TIDMMTRO
RNS Number : 1365E
Metro Bank PLC
26 February 2020
Metro Bank PLC
Full year results
Trading Update 2019
26 February 2020
Metro Bank PLC (LSE: MTRO LN)
Results for Year ended 31 December 2019
-- Financial performance reflects a challenging year
-- Balance sheet strength retained
-- Strong annual growth in customer accounts
-- Ambition to become the UK's best community bank
Summary:
-- Underlying loss before tax of GBP11.7 million (2018: GBP50.0
million profit) reflecting balance sheet strengthening actions,
IFRS 16 impact and debt interest expense.
-- Statutory loss before tax of GBP130.8 million (2018: GBP40.6
million profit) primarily reflecting a GBP68 million write-down
of intangible assets (no impact on regulatory capital).
-- 21% growth in retail and SME core deposits to GBP10.2 billion
(2018: GBP8.4 billion).
-- Net fee and other income up 43%, driven by customer growth
and the launch of fee-earning services.
-- Strong capital position with Common Equity Tier 1 (CET1)
ratio of 15.6% (2018: 13.1%).
-- Surpassed 2.0 million customer accounts (2018: 1.6 million).
-- Rated no. 1 for service in stores and for online and mobile
banking (1) .
-- Strategic ambition to become the UK's best community bank.
-- Strategic plan revised to achieve statutory RoTE >8.5% by
2024:
* Deliverable cost and revenue initiatives identified
and being implemented, complemented by targeted
investments, with returns further enhanced through
balance sheet optimisation
Key Financials:
31 31 Change 30 Change
GBP in millions December December from September from
2019 2018 full year 2019 Q3 19
18
Assets GBP21,400 GBP21,647 (1%) GBP21,002 2%
Loans GBP14,681 GBP14,235 3% GBP14,891 (1%)
Deposits GBP14,477 GBP15,661 (8%) GBP14,231 2%
Loan to deposit ratio 101% 91% 10pp 105% (4pp)
CET 1 capital ratio 15.6% 13.1% 250bps 16.2% (60bps)
Total capital ratio 18.3% 15.9% 240bps 18.9% (60bps)
Liquidity coverage
ratio 197% 139% 58pp - -
---------- ---------- ----------- ----------- --------
GBP in millions Year ended Year ended Change
31 December 31 December
2019 2018
Total underlying revenue GBP400.1 GBP404.1 (1%)
Underlying (loss)/profit
before tax(2) (GBP11.7) GBP50.0 (123%)
Statutory (loss)/profit
before tax (GBP130.8) GBP40.6 (422%)
Net interest margin 1.51% 1.81% (30bps)
Underlying EPS- basic (10.8p) 39.4p (127%)
Underlying EPS- diluted (10.8p) 38.2p (128%)
------------- ------------- --------
1. Results from the Competition and Market Authority's February 2020 Service Quality Survey.
2. Underlying (loss)/profit before tax excludes Listing Share
Awards, impairment of property, plant & equipment ("PPE") and
intangible assets, net BCR costs, transformation costs and
remediation costs. Statutory (loss)/profit after tax is included in
the Profit and Loss Account.
Dan Frumkin, Chief Executive Officer at Metro Bank, said:
"Our financial performance reflects a very challenging year for
Metro Bank. External headwinds, internal challenges and actions we
took to put the business on a more positive trajectory are
reflected in the results. Despite this, Metro Bank's market-leading
service proposition continued to deliver growth in customer
accounts, and our balance sheet ended the year in a materially
stronger position. We've fully evaluated our strategy, and have a
clear plan which will return the bank to sustainable growth built
around a community banking model. An enhanced focus on costs,
improved productivity, and investment in our infrastructure will
enable our deposit-led franchise to deliver profitable growth over
the medium term. Thanks to the steadfast commitment of colleagues
across the bank, I am confident we will successfully execute
against these priorities to become the UK's best community
bank."
A presentation for investors and analysts will be held at 08:30
GMT on 26 February 2020.
The presentation will be webcast on:
https://event.on24.com/wcc/r/2180103/0B87C516F118372B20DA70B3C08A88FC
For those wishing to dial-in:
From the UK dial: +44 3333 000 0804
From the US dial: +1 631 913 1422
Participant Pin: 49156297#
URL for other international dial in numbers:
http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Strategic update and outlook
-- Following a challenging year, the bank has undertaken
a comprehensive review of its strategy. The refreshed strategy
to become the UK's best community bank is built on firm
foundations: robust capital and liquidity; strong asset
quality; simple balance sheet; sector leading customer
service underpinned by a strong culture and engaged colleagues;
and customer account growth momentum. We will deliver a
statutory RoTE of >8.5% by 2024.
-- Outstanding customer service and convenience across a
range of distribution channels will remain at the core
of Metro Bank's strategy. Being the UK's best community
bank means serving the local economy by focusing on the
requirements of individuals and small businesses. We will
focus on five straight forward pillars that will enable
us to deliver for stakeholders:
1. Tight cost control through back office efficiencies
and organisational simplification. Metro Bank's fixed costs
make up a significant portion of its cost base, primarily
due to the store network; this in time will deliver significant
operating leverage and drive revenue. In the meantime,
the bank has initiatives in place to ensure cost growth
continues to moderate. New stores will become more cost
efficient and flexible in size, fit-out and leasing terms.
The bank will also streamline its back-office operations
by relocating to cost effective locations, modernise contact-centre
technology, aim to digitise/automate services and reduce
organisational layers across the bank.
2. Improve capability and meet more customer needs through
better execution. Metro Bank intends to maintain and improve
its leading customer service to both deepen existing relationships
and attract new FANS with the aim of driving revenue and
NIM growth. The current product offering will be enhanced
and broadened, and the bank will invest in its colleagues
and technology to enhance accessibility for customers.
A limited number of new stores will be opened over the
next few years, allowing Metro Bank to be embedded in more
communities. Existing and new stores will benefit from
the new marketing campaign which will raise awareness of
Metro Bank's award-winning service.
3. Continued infrastructure investment to support the
transformation . Continued investment in Metro Bank's leading
customer proposition with the aim of bringing the physical
and digital world together, making life easier for FANS
and colleagues. This will be underpinned by further investment
in technology, finance and risk infrastructure.
4. Optimise our balance sheet. Metro Bank will optimise
its balance sheet and asset mix whilst focusing on risk
adjusted return on regulatory capital. In the short-term,
tactical asset disposals will be considered, and in the
longer term a number of funding diversification options
will be considered to deliver greater risk adjusted returns
on capital. The bank will seek a better yielding asset
book and improved returns on regulatory capital by rebalancing
its lending mix towards areas such as specialist mortgages,
SMEs and unsecured loans.
5. Clear and refreshed external and internal communications
strategy . Metro Bank's refreshed strategy will focus on
providing colleagues, shareholders and other stakeholders
with a clear message. Internally, the bank will ensure
colleagues have a clear understanding of its transformation
plan and their role within this. Externally, the bank is
re-evaluating guidance, KPIs, tone and frequency of reporting.
Guidance and Targets
FY2020 FY 2024
Guidance Targets Guidance
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Deposits
* Mid-single digit growth * * Cost of deposits to reduce over time as the mix of
current accounts increases
*
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Revenue
* NIM in line with Q4 2019 * NIM expansion vs FY 2019 * Target lending mix (75% mortgages, 20% SME and 5%
unsecured)
* Fee and other income to increase as proportion of
revenue mix
* 15-30 bps cost of risk
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Operating
Costs * Mid-high-single digit growth excluding investment * New investment spend GBP250-GBP300m opex (excluding * 'Run the bank' cost low single digit CAGR 2020-2024
opex depreciation and amortisation) and c.GBP100m capex
by
2024, front-end loaded
* Cost income ratio 70-75% by 2024 (includes new
investment spend, amortisation and depreciation)
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Capital
* CET1 ratio >12% * Minimum 12% CET1 and >22.5% Total Capital plus MREL * Additional MREL issuance post Jan 2022 in line with
regulatory requirements
* Up to GBP500m of MREL issuance before 1 Jan 2022
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Returns
* 8.5% statutory RoTE by FY2024 * Conservative target prudently excludes impact of AIRB
approval
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
BCR Capability & Innovation Fund Award
-- Revised Business Case submitted to, and approved by, BCR
Ltd ("BCR") to align Metro Bank's Public Commitments with
its new strategy. Metro Bank will return GBP50 million
of the original GBP120 million funding it was awarded last
year.
-- Summary of key changes to the Public Commitments
o Metro Bank will continue to spend GBP2 of its own
funds for every pound it receives from the Capability
& Innovation Fund
o Metro Bank will open a total of 15 rather than 30 stores
in the North of England by 2025
o Metro Bank will continue to build a range of game-changing
digital capabilities to help SMEs thrive
o Metro Bank will step away from niche SME propositions
that benefit a smaller group of SMEs, including secured
lending transformation, virtual accounts and pooling;
it will re-phase a further three initiatives to create
near-term capacity for transformation.
-- These commitments continue to allow Metro Bank to bring
market-leading service and convenience to SME customers
with a targeted c.6% BCA market share by 2025, and deliver
on its new strategy.
Financial performance for the year and quarter ended 31 December
2019
GBP in millions 31 December2019 31 December2018 Change 30 September2019 Change
from full from
year 18 Q3 19
Demand: current accounts GBP4,278 GBP4,685 (9%) GBP4,181 2%
Demand: savings accounts GBP5,593 GBP6,924 (19%) GBP5,700 (2%)
Fixed term: savings
accounts GBP4,606 GBP4,052 14% GBP4,350 6%
----------------- ----------------- ----------- ----------------- -------
Deposits from customers GBP14,477 GBP15,661 (8%) GBP14,231 2%
----------------- ----------------- ----------- ----------------- -------
Deposits from customers includes:
Retail customers (excl.
retail partnerships) GBP6,891 GBP5,190 33% GBP6,351 9%
Retail partnerships GBP1,839 GBP2,239 (18%) GBP1,890 (3%)
----------------- ----------------- ----------- ----------------- -------
Deposits from retail
customers GBP8,730 GBP7,429 18% GBP8,241 6%
----------------- ----------------- ----------- ----------------- -------
Commercial customers
(excluding SMEs(3)
) GBP2,486 GBP5,060 (51%) GBP2,829 (12%)
SMEs GBP3,261 GBP3,172 3% GBP3,161 3%
----------------- ----------------- ----------- ----------------- -------
Deposits from business
and commercial customers GBP5,747 GBP8,232 (30%) GBP5,990 (4%)
----------------- ----------------- ----------- ----------------- -------
3. SME defined as enterprises which employ fewer than 250
persons and which have an annual turnover not exceeding EUR50
million, and/or an annual balance sheet total not exceeding
EUR43 million, and have aggregate deposits of less than EUR1
million.
Deposits
-- Strong customer account growth of 385, 000 in 2019 (2018:
403,000) to over 2 million.
-- Total deposits were GBP14,477 million as at 31 December
2019 . A net reduction in deposits in H1 was followed by
a 6% increase in the second half, supported by strong growth
in fixed term retail savings accounts and growth in SME
balance.
-- Deposits increased in the fourth quarter (GBP246 million),
as expected. Deposits from personal and small business customers
continued to demonstrate resilience throughout the year.
-- Cost of deposits was 78bps for the full year up from 61bps
in 2018 due to pricing actions taken during the year.
Loans
-- Total net loans as at 31 December 2019 were GBP14,681 million,
up from GBP14,235 million at 31 December 2018 , reflecting
proactive management of lending growth. Loan balances contracted
marginally in the fourth quarter (down 1%).
-- Retail mortgages remained the largest component of the
lending book at 71% of gross lending (31 December 2018:
67%).
-- Loan to deposit ratio at 101% is above the prior year (31
December 2018: 91%), although below the 109% reported at
H1, reflecting the bank's actions to reduce the loan to
deposit ratio in a controlled way.
-- Asset quality remains strong, with full year c ost of risk
remaining low at 0.08% (31 December 2018: 0.07%). Non-performing
loans remain low, although increased to 0.53% (31 December
2018: 0.15%) reflecting seasoning of the loan portfolio
and a single name commercial exposure, the loan portfolio
remains highly collateralised.
GBP in millions 31 31 Change 30 Change
December December from September from
2019 2018 full 2019 Q3 19
year
18
Gross Loans and advances
to customers GBP14,715 GBP14,269 3% GBP14,922 (1%)
Less: allowance for
impairment (GBP34) GBP(34) - (GBP31) 10%
---------------- ---------------- ---------- ---------------- ----------
Net Loans and advances
to customers GBP14,681 GBP14,235 3% GBP14,891 (1%)
---------------- ---------------- ---------- ---------------- ----------
Gross loans and advances
to customers includes:
---------------- ---------------- ---------- ---------------- ----------
Commercial loans GBP4,052 GBP4,356 (7%) GBP4,182 (3%)
Retail mortgages GBP10,430 GBP9,625 8% GBP10,495 (1%)
Consumer and other
loans and advances GBP233 GBP288 (19%) GBP245 (5%)
---------------- ---------------- ---------- ---------------- ----------
Profit and Loss Account
-- Net interest margin of 1.51% compared to 1.81% in the prior
year , with the decline primarily reflecting actions taken
to maintain a resilient balance sheet, including a GBP521
million loan portfolio disposal, GBP1.5 billion of treasury
asset sales and higher deposit costs. The movement also
reflects the impact of IFRS 16 lease accounting as well
as continued pricing pressure in the mortgage market. The
issuance of MREL in October 2019 in order to comply with
interim MREL requirements contributed to a decline in the
margin.
-- Net interest income down 7% to GBP308.1 million (2018:
GBP 330.1 million) reflecting the movements in NIM described
above. These actions, including a moderation of loan growth,
reduced revenue by c.GBP12m in Q4 2019.
-- Net fee and other income was up 43% in the year driven
by customer growth, addressing fee leakage and the launch
of new fee earning services and products.
-- Underlying cost:income ratio increased to 100% year-on-year
from 86% in 2018 , largely reflecting net interest income
headwinds. The pace of cost growth slowed significantly
in the second half of 2019 compared to the rate of growth
in the second half of the previous year.
-- Underlying loss before tax for the year was GBP 11.7 million,
compared to a profit of GBP50.0 million in 2018 , reflecting
the income challenges and cost pressures outlined above.
Loss in the fourth quarter increased to GBP22.7 million.
--
Statutory
loss
before
tax
of
GBP130.8
million
in
2019
(2018:
GBP40.6
million
profit)
including:
* Write-down of intangible assets (GBP 68 million) :
relating to the discontinuation of certain
work-in-progress or older IT projects that do not
form part of the bank's revised strategy. This does
not impact the bank's capital position as intangible
assets are excluded from regulatory capital.
