting ineffectiveness or because hedge accounting is either not
currently applied or is not currently achievable. This volatility is largely attributable to accounting rules which do not fully reflect the economic reality of the hedging strategy.
Page 3Nationwide Building Society – Interim Management Statement 30 June 2018
Impairment losses on loans and advances during the quarter total £13 million (Q1 2017/18: £36 million reported under
IAS 3915) reflecting strong asset quality, stable economic conditions and no significant changes to assumptions since
the adoption of IFRS 9 at the beginning of the year.
We continue to review compliance with ongoing and emerging regulatory matters with no significant charge in the
period in respect of potential customer redress.
Capital and leverage ratios have remained comfortably in excess of regulatory requirements with a CET1 ratio of 31.3%
(4 April 2018: 30.5%16) and a UK leverage ratio of 4.9% (4 April 2018: 4.9%). The improvement in our CET1 ratio was
predominantly due to profits in the period and a small decrease in risk weighted assets (RWAs). Further information on
our capital position can be found in Appendix 1.
Outlook
Our outlook is unchanged from the full year, and we expect the economy to grow at a modest pace over the next 12
months. We are observing consumers adapting their behaviours in response to the pressure on disposable income. The
housing market looks set to remain relatively subdued with house prices broadly flat in 2018. Against this background,
we also expect intense competition to persist in our core markets.
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. Comparative information for the accounting periods prior to adoption were not restated, as permitted
by IFRS 9. The Group’s full statement of accounting policies is disclosed within the Annual Report and Accounts 2018.
The policies for financial assets and impairment of financial assets have changed from 5 April 2018 following the
adoption of IFRS 9, and the revised policies can be found in the Report on Transition to IFRS 9: Financial Instruments
on nationwide.co.uk
This Interim Management Statement contains the Group’s first results prepared under IFRS 9. 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
15Under 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 remain in accordance with IAS 39 and are therefore not necessarily comparable to impairment losses recorded for the current period.
16The 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 30 June 2018
Underlying profit
Profit before tax shown on a statutory and underlying basis is set out on page 3. Statutory profit before tax of £281 million has been adjusted to
derive an underlying profit before tax of £270 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.
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 a conscious decision 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. 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 management as well as financial
statements.
Page 5Nationwide Building Society – Interim Management Statement 30 June 2018
Appendix 1 – Supplementary capital disclosures
IFRS 9, implemented on 5 April 2018, impacted capital requirements and resources. The capital ratios for 5 April 2018
are disclosed on page 3 and more information is provided in our Report on Transition to IFRS 9: Financial Instruments,
which can be found on nationwide.co.uk
Key Metrics (KM1 and IFRS 9 – FL)
30 Jun 4 Apr 31 Dec 30 Sep 30 Jun
2018 2018 2017 2017 2017
£m £m £m £m £m
Available Capital
Common Equity Tier 1 (CET1) 10,154 9,925 9,907 9,758 8,769
Common Equity Tier 1 if IFRS 9 transitional arrangements not applied 10,095
Tier 1 11,146 10,917 10,899 10,750 9,761
Tier 1 if IFRS 9 transitional arrangements not applied 11,087
Total capital 14,263 13,936 15,124 14,104 12,308
Total capital if IFRS 9 transitional arrangements not applied 14,243
Risk-weighted assets
Total risk- weighted assets 32,430 32,509 32,492 32,999 33,197
Total risk- weighted assets if IFRS 9 transitional arrangements not applied 32,465
Risk-based capital ratios as a percentage of RWA
Common Equity Tier (CET1) ratio (%) 31.3 30.5 30.5 29.6 26.4
CET1 if IFRS 9 transitional arrangements had not been applied (%) 31.1
Tier 1 ratio (%) 34.4 33.6 33.5 32.6 29.4
Tier 1 ratio if IFRS 9 transitional arrangements not applied (%) 34.2
Total regulatory capital (%) 44.0 42.9 46.5 42.7 37.1
Total regulatory capital if IFRS 9 transitional arrangements not applied (%) 43.9
Additional CET1 buffer requirements as a percentage of RWA
Capital conservation buffer requirement (%) 1.9 1.9 1.3 1.3 1.3
Countercyclical buffer requirement (%) 0.5 0.0 0.0 0.0 0.0
D–SIB additional requirements (%) 0.0 0.0 0.0 0.0 0.0
Total of CET1 specific buffer requirements (%) 2.4 1.9 1.3 1.3 1.3
CET1 available after meeting minimum capital requirements, but before buffer
26.8 26.0 26.0 25.1 21.9
requirements (%)
UK leverage ratio
UK leverage exposure measure 227,943 221,992 222,573 220,614 219,693
UK leverage exposure measure if IFRS 9 transitional arrangements not
227,884
applied (%)
UK leverage ratio (%) 4.9 4.9 4.9 4.9 4.4
UK leverage ratio if IFRS 9 transitional arrangements not applied (%) 4.9
CRR leverage ratio
CRR leverage ratio exposure measure 244,652 236,468 242,398 236,002 236,675
CRR leverage ratio exposure measure if IFRS 9 transitional arrangements not
244,594
applied (%)
CRR leverage ratio (%) 4.6 4.6 4.5 4.6 4.1
CRR leverage ratio (%) if IFRS 9 transitional arrangements not applied 4.5
Liquidity Coverage Ratio17
Total high quality liquid assets (HQLA) 27,229 27,145 27,152 27,991 29,601
Total net cash outflows 20,510 20,555 20,400 21,030 21,295
Liquidity coverage ratio (%) 133 132 133 133 139
Note: Capital metrics are on a CRD IV end-point basis.