* Transformation costs (GBP11 million ): costs
associated with the delivery of the cost
transformation programme.
* Remediation costs (GBP27 million): including work
relating to the January 2019 risk weighted assets
("RWA") adjustment and associated regulatory
investigations which are ongoing, as well as work
undertaken in relation to a previously disclosed
review of the bank's sanctions procedures.
-- Statutory loss after tax of GBP182.6 million in 2019 (2018:
GBP27.1 million profit) that includes a GBP 53 million derecognition
of the bank's deferred tax asset for unused tax losses.
This is an accounting non-cash item and does not impact
regulatory capital or liquidity. The derecognition reflects
the impact on the bank's short-term results of its investments
announced as part of its strategy update.
Capital, Funding and Liquidity
-- Strong liquidity and funding position maintained , reflecting
H2 2019 deposit growth of GBP774 million, a GBP521 million
loan portfolio disposal and GBP1.5 billion treasury asset
sales. As a result, the bank's Liquidity Coverage Ratio
was 197 % as of 31 December 2019 (2018: 139%), compared
to the bank's requirement of 100%.
-- T otal capital as a percentage of risk-weighted assets
was 18.3%. Following the GBP350 million senior non-preferred
debt issuance in October, total capital plus MREL resources
were GBP2,018 million with a total capital plus MREL ratio
of 22.1 % at 31 Decemb er 2019, above the 21.5% 1 January
2020 interim MREL plus buffers requirement.
-- CET1 capital of GBP1,427 million as at 31 December 2019
was 15.6 % of RWAs (2018: 13.1% and Q3 2019: 16.2%), compared
to the bank's Tier 1 regulatory minimum of 10.6%(4) .
-- RWAs as at 31 December 2019 were GBP9,147 million (2018:
GBP8,936 million and Q3 2019: GBP9,242 million) .
-- Regulatory leverage ratio of 6.6% (2018: 5.4%).
4. Based on current capital requirements, excluding any confidential
PRA buffer, if applicable
Customer Experience
-- Expanded coverage , opened a store in Manchester in the
fourth quarter and new stores in Wolverhampton, Cardiff
and Hammersmith in early 2020. Metro Bank now has 74 stores.
-- Enhanced digital offering , launched Business Insights
and MCash in the fourth quarter. These new services use
the latest technology to improve Metro Bank's attractive
product offering for SME customers.
Board Changes
-- Vernon Hill stepped down from his role as Chairman in October
and from the Board on 17 December 2019. Sir Michael Snyder
has been appointed as Interim Chairman, while the recruitment
process for a permanent Chair progresses.
-- Craig Donaldson stepped down at the end of the year as CEO
and will remain available to the Board as an advisor until
the end of 2020.
-- Dan Frumkin, who joined Metro Bank in September 2019 as
Chief Transformation Officer, was appointed to the Board
as Interim CEO from 1 January 2020 and confirmed as CEO
on 19 February 2020.
-- Monique Melis, who joined the Board in June 2017, has been
appointed as Interim Senior Independent Director with effect
from 1 December 2019, following the appointment of Sir Michael
Snyder as Interim Chairman.
-- After 10 years on the Board, Alastair 'Ben' Gunn, stepped
down as Deputy Chairman and Non-Executive Director with
effect from 31 December 2019.
-- Sally Clark joined the Board on 1 January 2020 as an independent
Non-Executive Director. Most recently, Sally was Chief Internal
Auditor at Barclays plc where she was responsible for driving
the vision and strategy for the internal audit function.
Change of approach to quarterly reporting
Going forward, as the bank focusses on its new strategy and
associated transformation plans, the bank will report full and half
year results in line with UK practice, with short form trading
updates at Q1 and Q3. These updates will include deposit and loan
balances, together with a short commentary covering the performance
of the business in the period.
Metro Bank PLC
Summary Balance Sheet and Profit & Loss Account
(Unaudited)
Annual 2019 2018
Growth
Rate
Balance Sheet 31-Dec 30-Sep 31-Dec
GBP'm GBP'm GBP'm
Assets
Loans and advances to customers 3% 14,681 14,891 14,235
Treasury assets(5) 5,554 4,837 6,604
Other assets(6) 1,165 1,274 808
------- ------- -------
Total assets (1%) 21,400 21,002 21,647
------- ------- -------
Liabilities
Deposits from customers (8%) 14,477 14,231 15,661
Deposits from central banks 3,801 3,801 3,801
Debt securities 591 249 249
Other liabilities 948 959 533
------- ------- -------
Total liabilities 19,817 19,240 20,244
------- ------- -------
Total shareholder's equity 1,583 1,762 1,403
------- ------- -------
Total equity and liabilities 21,400 21,002 21,647
------- ------- -------
5. Comprises investment securities and cash & balances with
central banks
6. Comprises property, plant & equipment, intangible assets
and other assets
Annual 12 months to 31 December
Growth
Rate
Profit & Loss Account 2019 2018
GBP'm GBP'm
Net interest income 308.1 330.1
Net fee and other income 90.4 63.3
Net gains on sale of assets 1.6 10.7
Total underlying revenue (1%) 400.1 404.1
Operating costs 16% (400.1) (346.1)
Expected credit loss expense (11.7) (8.0)
Underlying (loss)/profit before
tax (123%) (11.7) 50.0
Underlying taxation (4.3) (13.4)
Underlying (loss)/profit after
tax (144%) (16.0) 36.6
Listing Share Awards (0.6) (0.9)
Impairment and write-down of property
plant & equipment and intangible
assets (75.8) (4.8)
Net BCR costs(7) (2.1) (3.8)
Transformation costs (9.3) -
Remediation costs (26.1) -
Derecognition of deferred tax (52.7) -
asset
Statutory (loss)/profit after
tax (774%) (182.6) 27.1
--------------- ----------
Underlying earnings per share
- basic (10.8p) 39.4 p
Underlying earnings per share
- diluted (10.8p) 38.2 p
Number of shares - undiluted 147.4m 93.0 m
Number of shares - diluted 147.4m 95.9 m
Number of shares - at period end 172.4m 97.4m
Net interest margin (NIM) 1.51% 1.81%
NIM + fees 2.00% 2.15%
Cost of deposits 0.78% 0.61%
Cost of risk 0.08% 0.07%
Underlying cost:income ratio 100% 86%
7. Net BCR costs includes amounts previously disclosed under
costs relating to RBS alternative remedies package application,
Capability & Innovation costs and Capability & Innovation
funding
Annual 2019 2018
Growth
Rate
Profit & Loss Account-Quarterly Q4 Q3 Q4
GBP'm GBP'm GBP'm
Net interest income 65.3 76.6 88.9
Net fee and other income(8) 18.7 25.3 18.3
Net (losses)/gains on sale of
assets - (2.5) 2.0
Total underlying revenue (23%) 84.0 99.4 109.2
Operating costs(8) (101.5) (99.7) (96.0)
Expected credit loss expense (5.4) (1.9) (2.0)
Underlying (loss)/profit before
tax (304%) (22.9) (2.2) 11.2
Underlying taxation (1.6) 1.0 (4.2)
Underlying (loss)/profit after
tax (450%) (24.5) (1.2) 7.0
Listing Share Awards (0.1) (0.1) (0.2)
FSCS levy 0.4 - -
Impairment and write-down of
property plant & equipment and
intangible assets (74.8) - (3.0)
Net BCR costs (1.1) - (1.9)
Transformation costs (3.9) (0.8) -
Remediation costs (22.3) (2.8) -
Derecognition of deferred tax (52.7) - -
asset
Statutory (loss)/profit after
tax (179.0) (4.9) 1.9
-------- ------- -------
Underlying earnings per share
- basic (14.2p) (0.7p) 7.2p
Underlying earnings per share
- diluted (14.2p) (0.7p) 7.1p
Number of shares - undiluted 172m 172m 97.4 m
Number of shares - diluted 172m 172m 99.8 m
Net interest margin (NIM) 1.30% 1.50% 1.76%
NIM + fees 1.85% 1.99% 2.12%
Cost of deposits 0.87% 0.84% 0.67%
Cost of risk 0.14% 0.05% 0.06%
Underlying cost:income ratio 120% 100% 88%
8 . In the fourth quarter GBP4.6m of fee and commission expenses
relating to 2019 that were previously classified as operating costs
were reclassified as net fee and other income to better reflect
their nature.
For more information, please contact:
Metro Bank PLC Investor Relations
Jo Roberts
+44 (0) 20 3402 8900
jo.roberts@metrobank.plc.uk
Metro Bank PLC Media Relations
Tina Coates / Abigail Whittaker
+44 (0) 7811 246016 / +44 (0) 7989 876136
pressoffice@metrobank.plc.uk
Teneo
Charles Armitstead / Haya Herbert Burns
+44 (0)7703 330269 / +44 (0) 7342 031051
Metrobank@teneo.com
S
About Metro Bank
Metro Bank is celebrated for its exceptional customer
experience. Its mobile app and online service achieved the top spot
in the Competition and Market Authority's Service Quality Survey
among personal and business current account holders in February
2020; the bank also ranked in the top two for overall service and
store service for personal and business customers. It was awarded
'Best All Round Personal Finance Provider' at the Moneynet Personal
Finance Awards 2019.
Offering retail, business, commercial and private banking
services, it prides itself on giving customers the choice to Bank
however, whenever and wherever they choose. Whether that's through
its network of stores open seven days a week, early until late, 362
days a year; on the phone through its UK-based 24/7 contact
centres; or online through its internet banking or award-winning
mobile app: the bank offers customers real choice.
The bank employs around 3,500 colleagues and is headquartered in
Holborn, London.
Metro Bank PLC. Registered in England and Wales. Company number:
6419578. Registered office: One Southampton Row, London, WC1B 5HA.
'Metrobank' is the registered trademark of Metro Bank PLC.
It is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and Prudential
Regulation Authority. Most relevant deposits are protected by the
Financial Services Compensation Scheme. For further information
about the Scheme refer to the FSCS website www.fscs.org.uk.
All Metro Bank products are subject to status and approval.
Metro Bank PLC is an independent UK bank - it is not affiliated
with any other bank or organisation (including the METRO newspaper
or its publishers) anywhere in the world. Please refer to Metro
Bank using the full name.
CHIEF EXECUTIVE OFFICER'S STATEMENT
I was delighted to join Metro Bank in September 2019, initially
as Chief Transformation Officer and now as Chief Executive Officer.
I would like to begin by extending my deepest thanks to all the
Metro Bank colleagues who have welcomed me and more importantly
have kept the customer focus at the heart of all we do, even during
a challenging year.
Building on our strengths
In many ways, the response to the challenges of 2019 has
demonstrated the underlying resilience of Metro Bank. The core
strength of Metro Bank has been, and will remain, an AMAZEING group
of colleagues who are tirelessly focused on customer service. It is
our colleagues who will ensure Metro Bank achieves its ambition to
become the UK's best community bank.
The CMA results, where Metro Bank was rated number 1 for store
service and number 1 for mobile and online banking is external
validation of what I have learned over the last few months - Metro
Bank is completely focused on its customers. The ratings also show
the commitment of Metro Bank to providing full-service community
banking, instore, online and over the phone.
The energy expended to surprise and delight customers has
continued to create FANS, even during a difficult 2019. Customer
accounts grew almost 25% with 385,000 new accounts opened at Metro
Bank during the year, bringing total accounts to more than 2
million. In addition, retail customer deposit balances grew 33% in
the year and SME customer balances were up 3%.
Proving our community banking philosophy and 'clicks and bricks'
model, combined with an exceptional level of service resonates well
with customers we continue to be successful in growing the number
of personal and business current accounts. Also in our current
heartland of London and the South East the number of SME business
current account switchers choosing Metro Bank remained strong in
2019 at 15%.
We're absolutely committed to bringing market-leading service to
SMEs and injecting more competition into the market, and we have
already demonstrated our success in deploying Capability &
Innovation funds to date. For example, in 2019, Metro Bank launched
Business Insights - an in-app account insights tool for SMEs, MCash
- an on-demand cash collection and delivery service, and opened its
first store in the North, in Manchester. In February 2020, we
agreed a revised business case with BCR whereby we have aligned
Metro Bank's public commitments with our new strategy, and will
return GBP50m of the original GBP120m we were awarded. Looking
forward, with a reduced amount of GBP70m, alongside Metro Bank's
own investment of c.GBP140m, the bank will continue to transform
the SME experience - through its market-leading service
proposition, 15 new stores opening in the North of England (reduced
from 30), and continued investment in its digital capabilities.
With BCR's agreement, we're pleased to have been able to forge a
new plan which delivers for SMEs and aligns with our new
strategy.
The way forward - 'Becoming the UK's best community bank'
Over the last six months, my management team and I have worked
with the Board to evaluate a new strategy for Metro Bank to enable
it to deliver acceptable returns for shareholders. The inherent
strengths of Metro Bank - AMAZEING culture, AMAZEING colleagues,
AMAZEING customer service and a history of generating meaningful
retail and SME deposit growth - provide solid foundations for a
straightforward strategy where execution is key.
We have developed a set of strategic priorities with the
ambition of becoming 'the UK's best community bank'. Community
banking means being embedded in the local communities that we
serve, ensuring local decision-making, providing access to simple
and straightforward retail, business banking and corporate services
that best meet the needs of residents and businesses in the
surrounding area.
However, to build a platform that delivers acceptable returns
for our shareholders, we must reduce the rate at which costs are
growing, continue to evolve our customer proposition, invest
efficiently in our infrastructure and be more effective with how we
use our balance sheet to generate returns.
Our new strategy has these principles at its core:
1) Cost saving initiatives
Cost growth has outstripped revenue growth and this cannot
continue. Metro Bank has invested heavily in its store estate,
creating a significant fixed, or quasi-fixed, cost base. We have
performed a detailed store by store financial analysis to consider
whether it made economic sense to close stores. It doesn't. Every
store is still growing - all are more profitable tomorrow than
today - and they provide a significant untapped potential as a
distribution channel.
There are another group of costs that are driven by the
operations of the business. These processing costs, including
things like payment processing, credit card processing, etc. are
mostly volume driven and bound by existing contracts. Another
difficult area for reducing costs over the short-term.
The remaining costs, the addressable costs, are made up of
non-store colleague costs, non-store lease costs and non-store
operations.
To effectively control these expenses, plans are in place to
revisit our non-store property leases, especially in central
London. In addition, the infrastructure investment in the plan
includes several initiatives that allows Metro Bank to scale more
effectively. This includes new digital self-service functionality,
more straight through processing and new call centre
infrastructure.
We expect low single digit 'run the bank' cost growth CAGR 2020
to 2024, allowing the cost:income ratio to fall to 70-75% by 2024.
To enable this objective, we will spend GBP250-GBP300 million of
new opex investment (excluding depreciation and amortisation) and
c.GBP100 million of capex, front end loaded.
We have started to show our ability to moderate costs with
sequential reductions in the pace of cost growth through 2019, and
our revised agreement with BCR will allow us to become more cost
efficient quicker while continuing to deliver for SMEs. This gives
me great confidence that we can deliver our clear initiatives
within the stated timeframe.
While there are a number of initiatives to contain costs,
improving shareholder returns is a revenue story. It is about
creating scale through deposit and revenue growth while holding
costs and investments.
2) Revenue initiatives
There is significant opportunity to grow revenue at Metro Bank,
through building stronger relationships with our existing
customers, continuing to attract more people to our stores,
embedding ourselves in more communities in the UK, continuing to
invest in our number 1 rated digital and online offering and to
upgrade our telephony infrastructure. This is a bricks, clicks and
phone strategy that will drive revenue.
We need to deepen relationships with our customers by improving
the range of our products and their availability through new and
existing channels. For example, we intend to meet more customer
needs by offering a broader range of unsecured customer loans, SME
lending products, business and personal credit cards and niche
mortgages, all while maintaining our disciplined attitude towards
underwriting. This is an area Metro Bank has not previously focused
on, evidenced by the fact that we currently sell an average of 2
unsecured personal loans per store per month and only 3% of our
Personal Current Account base hold our credit cards.
It also aligns perfectly with our customer service ethos, by
meeting more customer needs, we create more FANS. We will also
build on Metro Bank's great strength of winning new customers and I
believe that there is a significant opportunity to enhance footfall
conversion in stores. We will do this by developing more effective
in-store processes and improving colleague training.
Whilst we have grown our deposits at a CAGR of 30% over the last
five years, our strategy conservatively budgets significantly lower
deposit growth numbers over the next five years. In addition, 2020
has the lowest deposit growth forecast of any year in the plan and
is only 25% of our annual deposit growth in 2018, even though Metro
bank has six more stores.
Revenue growth is predicated on doing more with what we already
have. The growth does not rely on significant store growth,
although the plan does allow us to open of a limited number of new
stores. This includes six stores in 2020 and a further 18 between
2021-2024 including our revised C&I commitment. This will give
us the opportunity to embed Metro Bank in more communities and
bring our award-winning proposition closer to more people.
3) Infrastructure
We need to continue to build our number 1 service propositions
in store and digital/online to ensure we continue to offer the best
channel experience in an efficient way. To enable this, we need to
continue to invest in our digital and physical infrastructure to
deliver process improvements and enhance our core capabilities. We
will continue to invest in stores, but in a more cost-efficient way
- our new stores will be flexible in both size and design and we'll
aim to streamline and improve in store processes. We'll also grow
our digital service offering and build out customer self-service
opportunities. By pivoting towards greater automation we will
improve our speed to market and streamline back-office
functions.
It's important that all of this is done whilst also enhancing
our internal capabilities and resilience. This will be executed
through investment in cyber resilience as well as investment in
core risk systems such as financial crime infrastructure. We will
of course continue investment in our core IT systems to ensure that
we keep pace with the ever-changing regulatory agenda.
4) Balance sheet optimisation
Metro Bank has not focused on risk adjusted return on regulatory
capital as much as is required to drive adequate returns to
shareholders. Focusing on risk adjusted returns and growth in
tangible book value will allow better planning decisions to be made
going forward and deliver more value to shareholders.
Business lines, portfolios and investments will be reviewed
based on the above discipline on an ongoing basis. We will sell
assets, securitise portfolios and rethink investment spend as
necessary to ensure we are maximising the return on the balance
sheet.
The loan portfolio composition will shift over the life of the
plan. Unsecured credit will be offered to SME and retail customers,
applying risk based pricing. Niche mortgage lending will become a
larger share of our mortgage operations and commercial lending to
our valued customers will continue to grow.
5) Internal and external communications
I am pleased that we have launched our first marketing campaign
- People-People Banking - which showcases our incredible colleagues
and helps customers and potential customers to understand Metro
Bank's differentiators. We will set realistic expectations of the
future direction of Metro Bank and update on progress in a timely
manner. For our colleagues we will continue to provide full
transparency to help inform and equip them to fulfil their roles
and maintain our already high levels of engagement.
A challenging 2019
Last year, we faced headwinds from industry-wide competitive
pressures, an evolving regulatory landscape, continued low interest
rates and political uncertainty from Brexit. While these external
challenges have dampened returns across the broader sector, Metro
Bank faced specific challenges that impacted growth and
profitability. These have been well trailed in previous
announcements, and management undertook prudent steps to manage our
capital and liquidity positions in response. Although these actions
have impacted on profitability in the short to medium term, we
enter 2020 with a resilient balance sheet, loyal FANS and a
committed colleague base.
In closing, it would be remiss not to thank Vernon Hill and
Craig Donaldson for all they have done for Metro Bank since it
opened the doors to its first store 10 years ago. I truly
appreciate the AMAZEING colleagues they have recruited into the
business. It is these colleagues that give me confidence in the
future of Metro Bank.
Dan Frumkin
Chief Executive Officer
Financial review
The challenges we have faced this year are reflected in our
trading performance for 2019. Our underlying loss before tax of
GBP11.7 million is a decrease from the GBP50.0 million underlying
profit we reported in 2018. This reduction reflects a difficult
market backdrop driven by sustained mortgage market competition,
low interest rates, the earnings impact of debt issuance, and the
adoption o f IFRS 16 that changed how we account for our lease
costs. We are also absorbing the financial impacts of management
actions taken to maintain a strong capital and liquidity position
following events of the first half of the year. The sale of GBP1.5
billion interest-bearing treasury assets, a GBP521 million loan
portfolio disposal, adjustments to deposit pricing and a slower
pace of loan growth have reduced revenue in the second half of the
year. The statutory loss before tax of GBP130.8 million in 2019
reflects the impact of certain non-recurring items including the
write-down of certain intangible assets as well as transformation
and remediation costs.
Despite these challenges we have continued to deliver on key
objectives. During 2019 we made good progress with our cost
transformation programme, reducing the pace of cost growth in the
second half of the year relative to prior periods, whilst
continuing to expand our physical presence and product offering. We
have also been successful in growing our customer base and
deepening relationships with existing customers, driving higher
underlying net fee and other income to GBP90.4 million, up 43% from
GBP63.3 million in 2018. Asset quality has remained strong, with
2019 cost of risk at 0.08% compared to 0.07% in the prior year. Our
strongly performing credit portfolios and a robust capital and
liquidity position stands us in good stead as we enter 2020.
Deposits
Deposits from customers ended the year at GBP14.5 billion, with
a reduction in the first half of the year driven by the intense
speculation that preceded the GBP375 million equity capital raise
in May 2019. Deposit withdrawals predominantly came from a limited
number of our larger commercial customers with commercial deposit
balances (excluding SMEs) reducing to GBP2.5 billion from GBP5.1
billion in 2018.
2019 2018
Customer deposits GBP'billion GBP'billion Change
----------------------------------- ------------ ------------ ------
Retail customers (excluding retail
partnerships) 6.9 5.2 33%
----------------------------------- ------------ ------------ ------
Retail partnerships 1.8 2.2 (18%)
----------------------------------- ------------ ------------ ------
Commercial customers (excluding
SMEs) 2.5 5.1 (51%)
----------------------------------- ------------ ------------ ------
SMEs 3.3 3.2 3%
----------------------------------- ------------ ------------ ------
Total customer deposits 14.5 15.7 (8%)
----------------------------------- ------------ ------------ ------
Retail and SME deposits displayed significant resilience in
2019. Retail deposits (excluding retail partnerships) continued to
grow through the year to GBP6.9 billion from GBP5.2 billion in
2018, supported in part by competitively priced fixed-term retail
savings. We also reported a 3% improvement in the SME deposit base,
which ended the year at GBP3.3 billion, compared to GBP3.2 billion
in 2018, demonstrating the strength of our SME proposition. These
stable and higher-liquidity value retail and SME deposits now
represent 48% and 23% of our deposit base respectively, up from 33%
and 20% as at 31 December 2018.
2019 2018
GBP'million GBP'million Change
---------------------- ------------ ------------ ------
Deposits 14,477 15,661 (8%)
---------------------- ------------ ------------ ------
Customer accounts (m) 2.0 1.6 25%
---------------------- ------------ ------------ ------
% current accounts 29% 30% (1pp)
---------------------- ------------ ------------ ------
Cost of deposits 0.78% 0.61% 17bps
---------------------- ------------ ------------ ------
Strong service recognition results, increasing brand awareness
and new store openings as well as competitive pricing on our
fixed-term retail savings products aided growth in the total number
of customer accounts. 2019 was a strong year for customer
acquisition, with the number of customer accounts growing to 2.0
million from 1.6 million at year-end 2018.
Deposit growth into 2020 and beyond, alongside excess liquidity
and wholesale funding, will support the repayment of drawdowns
under the bank of England's Term Funding Scheme ("TFS"). Our total
borrowings under the scheme are GBP3.8 billion of which GBP543
million is repayable in the second half of 2020.
Assets
Total assets reduced marginally to GBP21.4 billion from GBP21.6
billion at the end of 2018, which primarily reflects a GBP1.1
billion reduction in treasury assets, partially offset by a GBP0.4
billion increase in net loans and advances to customers and a
one-off GBP313 million increase in right-of-use lease assets
following the adoption of IFRS 16. The reduction in treasury assets
reflects the sale of non-LCR eligible assets to prudently manage
the bank's liquidity position through the year.
2019 2018
GBP'million GBP'million Change
-------------------------------- ------------ ------------ ------
Loans and advances to customers 14,681 14,235 3%
-------------------------------- ------------ ------------ ------
Total assets 21,400 21,647 (1%)
-------------------------------- ------------ ------------ ------
Loan to deposit ratio 101% 91% 10pp
-------------------------------- ------------ ------------ ------
Cost of risk 0.08% 0.07% -
-------------------------------- ------------ ------------ ------
Despite the GBP521 million disposal of a previously acquired
loan portfolio, net loans and advances increased by 3% to GBP14.7
billion (31 December 2018: GBP14.2 billion). The disposed portfolio
was not considered a strategic asset, with its sale having no
impact on our customer franchise given it was continually serviced
by an external provider. Lending growth in the year was primarily
driven by the ongoing support of our existing franchise and
fulfilment of our committed pipeline at the end of 2018 flowing
through during the first months of the year. As the year
progressed, lending growth slowed as we proactively managed our
loan to deposit ratio and looked to reduce our exposure to higher
risk-density commercial lending following the RWA adjustment in
January 2019. Commercial lending as a percentage of total lending
reduced to 28% from 31% in 2018.
Our loan to deposit ratio increased during the first half of
2019 to 109% at 30 June 2019 from 91% at the end of 2018 following
growth in customer loans. However, we made good progress in
reducing the ratio in the second half of the year, supported by a
return to deposit growth in the third and fourth quarters and
management of lending volumes through upward adjustments to asset
pricing.
Asset quality remained particularly robust in 2019 with cost of
risk broadly remaining flat at 0.08% compared to 0.07% in the
previous year. Non-performing loans increased to 0.53% from 0.15%
in 2018 reflecting seasoning of the loan portfolio and a single
name commercial exposure.
Income
Total underlying income decreased marginally year-on-year to
GBP400.1 million from GBP404.1 million, reflecting a 3% reduction
in interest earning assets to GBP20.3 billion and interest income
pressure driven by sustained competition in the residential
mortgage market, offset by a 43% increase in underlying net fee and
other income. Interest expense increased to GBP188.1 million from
GBP114.3 million and captures the full year expense of the GBP250
million subordinated Tier 2 notes issued in June 2018 and one
quarter of interest on the GBP350 million senior non-preferred
notes issued in October 2019. Cost of deposits has risen to an
average of 78bps for full-year 2019, from 61bps in 2018 reflecting
competitive pricing in retail fixed-term savings and absorption of
the impact of the August 2018 Bank of England base rate rise.
The adoption of IFRS 16, the new leasing standard, also had an
impact on net interest income through the recognition of an
interest charge on the lease liability, partly offset by a
reduction in lease expenses. The net effect was a c.GBP18 million
reduction in revenue. Given growth in our store network and our
relatively young lease portfolio, the impact is more pronounced for
us compared with many of our peers.
The above trends resulted in a year-on-year reduction in our net
interest margin ("NIM") to 1.51% from 1.81%.
NIM Reconciliation Reconciliation
---------------------------------- --------------
2018 Full Year Net Interest Margin 181bps
---------------------------------- --------------
IFRS 16 adoption 7bps
---------------------------------- --------------
Treasury assets (incl. disposal) 8bps
---------------------------------- --------------
Lending yield 5bps
---------------------------------- --------------
Cost of deposits 12bps
---------------------------------- --------------
Debt cost 11bps
---------------------------------- --------------
Loan-to-deposit ratio and other 13bps
---------------------------------- --------------
2019 Full Year Net Interest Margin 151bps
---------------------------------- --------------
The income impact from the reduction in NIM was partly offset by
the strong growth in fee and commission income, up 43% year-on-year
to GBP90 million (2018: GBP63 million) on the statutory basis.
Non-interest income growth has been an area of focus for the bank
throughout 2019, with the increase driven by optimisation of fee
structures, strong growth in customer accounts and the introduction
of new value-added products and services. Net fee and other income
(excluding net gains on sale of assets) as a percentage of total
revenue has increased to 24% from 16% in 2018. Given our strong
focus on customer service and further expansion of our product
offering for SMEs, we expect non-interest income to continue to
grow in 2020.
Operating expenses
2019 2018
GBP'million GBP'million Change
------------------------------ ------------ ------------ ------
Depreciation and amortisation 76.4 45.1 69%
------------------------------ ------------ ------------ ------
Total operating expense 534.7 355.5 50%
------------------------------ ------------ ------------ ------
Total underlying expenses 400.1 346.1 16%
------------------------------ ------------ ------------ ------
Statutory cost:income ratio 129% 88 %
------------------------------ ------------ ------------ ------
Underlying cost:income ratio 100% 86%
------------------------------ ------------ ------------ ------
Underlying operating expenses grew by 16% during the year to
GBP400.1 million. Given our focus on improving cost efficiency, the
pace of cost growth slowed in the second half of 2019 to just 2%
versus the first half. The increase in operating expenses primarily
reflects the expansion of our store footprint driving higher people
and occupancy costs and growth in regulation and technology
costs.