17These 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 139% as at the 30
June 2018, whilst the average LCR over 12 months ending 30 June 2018 was 133%.
Page 6Nationwide Building Society – Interim Management Statement 30 June 2018
The UK leverage ratio is unchanged at 4.9% (4 April 2018: 4.9%). Minimum leverage requirements are monitored by
the PRA on this basis with the current regulatory threshold set at 3.45%, composed of a minimum requirement of 3.25%
and a countercyclical leverage ratio buffer of 0.2%. Following the release of CP14/18 in July 2018, we will be subject to
an additional leverage ratio buffer (ALRB) from January 2019 aligned to the implementation of the systemic risk buffer.
Our current expectation is that the ALRB will be 0.35%. The Financial Policy Committee (FPC) has announced that the
countercyclical buffer will increase to 1% in November 2018, increasing the equivalent countercyclical leverage ratio
buffer to 0.4%. Therefore, the minimum leverage ratio requirement is expected to be 4% by January 2019. We remain
confident in the strength of our capital position to meet the increased minimum requirements.
The average UK leverage ratio for the three months to 30 June 2018 was 4.9%, with an average exposure measure of
£225,900 million.
Common Equity Tier 1 (CET1) capital resources have increased by approximately £0.2 billion, predominantly due to
profits after tax for the period of £0.2 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. Risk weighted
assets (RWAs) decreased over the period by approximately £0.1 billion. These movements have strengthened our CET1
ratio to 31.3% (4 April 2018: 30.5%).
Capital structure
30 June 2018 4 April 2018
£m £m
Common Equity Tier 1 capital before regulatory adjustments 11,452 11,351
Total regulatory adjustments to Common Equity Tier 1 (1,298) (1,426)
Common Equity Tier 1 capital 10,154 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 11,146 10,917
Tier 2 capital before regulatory adjustments 3,117 3,019
Total regulatory adjustments to Tier 2 capital - -
Tier 2 capital 3,117 3,019
Total capital 14,263 13,936
Note: Capital metrics are on a CRD IV end-point basis, with the application of IFRS 9 transitional arrangements for 30 June 2018.
Page 7Nationwide Building Society – Interim Management Statement 30 June 2018
Overview of RWAs (EU OV1)
Minimum capital
RWAs
requirements18
30 Jun 4 Apr 30 Jun 4 Apr
2018 2018 2018 2018
£m £m £m £m
1 Credit risk 25,467 25,875 2,037 2,070
2 Of which standardised approach 2,182 2,364 175 189
3 Of which the foundation IRB approach 5,643 5,843 451 468
4 Of which the advanced IRB approach 17,447 17,500 1,395 1,400
Of which Equity IRB under the simple risk-weight or
5 195 168 16 13
the internal models approach
6 Counterparty credit risk 1,539 1,184 123 95
7 Of which marked to market 665 512 53 41
Of which standardised approach for counterparty
9 33 28 3 2
credit risk
Of which risk exposure for contributions to the
11 6 9 0 1
default fund of a CCP
12 Of which CVA 835 635 67 51
13 Settlement risk - - - -
14 Securitisation exposures in banking book (after cap) 270 290 22 23
15 Of which IRB ratings-based approach 270 290 22 23
19 Market risk19 - - - -
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
27 253 259 20 21
250% risk weight)
29 Total 32,430 32,509 2,594 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 2018 23,511 1,881 2,364 189 1,184 95
2 Asset size 259 21 (179) (14) 336 26
3 Asset quality (485) (39) (3) - 19 2
9 RWA as at 30 June 2018 23,285 1,863 2,182 175 1,539 123
IRB credit risk RWAs have fallen primarily due to improving credit quality within the commercial and unsecured retail
portfolios. 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 reduced by £0.1 billion.
18 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
19 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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