Depreciation and amortisation grew to GBP76.4 million during
2019 (2018: GBP45.1 million) reflecting growth in the store network
to 71 stores (2018: 65) and ongoing investment in IT and digital to
support our integrated offering. The introduction of IFRS 16 lease
accounting on 1 January 2019 also led to a depreciation charge on
the right-of-use asset amounting to GBP16 million.
The underlying cost/income ratio increased to 100% in 2019 from
86% in 2018, driven by the income challenges outlined above. The
bank-wide efficiency programme that is now embedded in the
organisation will help to partially offset expected income pressure
in 2020 by moderating the pace of operating expense growth.
The difference between underlying loss before tax of GBP11.7
million and statutory loss before tax of GBP130.8 million is driven
by the write-down of certain intangible assets as well as costs
relating to the bank-wide transformation programme and the
remediation work undertaken following the RWA adjustment in January
2019 and work undertaken in relation a review of the bank's
sanctions procedures. The RWA remediation programme is focused on
improving risk-related internal systems, processes, controls and
governance and is expected to be completed in 2020.
Stores
During 2019 we opened six stores, including the entry into new
regions in the Midlands and the North. The opening in Manchester is
the first to be delivered as part of our BCR commitments, and
together with the new stores in the Birmingham area, represent an
important phase of growth into SME hotspots outside of our existing
geographical footprint.
At the year-end we had 71 stores and in early 2020 we opened in
Wolverhampton, Cardiff and Hammersmith. Going forward we will
maximise the existing estate and selectively expand in strategic
locations. We will adapt the new store formats to fit the
communities that we will be serving, often with smaller sites, yet
retaining the exceptional levels of service our customers
expect.
Taxation
During 2019 we made a total tax contribution of GBP123.1 million
(2018: GBP120.3 million), which comprised GBP78.2 million
(2018:GBP78.4 million) of taxes we paid and a further GBP44.9
million (2018: GBP41.9 million) of taxes we collected.
Taxes paid 2019 2018
------------------------------ -------- --------
Corporation tax 1.6% 4.6%
------------------------------ -------- --------
Business rates 12.9% 11.5%
------------------------------ -------- --------
Land transaction tax 3.3% 6.3%
------------------------------ -------- --------
Employer NICs 20.6% 18.7%
------------------------------ -------- --------
Irrecoverable VAT and Customs
duty 61.3% 58.8%
------------------------------ -------- --------
Other 0.3% 0.1%
------------------------------ -------- --------
Total taxes paid GBP78.2m GBP78.4m
------------------------------ -------- --------
Taxes collected on behalf of HMRC 2019 2018
---------------------------------- -------- --------
Employee NICs 23.6% 22.3%
---------------------------------- -------- --------
PAYE 62.1% 61.2%
---------------------------------- -------- --------
Net VAT 14.3% 15.4%
---------------------------------- -------- --------
Other - 1.1%
---------------------------------- -------- --------
Total taxes paid GBP44.9m GBP41.9m
---------------------------------- -------- --------
In 2019 our tax expense recognised in the income statement was
GBP51.8 million (2018: GBP13.5 million). This
primarily relates to the derecognition of the deferred tax asset
for unused tax losses. This is an accounting non-cash item and does
not impact our regulatory capital or liquidity. The derecognition
reflects the impact on our short-term results of the investment
announced as part of our strategy. Our effective tax rate for the
year was (39.5%) (2018: 33.2%).
Capital
We have maintained a robust capital position throughout 2019,
supported by the GBP375 million equity capital raise in May 2019
and a slowdown in the pace of RWA growth, up 2% to GBP9.2 billion.
Although the January 2019 adoption of IFRS 16 and RWA adjustment
resulted in one-off capital impacts, our CET1 ratio remained above
both our 12.0% minimum target and our 10.6% minimum regulatory
requirement. Our 15.6% CET1 ratio and 18.3% total capital ratio
demonstrate the strength of our capital position and provide
headroom for controlled growth and the delivery of our
strategy.
Reconciliation
-------------------------------------------------- --------------
Total capital ratio at 31 December 2018 15.9%
-------------------------------------------------- --------------
IFRS16 Adoption (capital charge against new right
of use assets) (0.5%)
-------------------------------------------------- --------------
Annual operational risk increment (0.3%)
-------------------------------------------------- --------------
Organic Lending Growth (0.4%)
-------------------------------------------------- --------------
Profit & Loss Account (0.7%)
-------------------------------------------------- --------------
Investment in Intangibles and other (0.6%)
-------------------------------------------------- --------------
Asset Disposals 1.0%
-------------------------------------------------- --------------
2019 Equity Raise 3.9%
-------------------------------------------------- --------------
Total capital ratio at 31 December 2019 18.3%
-------------------------------------------------- --------------
Senior unsecured debt (issued October 2019) 3.8%
-------------------------------------------------- --------------
Total capital plus MREL ratio at 31 December 2019 22.1%
-------------------------------------------------- --------------
The senior non-preferred debt issuance in October 2019 ensured
compliance with our interim MREL requirement of 18% of RWAs plus
3.5% regulatory buffers, with the bank closing 2019 with a total
capital plus MREL ratio of 22.1%.
Other regulatory developments include the announcement in
December 2019 by the bank of England of a change in the
countercyclical capital buffer ("CCyB") to 2.00% from 1.00%
currently, which is binding from 16 December 2020. Reflecting the
additional resilience associated with higher macroprudential
buffers, the PRA has said that it will consult banks on the
potential reduction on variable capital requirements in order to
leave overall loss-absorbing capacity (capital plus bail-inable
debt) requirements broadly unchanged.
2019 2018
GBP'million GBP'million
------------------------- ------------ ------------
CET1 capital 1,427 1,171
------------------------- ------------ ------------
Risk-weighted assets
("RWAs") 9,147 8,936
------------------------- ------------ ------------
CET1 ratio 15.6% 13.1%
------------------------- ------------ ------------
Total regulatory capital
ratio 18.3% 15.9%
------------------------- ------------ ------------
Total regulatory capital
plus MREL ratio 22.1% N/A
------------------------- ------------ ------------
Regulatory leverage
ratio 6.6% 5.4%
------------------------- ------------ ------------
Leverage 8.3% 6.4%
------------------------- ------------ ------------
Looking ahead
FY2020 FY 2024
Guidance Targets Guidance
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Deposits
* Mid-single digit growth * * Cost of deposits to reduce over time as the mix of
current accounts increases
*
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Revenue
* NIM in line with Q4 2019 * NIM expansion vs FY 2019 * Target lending mix (75% mortgages, 20% SME and 5%
unsecured)
* Fee and other income to increase as proportion of
revenue mix
* 15-30 bps cost of risk
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Operating
Costs * Mid-high-single digit growth excluding investment * New investment spend GBP250-GBP300m opex (excluding * 'Run the bank' cost low single digit CAGR 2020-2024
opex depreciation and amortisation) and c.GBP100m capex
by
2024, front-end loaded
* Cost income ratio 70-75% by 2024 (incl. new
investment spend, amortisation and depreciation)
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Capital
* CET1 ratio >12% * Minimum 12% CET1 and >22.5% Total Capital plus MREL * Additional MREL issuance post Jan 2022 in line with
regulatory requirements
* Up to GBP500m of MREL issuance before 1 Jan 2022
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
Returns
* 8.5% statutory RoTE by FY2024 * Conservative target prudently excludes impact of AIRB
approval
-------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------
The statements above were authorised by the Board for issue on
26 February 2020.
CONSOLIDATED condensed STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
Year ended Year ended
31 December 31 December
2019 2018
Notes GBP'million GBP'million
---------------------------------------------------- ------ ------------ ------------
Interest income 2 496.2 444.4
Interest expense 2 (188.1) (114.3)
---------------------------------------------------- ------ ------------ ------------
Net interest income 308.1 330.1
Fee and commission income 67.4 42.5
Fee and commission expense (6.4) (4.9)
---------------------------------------------------- ------ ------------ ------------
Net fee and commission income 61.0 37.6
Net gains on sale of assets 1.6 10.7
Other income 44.9 25.7
---------------------------------------------------- ------ ------------ ------------
Total income 415.6 404.1
---------------------------------------------------- ------ ------------ ------------
General operating expenses (380.6) (305.6)
8,
Depreciation and amortisation 9 (76.4) (45.1)
Impairment and write-off of property, plant, 8,
equipment and intangible assets 9 (77.7) (4.8)
---------------------------------------------------- ------ ------------ ------------
Total operating expenses (534.7) (355.5)
Expected credit loss expense (11.7) (8.0)
---------------------------------------------------- ------ ------------ ------------
(Loss)/profit before tax (130.8) 40.6
---------------------------------------------------- ------ ------------ ------------
Taxation 3 (51.8) (13.5)
---------------------------------------------------- ------ ------------ ------------
(Loss)/profit for the year (182.6) 27.1
---------------------------------------------------- ------ ------------ ------------
Other comprehensive expense for the year
Items which will be reclassified subsequently
to profit or loss:
Movement in respect of investment securities
held at fair value through other comprehensive
income (net of tax):
* changes in fair value 2.7 (2.4)
* fair value changes transferred to the income
statement on disposal (2.4) (1.5)
---------------------------------------------------- ------ ------------ ------------
Total other comprehensive income/(expense) 0.3 (3.9)
---------------------------------------------------- ------ ------------ ------------
Total comprehensive (loss)/profit for the
year (182.3) 23.2
---------------------------------------------------- ------ ------------ ------------
Earnings per share
---------------------------------------------------- ------ ------------ ------------
Basic (pence) 13 (123.9) 29.1
---------------------------------------------------- ------ ------------ ------------
Diluted (pence) 13 (123.9) 28.2
---------------------------------------------------- ------ ------------ ------------
CONSOLIDATED condensed BALANCE SHEET
AS AT 31 DECEMBER 2019
31 December 31 December
2019 2018
Notes GBP'million GBP'million
------------------------------------------------- ----- ------------ ------------
Assets
Cash and balances with the bank of England 5 2,989 2,472
Loans and advances to customers 6 14,681 14,235
Investment securities held at fair value through
other comprehensive income ("FVOCI") 7 411 674
Investment securities held at amortised cost 7 2,154 3,458
Property, plant and equipment 8 856 454
Intangible assets 9 168 197
Prepayments and accrued income 66 66
Deferred tax asset 3 - 41
Other assets 75 50
------------------------------------------------- ----- ------------ ------------
Total assets 21,400 21,647
------------------------------------------------- ----- ------------ ------------
Liabilities
Deposits from customers 14,477 15,661
Deposits from central banks 3,801 3,801
Debt securities 591 249
Repurchase agreements 250 344
Derivative financial liabilities 8 1
Lease liabilities 14 341 -
Deferred grant 10 50 -
Provisions 17 2
Deferred tax liability 3 15 -
Other liabilities 267 186
------------------------------------------------- ----- ------------ ------------
Total liabilities 19,817 20,244
------------------------------------------------- ----- ------------ ------------
Equity
Called-up share capital 11 - -
Share premium 11 1,964 1,605
Retained earnings (392) (209)
Other reserves 11 7
------------------------------------------------- ----- ------------ ------------
Total equity 1,583 1,403
------------------------------------------------- ----- ------------ ------------
Total equity and liabilities 21,400 21,647
------------------------------------------------- ----- ------------ ------------
CONSOLIDATED condensed STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2019
Called-up Share
share Share Retained FVOCI option Total
capital premium earnings reserve reserve equity
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 1 January 2019 - 1,605 (209) (3) 10 1,403
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net loss for the year - - (183) - - (183)
Other comprehensive income
(net of tax) relating to
investment securities
designated
at fair value through other
comprehensive income - - - - - -
------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive loss - - (183) - - (183)
Shares issued - 375 - - - 375
Cost of shares issued - (16) - - - (16)
Net share option movements - - - - 4 4
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 31 December
2019 - 1,964 (392) (3) 14 1,583
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 1 January 2018 - 1,304 (236) 1 16 1,085
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net profit for the year - - 27 - - 27
Other comprehensive expense
(net of tax) relating to
investment securities
designated
at fair value through other
comprehensive income - - - (4) - (4)
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive income - - 27 (4) - 23
Shares issued - 304 - - - 304
Cost of shares issued - (3) - - - (3)
Net share option movements - - - - (6) (6)
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 31 December
2018 - 1,605 (209) (3) 10 1,403
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Notes 11 11
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
CONSOLIDATED condensed CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2019
Year
Year ended ended
31 December 31 December
2019 2018
Notes GBP'million GBP'million
--------------------------------------------------- ----- ------------ ------------
Reconciliation of (loss)/profit before tax
to net cash flows from operating activities:
(Loss)/profit before tax (131) 41
Adjustments for:
Impairment and write-off of property, plant,
equipment and intangible assets 8, 9 78 5
Interest on lease liabilities 18 -
Depreciation and amortisation 8, 9 76 45
Share option charge 4 5
Grant income recognised in income statement (16) -
Amounts provided for 12 -
Gain on sale of assets and fair value gains
on derivatives (2) (11)
Accrued interest on and amortisation of investment
securities (8) (7)
Changes in operating assets and liabilities
Changes in loans and advances to customers (445) (4,615)
Changes in deposits from customers (1,184) 3,992
Changes
in other
operating
assets (26) (36)
Changes in other operating liabilities (31) 734
--------------------------------------------------- ----- ------------ ------------
Net cash (outflows)/inflows from operating
activities (1,655) 153
--------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Sales of investment securities 2,193 1,522
Purchase of investment securities (618) (1,740)
Purchase of property, plant and equipment 8 (120) (150)
Purchase and development of intangible assets 9 (79) (75)
--------------------------------------------------- ----- ------------ ------------
Net cash inflows/(outflows) from investing
activities 1,376 (443)
--------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Shares issued 11 375 304
Cost of shares issued 11 (16) (3)
Debt securities issued 350 250
Cost of debt securities issued (8) (1)
Grant received 120 -
Repayment of capital element of leases (25) -
--------------------------------------------------- ----- ------------ ------------
Net cash inflows from financing activities 796 550
--------------------------------------------------- ----- ------------ ------------
Net increase in cash and cash equivalents 517 260
Cash and cash equivalents at start of year 5 2,472 2,212
--------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of year 5 2,989 2,472
--------------------------------------------------- ----- ------------ ------------
NOTES
1. Basis of preparation and significant accounting policies
Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
("IFRS") as adopted by the EU, the IFRS Interpretations Committee
("IFRS IC") and the Companies Act 2006 applicable to companies
reporting under IFRS.
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the Group has the resources to
continue in business for the foreseeable future.
Changes in accounting policy and disclosures
The accounting policies and methods of computation are
consistent with those applied and disclosed in the Group's 2018
Annual Report and Accounts other than changes owing to the adoption
of IFRS 16 'leases'. Where disclosures have been amended as a
result of the adoption of IFRS 16, the updated policy has been
included within these preliminary results.
IFRS 16 'leases'
On 1 January 2019 the Group adopted IFRS 16. IFRS 16 provides
guidance on the classification, recognition and measurement of
leases to help provide useful information to the users of financial
statements. IFRS 16 replaces IAS 17 'leases' and provides a single
lessee accounting model, requiring lessees to recognise right of
use ("RoU") assets and lease liabilities for all applicable leases,
with operating leases thus being brought onto the face of the
balance sheet.
Transition approach
The Group adopted IFRS 16 on the modified retrospective basis
and as such the comparators within these financial statements have
not been restated and continue to be presented under IAS 17. The
Group elected to adopt IFRS 16 using the modified retrospective
basis as this prevents an opening adjustment to equity and as such
maintained the Group's CET1 capital upon transition.
On adoption of the standard on 1 January 2019, the Group
recognised lease liabilities for operating leases of GBP328
million. The Group elected the transitional option to set the RoU
asset equal to the related lease liability for all leases as at 1
January 2019 and therefore there was no opening adjustment to
retained earnings. The total amount of RoU asset recognised on 1
January was GBP313 million, this differs to the opening lease
liability due to adjustments being made for the amounts accrued in
respect of rent free periods and any prepaid rentals as at the
point of transition.
Key estimates
The only key estimate made at the point of transition was the
discount rate used to measure lease liabilities. Under IFRS 16
lease payments are discounted using the interest rate implicit in
the lease or, if that rate cannot be readily determined, the
Group's incremental borrowing rate. Due to the interest rate
implicit in the lease not being readily determinable for any leases
at transition the Group's incremental cost of borrowing was used.
The weighted average discount rate at transition was 5.5% and was
determined by reference to the rate that the Group would be able to
borrow in the market for similar assets on a similar basis (i.e.
secured) and over a similar time period. The table below shows what
the impact would have been on the opening lease liability had the
discount rate been one per cent higher or lower.
Decrease in Increase in
weighted average weighted average
discount rate discount rate
to 4.5% to 6.5%
GBP'million GBP'million
---------------------------------- ----------------- -----------------
Lease liability at 1 January 2019 357 303
---------------------------------- ----------------- -----------------
Key judgements
A key judgement was made in regards to whether the Group will
exercise any breaks contained within its leases as this has a
significant impact on the measurement of the lease liability. The
majority of the Group's leases are around 25 years in length and a
proportion of these have break clauses part way through. At
transition it has been assumed all leases will be retained for
their full term, unless there is a specific plan to vacate the site
at an early break point in which case the lease term is deemed to
be the period up until that point. This is consistent with the
period of time over which leasehold improvements are depreciated
over.
Practical expedients
The available practical expedients of exempting leases with a
short life (less than 12 months) or low value (less than GBP5,000)
on an ongoing basis has been applied. These leases will continue to
be recognised on a straight line basis over the lease term and in
total are immaterial to the Group. As a result, the key leases to
which the full requirements of IFRS 16 have been applied are
property leases of stores and head office sites. At transition
there were no leases of 12 months or less (or any longer term
leases in their final year) other than those that had a value of
below GBP5,000. The total value of low lease assets at transition
was immaterial.
Impact on the financial statements
Due to the Group's young age coupled with its store opening
profile over recent years, the vast majority of leases remain in
the first half of their terms, with an average remaining lease
length of 20 years. The Group's current business model will also
see it continue to open stores in the years ahead, albeit at a
slower pace, leading to an expanding lease portfolio. These two
factors led to higher charges recognised in the income statement in
the near term when compared to IAS 17, reflecting a different
profile of cost recognition under each standard. Charges under IFRS
16 are front loaded in the earlier years of a lease compared to IAS
17 which requires lease expenses to be recognised on a straight
line basis.
Net interest margin ("NIM") is reduced by the adoption of IFRS
16 since the rental expense (part of operating expenses) under IAS
17 will be replaced by a depreciation and an interest expense
charge. The interest expense is recognised within NIM, thus
reducing it on an ongoing basis.
As stated above IFRS 16 has been adopted on a modified
retrospective basis and as such there is no adjustment to equity
upon transition. A new RoU asset and lease liability are included
on the balance sheet. The addition of the RoU asset has had an
impact on regulatory capital as this has a 100% risk weighting,
compared to no risk weighting when these were held off balance
sheet under IAS 17.
The table below reconciles the undiscounted lease commitments as
at 31 December 2019 to the opening lease liability and RoU
recognised under IFRS 16 on 1 January 2019.
GBP'million
---------------------------------------------------------- -----------
Total undiscounted lease commitments at 31 December
2018 (See note 14) 659
---------------------------------------------------------- -----------
Exclusion of VAT from lease liability (116)
Discounting at a weighted average rate of 5.5% (215)
---------------------------------------------------------- -----------
Lease liability included in the statement of financial
position at 1 January 2019 328
---------------------------------------------------------- -----------
Less amounts previously recognised in respect of prepaid
rentals and rent free periods (15)
---------------------------------------------------------- -----------
Right of use asset included in the statement of financial
position at 1 January 2019 313
---------------------------------------------------------- -----------
Accounting policy
The updated accounting policy relating to leases can be found
within note 14.
2. Net interest income
Interest income
2019 2018
GBP'million GBP'million
------------------------------------------------ ------------ ------------
Cash and balances held with the bank of England 17.0 11.2
Loans and advances to customers 435.0 365.2
Investment securities held at amortised cost 40.6 57.7
Investment securities held at FVOCI 3.6 10.3
------------------------------------------------ ------------ ------------
Total interest income 496.2 444.4
------------------------------------------------ ------------ ------------
Interest expense
2019 2018
GBP'million GBP'million
---------------------------- ------------ ------------
Deposits from customers 112.4 83.7
Deposits from central banks 28.5 22.7
Lease liabilities 17.7 -
Debt securities 22.1 7.2
Repurchase agreements 7.4 0.7
Total interest expense 188.1 114.3
---------------------------- ------------ ------------
3. Taxation
Tax expense
The components of the tax expense for the year are:
2019 2018
GBP'million GBP'million
-------------------------------------------------- ------------ ------------
Current tax
Current tax 3.5 (2.8)
Adjustment in respect of prior years (0.3) (0.7)
-------------------------------------------------- ------------ ------------
Total current tax expense 3.2 (3.5)
-------------------------------------------------- ------------ ------------
Deferred tax
Origination and reversal of temporary differences (52.0) (9.8)
Effect of changes in tax rates (2.8) (0.7)
Adjustment in respect of prior years (0.2) 0.5
-------------------------------------------------- ------------ ------------
Total deferred tax expense (55.0) (10.0)
-------------------------------------------------- ------------ ------------
Total tax expense (51.8) (13.5)
-------------------------------------------------- ------------ ------------
Reconciliation of the total tax expense
The tax expense shown in the income statement differs from the
tax expense that would apply if all accounting profits had been
taxed at the UK corporation tax rate.
A reconciliation between the tax expense and the accounting
profit multiplied by the UK corporation tax rate is as follows:
Effective Effective
2019 tax rate 2018 tax rate
GBP'million % GBP'million %
------------------------------------------ ------------ --------- ------------ ---------
Accounting (loss)/profit before tax (130.8) 40.6
------------------------------------------ ------------ --------- ------------ ---------
Tax expense at statutory tax rate of
19% (2018: 19%) 24.9 19.0% (7.7) 19.0%
Tax effects of:
Non-deductible expenses - depreciation
on non-qualifying fixed assets (3.0) (2.3%) (2.6) 6.4%
Non-deductible expenses - investment
property impairment (1.1) (0.9%) (0.5) 1.2%
Non-deductible expenses - remediation (4.4) (3.3%) - -
Non-deductible expenses - other (0.7) (0.5%) (0.6) 1.4%
Impact of intangible asset impairment
on R&D deferred tax liability 1.8 1.4% - -
Share based payments (1.9) (1.5%) (1.3) 3.1%
Adjustment in respect of prior years (0.5) (0.3%) (0.2) 0.5%
Current year losses for which no deferred
tax asset has been recognised (11.4) (8.7%) - -
Derecognition of tax losses arising
in prior years (52.7) (40.2%) - -
Effect of changes in tax rates (2.8) (2.2%) (0.6) 1.5%
------------------------------------------ ------------ --------- ------------ ---------
Tax expense reported in the consolidated
income statement (51.8) (39.5%) (13.5) 33.2%
------------------------------------------ ------------ --------- ------------ ---------
The effective tax rate for the year is (39.5%) (2018: 33.2%).
The main reasons for this, in addition to the reported accounting
loss before tax for the year (2018: accounting profit before tax),
are set out below:
Impact of Intangible Asset Impairment on R&D
During the year the Group impaired GBP68m of Intangible assets.
This relates to the discontinuation of certain work-in-progress or
older IT projects that do not form part of the Group's revised
strategy. As some of these assets had previously qualified for
R&D tax relief the R&D deferred tax liability has been
adjusted to reflect this.
Share based payments
During the period the Group's share price fell from GBP16.94 to
GBP2.02. This had the impact of reducing the deferred tax asset
held for share options and contributed GBP1.2m to the deferred tax
charge.
Derecognition of tax losses carried forward
The Group has derecognised the deferred tax asset arising in
prior years due to the expected impact on its forecast short term
results of the investment in cost, revenue and infrastructure
transformation. The losses will remain available for offset in the
future and recognition will be revaluated at future reporting
periods.
Effect of changes in tax rates
This relate to the remeasurement of deferred tax due to rate
changes.
Deferred tax
Investment Property,
Unused securities Share-based plant Intangible
tax losses and impairments payments and equipment assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
2019
Deferred tax assets - 6 - - - 6
Deferred tax liabilities - (2) - (15) (4) (21)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
Deferred tax liabilities
(net) - 4 - (15) (4) (15)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 1 January 2019 53 5 1 (11) (7) 41
Income statement (53) (1) (1) (4) 3 (56)
At 31
December
2019 - 4 - (15) (4) (15)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
Investment Property,
Unused securities Share-based plant Intangible
tax losses and impairments payments and equipment assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
2018
Deferred tax assets 53 7 1 - - 61
Deferred tax liabilities - (2) - (11) (7) (20)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
Deferred tax assets
(net) 53 5 1 (11) (7) 41
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 1 January 2018 57 4 11 (8) (6) 58
Income statement (4) (1) (1) (3) (1) (10)
Other comprehensive
income - 2 - - - 2
Equity - - (9) - - (9)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 31 December 2018 53 5 1 (11) (7) 41
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
4. Financial instruments
The Group's financial instruments primarily comprise customer
deposits, loans and advances to customers, cash and balances with
the bank of England and investment securities, all of which arise
as a result of normal operations.
The main financial risks arising from financial instruments are
credit risk, liquidity risk and market risks (price and interest
rate risk).
The financial instruments the Group holds are simple in nature
and no significant judgments have been made relating to the
classification of financial instruments under IFRS 9.
5. Cash and balances with the bank of England
31 December 31 December
2019 2018
GBP'million GBP'million
-------------------------------------- ------------ -------------
Unrestricted balances with the bank
of England 2,751 2,242
Cash and unrestricted balances with
other banks 178 230
Money market placements 60 -
-------------------------------------- ------------ -------------
Total cash and balances with the bank
of England (9) 2,989 2,472
-------------------------------------- ------------ -------------
9. Balances held at other financial institutions have been
reclassified during the year as cash, rather than as loans and
advances to banks to better reflect the unrestricted nature of
these balances.
6. Loans and advances to customers
31 December 2019
------------------------------------------
Gross carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
-------------------------------------- -------------- ------------ ------------
Consumer lending 233 (13) 220
Retail mortgages 10,430 (8) 10,422
Commercial lending 4,052 (13) 4,039
-------------------------------------- -------------- ------------ ------------
Total loans and advances to customers 14,715 (34) 14,681
-------------------------------------- -------------- ------------ ------------
31 December 2018
------------------------------------------
Gross carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
-------------------------------------- -------------- ------------ ------------
Consumer lending 288 (9) 279
Retail mortgages 9,625 (11) 9,614
Commercial lending 4,356 (14) 4,342
-------------------------------------- -------------- ------------ ------------
Total loans and advances to customers 14,269 (34) 14,235
-------------------------------------- -------------- ------------ ------------
Further information on the movements in gross carrying amounts
and ECL can be found in note 12. An analysis of the gross loans and
advances by product category is set out below:
31 December 31 December
2019 2018
GBP'million GBP'million
------------------------------------------ ------------ ------------
Overdrafts 77 70
Credit cards 11 11
Term loans 145 207
------------------------------------------ ------------ ------------
Total consumer lending 233 288
------------------------------------------ ------------ ------------
Residential owner occupied 8,493 7,351
Retail buy-to-let 1,937 2,274
------------------------------------------ ------------ ------------
Total retail mortgages 10,430 9,625
------------------------------------------ ------------ ------------
Total retail lending 10,663 9,913
------------------------------------------ ------------ ------------
Term loans (exc. professional buy-to-let) 2,327 2,448
Professional buy-to-let 1,219 1,380
------------------------------------------ ------------ ------------
Total commercial term lending 3,546 3,828
------------------------------------------ ------------ ------------
Overdrafts and revolving credit
facilities 202 226
Credit cards 3 3
Asset and invoice finance 301 299
------------------------------------------ ------------ ------------
Total commercial lending 4,052 4,356
------------------------------------------ ------------ ------------
Gross loans and advances to customers 14,715 14,269
------------------------------------------ ------------ ------------
7. Investment securities
31 December 31 December
2019 2018
GBP'million GBP'million
--------------------------------------- ------------ -------------
Fair value through other comprehensive
income ("FVOCI") 411 674
Amortised cost 2,154 3,458
--------------------------------------- ------------ -------------
Total investment securities 2,565 4,132
--------------------------------------- ------------ -------------
Fair value through other comprehensive income
31 December 31 December
2019 2018
GBP'million GBP'million
--------------------------------------- ------------ ------------
Sovereign bonds 283 351
Residential mortgage backed securities - 64
Covered bonds 128 104
Corporate bonds - 155
--------------------------------------- ------------ ------------
Total investment securities
held at FVOCI 411 674
--------------------------------------- ------------ ------------
Amortised cost
31 December 31 December
2019 2018
GBP'million GBP'million
---------------------------- ------------ ------------
Sovereign bonds 61 58
Residential mortgage backed
securities 1,752 2,997
Covered bonds 341 403
Total investment securities
held at amortised cost 2,154 3,458
---------------------------- ------------ ------------
8. Property, plant and equipment
Accounting Policy applicable from 1 January 2019
policy
Property plant and equipment
The Group's property, plant and equipment primarily
consists of investments and improvements in its store
network and is stated at cost less accumulated depreciation
and any recognised impairment.
Property, plant and equipment is depreciated on a
straight-line basis to its residual value using the
following useful economic lives:
--------------------------------------------------------------
Leasehold improvements Lower of the remaining life of the
lease or the useful life of the
asset
Freehold land Not depreciated
Buildings Up to 50 years
Fixtures, fittings 5 years
and equipment
IT hardware 3 to 5 years
------------------------ ------------------------------------
Depreciation rates, methods and the residual values
underlying the calculation of depreciation of items
of property, plant and equipment are kept under review
to take account of any change in circumstances.
All items of property, plant and equipment are reviewed
at least annually for indicators of impairment.
Right of use assets
Upon the recognition of a lease liability (see note
14 for further details) a corresponding right of
use ("RoU") asset is recognised. This is adjusted
for any initial direct costs incurred, lease incentives
paid or received and any restoration costs at the
end of the lease (where applicable).
The RoU asset is depreciated on a straight line basis
over the life of the lease.
All right of use assets are reviewed at least annually
for indicators of impairment.
Investment property
Investment property is also stated at cost less accumulated
depreciation and any recognised impairment. Depreciation
is calculated on a consistent basis with that applied
to land and buildings as disclosed in the table above.
---------- --------------------------------------------------------------
Right
of use
assets
relating
Freehold Fixtures, to leased
Investment Leasehold land fittings stores
property improvements and buildings and equipment IT hardware and offices Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Cost
31 December
2018 10 275 199 33 39 n/a 556
IFRS 16
transition
adjustment - - - - - 313 313
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
1 January 2019 10 275 199 33 39 313 869
Additions - 51 62 5 2 26 146
Disposals - - - - - (7) (7)
Write-offs - (3) - (12) (31) - (46)
Transfers 8 (9) 1 - - - -
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
31 December
2019 18 314 262 26 10 332 962
Accumulated
depreciation
31 December
2018 3 39 9 18 33 n/a 102
IFRS 16 - - - - - - -
transition
adjustment
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
1 January 2019 3 39 9 18 33 - 102
Charge for the
year - 11 4 6 3 16 40
Impairments 7 - - - - - 7
Write-offs - - - (12) (31) - (43)
Transfers - (1) 1 - - - -
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
31 December
2019 10 49 14 12 5 16 106
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Net book value 8 265 248 14 5 316 856
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Investment property primarily consists of shops and offices
which are located within the same buildings as some of the Group's
stores, where it has acquired the freehold interest. In addition it
consists of a store initially purchased for the Group's own use
which is no longer felt suitable for a site in its current form and
is currently being retained to generate rental income. At 31
December 2019 the Group's investment property had a fair value of
GBP7 million (31 December 2018: GBP7 million). The fair value has
been provided by a qualified independent valuer.
Freehold Fixtures,
Investment Leasehold land fittings
property improvements and buildings and equipment IT hardware Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------- ------------ ------------- -------------- -------------- ------------ ------------
Cost
1 January 2018 11 198 136 26 35 406
Additions - 80 59 7 4 150
Transfers (1) (3) 4 - - -
------------------------- ------------ ------------- -------------- -------------- ------------ ------------
31 December 2018 10 275 199 33 39 556
Accumulated depreciation
1 January 2018 - 29 6 14 29 78
Impairments 3 1 - - - 4
Charge for the year - 10 2 4 4 20
Transfers - (1) 1 - - -
------------------------- ------------ ------------- -------------- -------------- ------------ ------------
31 December 2018 3 39 9 18 33 102
------------------------- ------------ ------------- -------------- -------------- ------------ ------------
Net book value 7 236 190 15 6 454
------------------------- ------------ ------------- -------------- -------------- ------------ ------------
Write-offs
Write-offs in the year consisted of pipeline sites which were
abandoned as part of the change in the Group's strategy; these
sites were no longer felt to be in suitable locations or formats.
In addition it included a number of fixtures, fittings and
equipment and IT hardware with a nil book value which are no longer
being used.
Transfers
Transfers represent costs associated with the improvements made
to previously leased stores which have been purchased. These stores
were purchased where there was a strong commercial rationale for
doing so. Following the introduction of IFRS 16 the capital impact
of such purchases is considerably less than previously under IAS 17
and gaining ownership provides greater flexibility over the site in
the future.
Additionally, during the year an acquired freehold site was
transferred from freehold land and buildings to investment
property. The site was originally acquired with the intent of
converting into a store, however the change in the Group's strategy
has meant this course of action is no longer felt suitable. Given
there is no intention in the short to medium term to convert this
site into a store the decision was made to continue letting the
property, and the property is considered an investment
property.
9. Intangible assets
Customer
Goodwill contracts Software Total
GBP'million GBP'million GBP'million GBP'million
----------------------------- ------------ ------------ ------------ ------------
Cost
1 January 2019 4 1 249 254
Additions - - 79 79
Write-offs - (1) (100) (101)
Deferred grant (see note 10) - - (4) (4)
----------------------------- ------------ ------------ ------------ ------------
31 December 2019 4 - 224 228
----------------------------- ------------ ------------ ------------ ------------
Amortisation
1 January 2019 - 1 56 57
Charge for the year - - 36 36
Write-offs - (1) (32) (33)
31 December
2019 - - 60 60
----------------------------- ------------ ------------ ------------ ------------
Net book value 4 - 164 168
----------------------------- ------------ ------------ ------------ ------------
Customer
Goodwill contracts Software Total
GBP'million GBP'million GBP'million GBP'million
-------------------- ------------ ------------ ------------ ------------
Cost
1 January 2018 4 1 174 179
Additions - - 75 75
-------------------- ------------ ------------ ------------ ------------
31 December 2018 4 1 249 254
-------------------- ------------ ------------ ------------ ------------
Amortisation
1 January 2018 - 1 30 31
Impairments - - 1 1
Charge for the year - - 25 25
-------------------- ------------ ------------ ------------ ------------
31 December 2018 - 1 56 57
-------------------- ------------ ------------ ------------ ------------
Net book value 4 - 193 197
-------------------- ------------ ------------ ------------ ------------
Write-offs
The write-offs in year consisted primarily of software and
applications that were work in progress that have been abandoned
owing to the change in the Group's strategy.
Goodwill
Goodwill is tested for any impairment on an annual basis. All of
the GBP4 million (31 December 2018: GBP4 million) goodwill has been
allocated to the Group's asset and invoice finance business. This
business was previously acquired and is considered a standalone
cash-generating unit. The recoverable amount of the cash-generating
unit, determined using the value-in-use basis, was found to be in
excess of its carrying amount and as such no impairment to goodwill
was required.
10. Deferred grants
Accounting Grants are recognised where there is reasonable
policy assurance that the Group will both receive the grant
and will be able to comply with all the attached
conditions. When the grant relates to an expense
item, it is recognised as income on a systematic
basis over the periods that the related costs, for
which it is intended to compensate, are expensed.
When the grant relates to an asset, it is recognised
directly against the cost of the asset.
---------- -----------------------------------------------------
2019 2018
GBP'million GBP'million
------------------------------------------------ ------------ ------------
1 January - -
Grants received 120 -
Released to the income statement (16) -
Offset against capital expenditure (see note 9) (4) -
Element of grant awaiting repayment (50) -
------------------------------------------------ ------------ ------------
31 December 50 -
------------------------------------------------ ------------ ------------
On 22 February 2019 the Group was awarded GBP120 million from
the Capability & Innovation fund (part of the RBS alternative
remedies package).
Following changes to the Group's strategy a revised business
case was submitted to the BCR (the awarding body). The proposals
put forward were accepted by BCR on 25 February 2020 as part of
which the public commitments attached to the grant were amended. As
part of this it was agreed that GBP50 million of the grant will be
returned to BCR. As disclosed in note 17 the acceptance of the
Group's proposal by BCR post year-end is considered an adjusting
event and as such the GBP50 million to be repaid is classified as a
liability as at 31 December 2019. All of the sums recognised to
date, either in the income statement or offset against capital
expenditure, are still components of the revised commitments and as
such no adjustments to these amounts has been made.
11. Called-up share capital
The Group has a single class of shares. As at 31 December 2019
172.4 million ordinary shares of 0.0001p (31 December 2018: 97.4
million) were authorised and in issue.
In May 2019 the Group issued 75.0 million of ordinary shares for
consideration of GBP375 million. Associated costs of GBP16 million
have been offset against the amount raised.
Called-up ordinary share capital, issued and fully paid
The called-up share capital reserve is used to record the
nominal share capital. At the 31 December 2019 the Group's called
up share capital was GBP172.42 (31 December 2018: GBP97.40)
2019 2018
GBP'million GBP'million
----------- ------------ ------------
1 January - -
Issued - -
31 December - -
----------- ------------ ------------
Share premium
The share premium reserve is used to record the excess
consideration of any shares issued over the nominal share
value.
2019 2018
GBP'million GBP'million
----------------------- ------------ ------------
1 January 1,605 1,304
Issued 375 304
Costs of shares issued (16) (3)
----------------------- ------------ ------------
31 December 1,964 1,605
----------------------- ------------ ------------
12. Credit Risk
Retail mortgage lending
The table below stratifies credit exposures from retail
mortgages by ranges of debt-to-value ("DTV") ratio. The average DTV
of the retail mortgage loan book is 59% (2018: 61%).
31 December 2019 31 December 2018
GBP'million GBP'million
---------------------------------- ----------------------------------
Retail Total Retail Total
owner Retail retail owner Retail retail
occupied buy-to-let mortgages occupied buy-to-let mortgages
--------------------- --------- ----------- ---------- --------- ----------- ----------
DTV ratio
Less than 50% 2,647 464 3,111 2,124 458 2,582
51-60% 1,383 393 1,776 1,195 493 1,688
61-70% 1,422 505 1,927 1,374 553 1,927
71-80% 1,813 554 2,367 1,362 596 1,958
81-90% 1,201 13 1,214 1,205 129 1,334
91-100% 23 - 23 80 33 113
More than 100% 4 8 12 11 12 23
--------------------- --------- ----------- ---------- --------- ----------- ----------
Total retail mortgage
lending 8,493 1,937 10,430 7,351 2,274 9,625
--------------------- --------- ----------- ---------- --------- ----------- ----------
A geographic analysis of the location of retail mortgage
collateral is set out below:
31 December 2019 31 December 2018
GBP'million GBP'million
------------------------------------------ ------------------------------------------
Retail Retail Total retail Retail Retail Total retail
owner occupied buy-to-let mortgages owner occupied buy-to-let mortgages
---------------------- --------------- ----------- ------------ --------------- ----------- ------------
Region
Greater London 3,424 1,197 4,621 3,034 1,231 4,265
South east 2,094 337 2,431 1,797 383 2,180
South west 738 97 835 616 122 738
East of England 570 76 646 492 91 583
North west 482 66 548 405 138 543
West Midlands 340 62 402 293 81 374
Yorkshire and the
Humber 275 37 312 207 73 280
East Midlands 243 26 269 241 57 298
Wales 169 21 190 141 36 177
North east 93 11 104 83 31 114
Northern Ireland - - - 4 27 31
Scotland 65 7 72 38 4 42
---------------------- --------------- ----------- ------------ --------------- ----------- ------------
Total retail mortgage
lending 8,493 1,937 10,430 7,351 2,274 9,625
---------------------- --------------- ----------- ------------ --------------- ----------- ------------
An analysis of the retail mortgage book by repayment type is set
out below:
31 December 2019 31 December 2018
GBP'million GBP'million
---------------------------------- ----------------------------------
Retail Total Retail Total
owner Retail retail owner Retail retail
occupied buy-to-let mortgages occupied buy-to-let mortgages
---------------------- --------- ----------- ---------- --------- ----------- ----------
Repayment
Interest 2,573 1,834 4,407 2,242 2,166 4,408
Capital and interest 5,920 103 6,023 5,109 108 5,217
---------------------- --------- ----------- ---------- --------- ----------- ----------
Total retail mortgage
lending 8,493 1,937 10,430 7,351 2,274 9,625
---------------------- --------- ----------- ---------- --------- ----------- ----------
Commercial lending
The table below stratifies credit exposures from commercial term
loans by ranges of DTV. The average DTV of the commercial loan book
is 60% (2018: 59%).
31 December 31 December
2019 2018
GBP'million GBP'million
----------------------------- ------------ ------------
DTV ratio
Less than 50% 1,274 1,277
51-60% 818 936
61-70% 747 791
71-80% 221 249
81-90% 41 100
91-100% 49 51
More than 100% 396 424
----------------------------- ------------ ------------
Total commercial term lending 3,546 3,828
----------------------------- ------------ ------------
A geographic analysis by location of customers who hold
commercial term loans is set out below:
31 December 31 December
2019 2018
GBP'million GBP'million
---------------------------- ------------ ------------
Region
Greater London 2,264 2,465
South east 648 677
South west 208 229
East of England 139 151
North west 136 145
West Midlands 60 50
Yorkshire and the Humber 37 26
East Midlands 17 33
Wales 14 29
North east 13 16
Northern Ireland 6 3
Scotland 4 4
---------------------------- ------------ ------------
Total commercial term loans 3,546 3,828
---------------------------- ------------ ------------
An analysis of the commercial term loan book by repayment type
is set out below:
31 December 31 December
2019 2018
GBP'million GBP'million
---------------------------- ------------ ------------
Repayment
Interest 1,483 1,592
Capital and interest 2,063 2,236
---------------------------- ------------ ------------
Total commercial term loans 3,546 3,828
---------------------------- ------------ ------------
A sector analysis of the commercial term loan book is set out
below:
31 December 31 December
2019 2018
GBP'million GBP'million
----------------------------------- ------------ ------------
Industry sector
Real estate (rent, buy and sell) 2,374 2,547
Legal, accountancy and consultancy 236 384
Health and social work 263 217
Hospitality 308 235
Real estate (management of) 11 72
Retail 100 99
Construction 35 60
Investment and unit trusts 8 1
Recreation, cultural and sport 51 19
Real estate (development) 62 52
Education 30 15
Other 68 127
----------------------------------- ------------ ------------
Total commercial term loans 3,546 3,828
----------------------------------- ------------ ------------
Credit risk exposures
Retail mortgages
31 December 2019
GBP' million
---------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
---------------------- ------------- ------------- ------------- -------------
Up to date 9,873 449 16 -
1 to 29 days past
due 1 21 4 -
30 to 89 days past
due - 32 10 -
90+ days past due - - 24 -
---------------------- ------------- ------------- ------------- -------------
Gross carrying amount 9,874 502 54 -
---------------------- ------------- ------------- ------------- -------------
31 December 2018
GBP' million
---------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
---------------------- ------------- ------------- ------------- -------------
Up to date 9,242 275 19 2
1 to 29 days past
due 3 14 4 1
30 to 89 days past
due - 47 7 1
90+ days past due - - 9 1
---------------------- ------------- ------------- ------------- -------------
Gross carrying amount 9,245 336 39 5
---------------------- ------------- ------------- ------------- -------------
Consumer lending
31 December 2019
GBP' million
---------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
---------------------- ------------- ------------- ------------- -------------
Up to date 213 - - -
1 to 29 days past
due 10 - - -
30 to 89 days past - - - -
due
90+ days past due - - 10 -
---------------------- ------------- ------------- ------------- -------------
Gross carrying amount 223 - 10 -
---------------------- ------------- ------------- ------------- -------------
31 December 2018
GBP' million
---------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
---------------------- ------------- ------------- ------------- -------------
Up to date 272 - - -
1 to 29 days past
due 3 3 - -
30 to 89 days past
due - 5 - -
90+ days past due - - 5 -
---------------------- ------------- ------------- ------------- -------------
Gross carrying amount 275 8 5 -
---------------------- ------------- ------------- ------------- -------------
Commercial lending
31 December 2019
GBP' million
---------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
---------------------- ------------- ------------- ------------- -------------
Up to date 3,900 - 7 -
1 to 29 days past
due 29 18 4 -
30 to 89 days past
due - 54 9 -
90+ days past due - - 31 -
---------------------- ------------- ------------- ------------- -------------
Gross carrying amount 3,929 72 51 -
---------------------- ------------- ------------- ------------- -------------
31 December 2018
GBP' million
---------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
---------------------- ------------- ------------- ------------- -------------
Up to date 4,213 6 2 -
1 to 29 days past
due 52 44 - -
30 to 89 days past
due - 27 5 -
90+ days past due - - 7 -
---------------------- ------------- ------------- ------------- -------------
Gross carrying amount 4,265 77 14 -
---------------------- ------------- ------------- ------------- -------------
Loss allowance
The following tables explain the changes in both the gross
carrying amount and loss allowances of the Group's loans and
advances during the period. Significant changes in the gross
carrying amounts which contributed to changes in the loss allowance
are explained below. Other movements consist of changes to model
assumptions and forward looking information.
Retail
mortgages Gross carrying amount Loss allowance Net carrying amount
------------------------------------ -------------------------------- ------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
--------------- ------- ----- ----- ---- ------- ----- ----- ----- ---- ----- ------- ----- ----- ---- -------
1 January
2019 9,245 336 39 5 9,625 - (5) (4) (2) (11) 9,245 331 35 3 9,614
Transfers
to/(from)
stage 1(1) 169 (162) (7) - - (1) 1 - - - 168 (161) (7) - -
Transfers
to/(from)
stage 2 (369) 370 (1) - - - - - - - (369) 370 (1) - -
Transfers
to/(from)
stage 3 (22) (16) 38 - - - - - - - (22) (16) 38 - -
Net
remeasurement
due to
transfers(2) - - - - - 1 (1) (2) - (2) 1 (1) (2) - (2)
New lending(3) 2,122 77 - - 2,199 - - - - - 2,122 77 - - 2,199
Repayments,
additional
drawdowns
and interest
accrued (244) (9) (3) - (256) - - - - - (244) (9) (3) - (256)
Derecognitions (1,027) (94) (12) (5) (1,138) - 2 2 2 6 (1,027) (92) (10) (3) (1,132)
Changes to
model
assumptions - - - - - - - (1) - (1) - - (1) - (1)
--------------- ------- ----- ----- ---- ------- ----- ----- ----- ---- ----- ------- ----- ----- ---- -------
31 December
2019 9,874 502 54 - 10,430 - (3) (5) - (8) 9,874 499 49 - 10,422
--------------- ------- ----- ----- ---- ------- ----- ----- ----- ---- ----- ------- ----- ----- ---- -------
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
1 January
2018 6,065 129 33 4 6,231 (1) (3) (5) (1) (10) 6,064 126 28 3 6,221
Transfers
to/(from)
stage 1(1) 60 (52) (8) - - (1) 1 - - - 59 (51) (8) - -
Transfers
to/(from)
stage 2 (222) 223 (1) - - 1 (1) - - - (221) 222 (1) - -
Transfers
to/(from)
stage 3 (16) (7) 23 - - - 1 (1) - - (16) (6) 22 - -
Net
remeasurement
due to
transfers(2) - - - - - 1 (2) (1) - (2) 1 (2) (1) - (2)
New lending(3) 3,933 76 3 2 4,014 (1) (1) - - (2) 3,932 75 3 2 4,012
Repayments,
additional
drawdowns
and interest
accrued (151) (7) (1) (1) (160) - - - - - (151) (7) (1) (1) (160)
Derecognitions (424) (26) (10) - (460) 1 - 1 - 2 (423) (26) (9) - (458)
Changes to
model
assumptions - - - - - - - 2 (1) 1 - - 2 (1) 1
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
31 December
2018 9,245 336 39 5 9,625 - (5) (4) (2) (11) 9,245 331 35 3 9,614
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
1. Represents stage transfers prior to any ECL
remeasurements
2. Represents the remeasurement between the twelve month and
lifetime ECL due to stage transfer
3. Represents the increase in balances resulting from loans and
advances that have been newly originated, purchased or renewed.
4. Represents the decrease in balances resulting from loans and
advances that have been fully repaid, disposed of or written
off.
5. Represents the change in loss allowances resulting from
changes to the model assumptions, forward looking information and
changes in the customers risk profile
Consumer lending
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
1 January
2019 275 8 5 - 288 (3) (3) (3) - (9) 272 5 2 - 279
Transfers
to/(from)
stage 1 5 (5) - - - - - - - - 5 (5) - - -
Transfers
to/(from)
stage 2 (1) 1 - - - - - - - - (1) 1 - - -
Transfers
to/(from)
stage 3 (3) (3) 6 - - - 2 (2) - - (3) (1) 4 - -
Net
remeasurement
due to
transfers - - - - - - - (4) - (4) - - (4) - (4)
New lending 39 - - - 39 - - - - - 39 - - - 39
Repayments,
additional
drawdowns
and interest
accrued (37) - (1) - (38) - - - - - (37) - (1) - (38)
Derecognitions (55) (1) - - (56) - - - - - (55) (1) - - (56)
Changes to - - - - - - - - - - - - - - -
model
assumptions
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
31 December
2019 223 - 10 - 233 (3) (1) (9) - (13) 220 (1) 1 - 220
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
1 January
2018 191 20 6 - 217 (1) (11) (5) - (17) 190 9 1 - 200
Transfers
to/(from)
stage 1 2 (2) - - - - - - - - 2 (2) - - -
Transfers
to/(from)
stage 2 (3) 3 - - - - - - - - (3) 3 - - -
Transfers
to/(from)
stage 3 (1) (1) 2 - - - - - - - (1) (1) 2 - -
Net
remeasurement
due to
transfers - - - - - - (1) (1) - (2) - (1) (1) - (2)
New lending 160 2 1 - 163 (2) (1) - - (3) 158 1 1 - 160
Repayments,
additional
drawdowns
and interest
accrued (27) (1) - - (28) - - - - - (27) (1) - - (28)
Derecognitions (47) (13) (4) - (64) - 10 3 - 13 (47) (3) (1) - (51)
Changes to - - - - - - - - - - - - - - -
model
assumptions
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
31 December
2018 275 8 5 - 288 (3) (3) (3) - (9) 272 5 2 - 279
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
Commercial lending
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
1 January
2019 4,265 77 14 - 4,356 (6) (3) (5) - (14) 4,259 74 9 - 4,342
Transfers
to/(from)
stage 1 43 (43) - - - (1) 1 - - - 42 (42) - - -
Transfers
to/(from)
stage 2 (64) 64 - - - - - - - - (64) 64 - - -
Transfers
to/(from)
stage 3 (17) (9) 26 - - - 1 (1) - - (17) (8) 25 - -
Net
remeasurement
due to
transfers - - - - - 1 (1) (2) - (2) 1 (1) (2) - (2)
New lending 513 2 15 - 530 (1) - (2) - (3) 512 2 13 - 527
Repayments,
additional
drawdowns
and interest
accrued (203) (3) 6 - (200) - - - - - (203) (3) 6 - (200)
Derecognitions (608) (16) (10) - (634) - - 3 - 3 (608) (16) (7) - (631)
Changes to
model
assumptions - - - - - 1 1 1 - 3 1 1 1 - 3
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
31 December
2019 3,929 72 51 - 4,052 (6) (1) (6) - (13) 3,923 71 45 - 4,039
---------------- ----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- -----
Gross carrying amount Loss allowance Net carrying amount
----------------------------------------- ------------------------------------------------ ---------------------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
--------------- ------ ----- ------------ ---- ------ ------------ ----- ----- ---- -------------- ------ ----- ----- ------------ ---------------
1 January
2018 3,074 95 16 1 3,186 (5) (1) (3) - (9) 3,069 94 13 1 3,177
Transfers
to/(from)
stage 1 50 (50) - - - - - - - - 50 (50) - - -
Transfers
to/(from)
stage 2 (53) 53 - - - - - - - - (53) 53 - - -
Transfers
to/(from)
stage 3 (6) (4) 10 - - - - - - - (6) (4) 10 - -
Net
remeasurement
due to
transfers - - - - - - (2) (2) - (4) - (2) (2) - (4)
New lending 1,654 10 1 - 1,665 (3) - - - (3) 1,651 10 1 - 1,662
Repayments,
additional
drawdowns
and interest
accrued (120) (7) (4) - (131) - - - - - (120) (7) (4) - (131)
Derecognitions (334) (20) (9) (1) (364) - - 1 - 1 (334) (20) (8) (1) (363)
Changes to
model
assumptions - - - - - 2 - (1) - 1 2 - (1) - 1
--------------- ------ ----- ------------ ---- ------ ------------ ----- ----- ---- -------------- ------ ----- ----- ------------ ---------------
31 December
2018 4,265 77 14 - 4,356 (6) (3) (5) - (14) 4,259 74 9 - 4,342
--------------- ------ ----- ------------ ---- ------ ------------ ----- ----- ---- -------------- ------ ----- ----- ------------ ---------------
Non-performing loans
Non-performing loans are loans which have more than three
instalments unpaid (90+ days past due) or where there is doubt a
borrower can keep up with their repayments. All non-performing
loans are included within Stage 3.
31 December
2019 31 December 2018
------------------------------ ------------------------------
Non-performing Non-performing Non-performing
Non-performing loans loans loans
GBP'million ratio GBP'million ratio
---------------------------------------- -------------- -------------- -------------- --------------
Retail-residential mortgages 25 0.24% 9 0.09%
Retail-consumer and other 10 4.30% 5 1.74%
Commercial (including asset and invoice
finance) 42 1.12% 7 0.16%
---------------------------------------- -------------- -------------- -------------- --------------
Total 77 0.53% 21 0.15%
---------------------------------------- -------------- -------------- -------------- --------------
Cost of risk
Cost of risk is credit impairment charges expressed as a
percentage of average gross lending.
2019 2018
----------------------------- ----- -----
Retail-residential mortgages 0.00% 0.01%
Retail-consumer and other 1.92% 1.54%
Commercial lending 0.11% 0.10%
----------------------------- ----- -----
Average cost of risk 0.08% 0.07%
----------------------------- ----- -----
13. Earnings per share
Basic earnings per share is calculated by dividing the
(loss)/profit attributable to ordinary equity holders of Metro Bank
by the weighted average number of ordinary shares in issue during
the year.
2019 2018
---------------------------------------------- ------- ------
(Loss)/profit attributable to ordinary equity
holders of Metro Bank (GBP'million) (182.6) 27.1
Weighted average number of ordinary shares in
issue - basic ("000) 147,420 92,964
---------------------------------------------- ------- ------
Basic earnings per share (pence) (123.9) 29.1
---------------------------------------------- ------- ------
Diluted earnings per share has been calculated by dividing the
(loss)/profit attributable to ordinary equity holders of Metro Bank
by the weighted average number of ordinary shares in issue during
the year plus the weighted average number of ordinary shares that
would be issued on the conversion to shares of options granted to
colleagues. As the Group made a loss during the year to 31 December
2019 the share options would be antidilutive, as they would reduce
the loss per share. Therefore all the outstanding options have been
disregarded in the calculation of dilutive earnings per share.
2019 2018
---------------------------------------------- ------- ------
(Loss)/profit attributable to ordinary equity
holders of Metro Bank (GBP'million) (182.6) 27.1
Weighted average number of ordinary shares in
issue - diluted ("000) 147,420 95,853
---------------------------------------------- ------- ------
Diluted earnings per share (pence) (123.9) 28.2
---------------------------------------------- ------- ------
14. Leases
Accounting Policy applicable from 1 January 2019
policy At the inception of a contract it is assessed whether
the contract contains a lease.
At the commencement of a lease, a lease liability
and right of use asset is recognised (see note 8
for further details). The lease liability is initially
measured as the present value for the future lease
payments discounted at the rate implicit in the
lease (where available) or the Group's incremental
cost of borrowing. Generally the Group's uses its
incremental cost of borrowing as the discount rate.
Following initial recognition the lease liability
is measured using the effective interest method.
Where it is certain a break will be exercised in
the lease, only the lease payments up until the
date of the break are included.
The lease liability is remeasured when there is
a change to an index or rate used or when there
is a change in expectation that a purchase option
or break clause will be exercised or if the lease
term is extended. When such an adjustment is made
to the lease liability a corresponding adjustment
is made to the right of use asset.
Irrecoverable VAT on lease payments is excluded
from the lease liability and is taken to the income
statement over the period which is due.
The Group has elected not to recognise a lease liability
and right of use assets for any leases that have
a term of less than 12 months or are for an asset
which is deemed to be of low value (item is worth
less than GBP5,000). For these leases the lease
payments are recognised as an expense in the income
statement on a straight-line basis over the life
of the lease.
---------- ---------------------------------------------------------
As outlined in note 1 on 1 January 2019 the Group implemented
IFRS 16 'leases'. IFRS 16 was adopted under the modified
retrospective approach and as such no comparatives are shown for
the tables below, as all of the Groups leases are operating leases
and as such were held off-balance sheet under IAS 17.
Lease liabilities
2019
GBP'million
------------------------------ -------------
31 December 2018 -
Transition adjustment 328
------------------------------ -------------
1 January 2019 328
Additions and modifications 23
Disposals (3)
Lease payments made (25)
Interest on lease liabilities 18
------------------------------ -------------
31 December 2019 341
------------------------------ -------------
Current 28
Non-current 313
------------------------------ -------------
Discount rate
The weighted average discount rate as at 31 December 2019 was
5.7%. The increase in the discount rate from 5.5% at the point of
transition reflects the increased incremental cost of borrowing
during the year (the discount rate is not retrospectively adjusted
for older leases).
Right of use assets
All disclosures relating to right of use assets, including the
accounting policy can be found in note 8.
Lease commitments
At the balance sheet date, future minimum lease payments,
inclusive of irrecoverable VAT at 20% (31 December 2018: 20%), were
as follows:
31 December 31 December
2019 2018
GBP'million GBP'million
---------------------------- ------------ ------------
Within one year 34 31
Due in one to five years 142 133
Due in more than five years 516 495
---------------------------- ------------ ------------
Total 692 659
---------------------------- ------------ ------------
Low value and short leases
During the year to the ended 31 December 2019 GBP0.4 million was
recognised in the income statement with respect to assets of low
value under a lease or lease of less than 12 months.
Future income due under non-cancellable property leases
The Group leases out surplus space in some of its properties.
The table below sets out the cash payments expected over the
remaining non-cancellable term of each lease, exclusive of any
VAT.
31 December 31 December
2019 2018
GBP'million GBP'million
---------------------------- ------------ ------------
Within one year 1 1
Due in one to five years 3 4
Due in more than five years 7 9
---------------------------- ------------ ------------
Total 11 14
---------------------------- ------------ ------------
15. Legal and regulatory matters
As part of the normal course of business the Group is subject to
legal and regulatory matters the majority of which are not
considered to have a material impact on the business.
The contingent liabilities detailed below are those which could
potentially have a material impact, although their inclusion does
not constitute any admission of wrongdoing or legal liability. The
outcome and timing of these matters is inherently uncertain. Based
on the facts currently known, it is not possible at the moment to
predict the outcome of any of these matters or reliably estimate
any financial impact. As such at the reporting date no provision
has been made for any of these cases within the financial
statements.
PRA and FCA investigations
The Group is currently subject to enforcement investigations by
both the Prudential Regulation Authority ("PRA") and Financial
Conduct Authority ("FCA").
-- The PRA's investigation relates to potential breaches of the
PRA's Fundamental Rules 2 and 6. The PRA is investigating whether
there were failures to conduct regulatory reporting with due skill,
care and diligence, to remedy an issue identified by the PRA in a
timely fashion and/or to provide effective oversight and control to
comply with its regulatory reporting obligations. These issues
relate to the Group's assessment and reporting of its risk weighted
assets. The Group is cooperating with the PRA's investigation. As
yet, the PRA has given no indication of the likely timeframe for
completing their investigation or of the action that might be taken
as a result. As a result it is therefore not possible to identify
the likely outcome of the investigation nor practicably quantify
any potential liability for penalties or possible costs associated
with the investigation .
-- The current scope of the FCA's investigation concerns
potential breaches of articles 15 and 17 of the Market Abuse
Regulation (EU 596/2014), Principle 11 of the FCA's Principles for
Business, and Listing Principle 1, Premium Listing Principle 6 and
Rule 1.3.3 of the Listing Rules, in the period between 1 June 2017
and 26 February 2019. The investigations relate to the
announcements made on 23 January 2019 and 26 February 2019 in
relation to risk weighted assets and AIRB accreditation
respectively and the impact these announcements had on the Group's
share price. The Group is cooperating with the FCA's investigation.
As yet, the FCA has given no indication of the likely timeframe for
completing their investigation or of any action that might be taken
as a result. As a result it is therefore not possible to identify
the likely outcome of the investigation nor practicably quantify
any potential liability for penalties or possible costs associated
with the investigation.
Sanctions related matters
In November 2017, on advice of external legal counsel the Group
notified the Office of Foreign Assets Control ("OFAC") that it had
discovered that a UK based entity with which it had a banking
relationship was subject to US sanctions relating to Cuba. The
Group ended its relationship with the relevant entity. In addition,
in 2019, it was discovered that a payment made to a customer's
account, which it had received from a UK based financial
institution, had been routed to the UK based financial institution
from Iran. A further notification was made to OFAC. The Group has
initiated a review of the foregoing matters, together with a review
of its sanctions compliance policies with the support of external
advisors. At this stage it is not quantiftypracticable to identify
the likely outcome or estimate the potential financial impact of
these matters.
US class action
The Group is also defending civil claims brought against it in
the State of California based on breaches of US Federal Securities
laws arising from allegedly false and misleading statements in
relation to its loan book between March 2018 and May 2019. The
Group intends to vigorously defend these proceedings. They are at
an early stage, and as such it is not possible to identify the
likely outcome or nay potential financial impact.
16. Related parties
Key management personnel
The Group's key management personnel, and persons connected with
them, are considered to be related parties. Key management
personnel are defined as those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group. The Directors and members of the Executive
Leadership Team are considered to be the key management personnel
for disclosure purposes.
Key management compensation
Total compensation cost for key management personnel for the
year by category of benefit was as follows:
2019 2018
GBP'million GBP'million
------------------------------------------------ ------------ ------------
Short-term benefits 5.8 6.0
Share-based payment costs 1.7 3.1
------------------------------------------------ ------------ ------------
Total compensation for key management personnel 7.5 9.1
------------------------------------------------ ------------ ------------
Short-term employee benefits include salary, medical insurance,
bonuses and cash allowances paid to key management personnel. The
share-based payment cost represents the IFRS 2 charge for the year
which includes awards granted in prior years that have not yet
vested. The cost includes the in-year IFRS 2 costs for Listing
Share Awards granted to selected key management personnel in
recognition of their significant contribution to the private
placement and admission of Metro Bank to the London Stock
Exchange.
Banking transactions with key management personnel
The Group provides banking services to Directors and other key
management personnel and persons connected to them. Loan
transactions during the year and the balances outstanding at 31
December were as follows:
2019 2018
GBP'million GBP'million
--------------------------------------------------------- ------------ ------------
Loans outstanding at 1 January 3.8 3.0
Loans relating to persons and companies newly considered
related parties - 0.1
Loans relating to persons and companies no longer
considered related parties (3.1) -
Loans issued during the year 0.2 0.8
Loan repayments during the year (0.2) (0.1)
--------------------------------------------------------- ------------ ------------
Loans outstanding as at 31 December 0.7 3.8
--------------------------------------------------------- ------------ ------------
Interest expense on loans payable to the Group (GBP'000) 90 82
--------------------------------------------------------- ------------ ------------
There were five (31 December 2018: ten) loans outstanding at 31
December 2019 totalling GBP0.7 million (31 December 2018: GBP3.8
million). Of these, three are residential mortgages secured on
property, one is an asset finance loan one is an unsecured loan;
all loans were provided on standard commercial terms.
In addition to the loans detailed above, the Group has issued
credit cards and granted overdraft facilities on current accounts
to Directors and key management personnel and persons connected to
them. Credit card balances outstanding at 31 December were as
follows:
2019 2018
GBP'000 GBP'000
------------------------------------------- -------- --------
Credit cards outstanding as at 31 December 16 34
------------------------------------------- -------- --------
Deposit balances outstanding at 31 December were as follows
2019 2018
GBP'million GBP'million
-----------------------------------------------------
Deposits held at 1 January 4.5 3.4
Deposits relating to persons and companies newly
considered related parties 2.1 0.3
Deposits relating to persons and companies no longer
considered related parties (1.8) (0.2)
Net amounts (withdrawn)/deposited (1.5) 1.0
Deposits outstanding as at 31 December 3.3 4.5
-----------------------------------------------------
Other transactions with related parties
The following transactions were carried out with related
parties:
2019 2018
GBP'000 GBP'000
Architectural design services 4,885 4,084
Creative and brand services 428 498
Total purchase of services with entities connected
to key management personnel 5,313 4,582
Amounts outstanding as at 31 December owed by Metro
Bank 82 51
Architecture, design, creative and brand services are provided
by InterArch, Inc. ("InterArch"), a firm which is owned by Shirley
Hill, the wife of Vernon W. Hill, II, who served as both Chairman
and a non-executive director during the year, before stepping down
from the Board on 17 December 2019.
Architectural design services
InterArch provided various architectural design services during
the year, including pre-design, architectural design, interior
design, construction management, landscape architectural, signage,
security design and layout and procurement services. The fee
structure for each project is based on a fixed percentage of final
construction costs with certain additional services provided on an
hourly basis.
Creative and brand services
InterArch also provided branding, marketing and advertising
services.
In order to ensure that the terms of the InterArch arrangements
are consistent with those that could be obtained from an
independent third party, and in accordance with the Articles, the
contractual arrangements with InterArch are subject to an annual
review by the Audit Committee using benchmarking reviews conducted
by independent third parties. For the architectural design
contract, which covers the build and design of stores, a 'big four'
professional services firms carries out the benchmarking review.
For 2019 the Audit Committee has concluded that the contracts for
services with InterArch are at arm's length and are at least as
beneficial as those which could be obtained in the market from an
alternative supplier.
The creative and brand services contract and architectural
design service contract will end on 27 February 2020. In order to
ensure the smooth transition to new providers, the Group will be
entering into a short agreement with InterArch to support the
transition until the end of June 2020.
17. Post balance sheet events
Following changes to the Group's strategy a revised business
case was submitted to BCR in respect of the GBP120 million grant it
previously awarded the Group as part of the Capability and
Innovation fund (part of the RBS alternative remedies package). The
proposal put forward was accepted by BCR on the 25 February 2020 as
part of which the public commitments were amended. As part of this
it was agreed that GBP50 million of the grant would be returned to
BCR. The approval of the new proposal by the Board and its
acceptance by BCR post year-end is considered an adjusting event
and as such the GBP50 million to be repaid is classified within
other liabilities as at 31 December 2019. All of the sums
recognised to date, either in the income statement or offset
against capital expenditure are still components of the revised
commitments and as such no adjustments to these amounts has been
made.
Key capital disclosures
The information set out within this section does not form part
of the statutory accounts for the years ended 31 December 2019 or
31 December 2018.
Key Metrics
The table below summarises the key regulatory metrics.
31 December 31 December
2019 2018
GBP'million GBP'million
Available capital
CET1 capital 1,427 1,171
Tier 1 capital 1,427 1,171
Total capital 1,676 1,420
Risk weighted assets ("RWAs")
Total risk weighted assets 9,147 8,936
Risk-based capital ratios as %
of RWAs
CET1 ratio 15.6 % 13.1%
Tier 1 ratio 15.6 % 13.1%
Total capital ratio 18.3 % 15.9%
Additional CET1 buffer requirements
as % of RWAs
Capital conservation buffer requirement 2.5 % 1.875%
Countercyclical buffer requirement 0.99 % 0.98%
Total of bank CET1 specific buffer
requirements 3.49 % 2.855%
Leverage ratio
Leverage ratio 6.6 % 5.4%
Liquidity coverage ratio
Liquidity coverage ratio ("LCR") 197 % 139%
Capital
Overall total capital resources have increased by GBP256 million
in 2019 mainly due to GBP375 million of equity raised in May 2019,
partially offset by current year losses of GBP183 million
RWA & CET1 ratio
The increase in RWAs during the year is mainly driven by the
increase in Operational Risk RWAs.
CET1 ratio increased to 15.6% at the end of 2019 up from 13.1%
in 2018.
Buffer
Total CET1 buffers requirement 3.49% have increased due to:
-- The Capital conservation buffer requirement increased to 2.5%
on 1st January 2019. During 2018 this requirement was 1.875%.
-- The UK Countercyclical Buffer (CcyB) requirement has remained
static at 1% during 2019. The 0.99% shown in the table above is the
weighted average of CcyB's issued by various countries.
Leverage Ratio
The table below shows the bank's Tier 1 Capital and Total
Leverage Exposure that are used to derive the Leverage Ratio. The
leverage ratio is the ratio of Tier 1 Capital to Total Leverage
exposure.
31 December 31 December
2019 2018
GBP'million GBP'million
Common equity tier 1 capital 1,427 1,171
Additional tier 1 capital - -
Tier 1 capital 1,427 1,171
CRD IV Leverage exposure 21,506 21,704
Leverage ratio 6.6 % 5.4%
The leverage ratio is 6.6% which is in excess of the Basel
Committee's minimum capital requirement of 3.0% and the bank's
strategic target of maintaining a UK leverage ratio of greater than
4.0%.
Liquidity coverage ratio
The table below shows the bank's Total HQLA and total net cash
outflow that are used to derive the liquidity coverage ratio.
31 December 31 December
2019 2018
GBP'million GBP'million
Total HQLA 3,356 3,489
Total net cash outflow 1,708 2,506
Liquidity coverage ratio ("LCR") 197 % 139%
The LCR was 197% at 31(st) December 2019 which exceeds the Basel Committee's minimum of 100%.
The bank's liquidity requirement, based on the LCR calculation,
has reduced reflecting the higher proportion of sticky retail
deposits and SME deposits at December 2019 versus December
2018.
Overview of RWAs and capital requirements
The table below sets out the risk weighted assets and Pillar 1
capital requirements for Metro Bank. The bank has applied the
standardised approach to measure credit risk and the basic
indicator approach to measure operational risk. Under the approach
the bank calculates its Pillar 1 capital requirement based on 8% of
total RWAs. This covers credit risk, operational risk, market risk
and counterparty credit risk.
Pillar 1
capital
required
31 December 31 December 31 December
2019 2018 2019
GBP'million GBP'million GBP'million
Credit risk (excluding counterparty
credit risk (CCR)) 8,591 8,560 687
Of which the standardised
approach 8,591 8,560 687
CCR 4 2 -
Of which mark to market 3 2 -
Of which CVA 1 - -
Market risk 6 3 -
Operational risk 546 370 44
Of which basic indicator approach 546 370 44
Amounts below the thresholds - - -
for deduction (subject to
250% risk weight)
Total 9,147 8,936 731
The increase of GBP211 million in the RWAs is mainly due to
increase in Operational Risk RWAs resulting from Revenue growth
over the three year period that the standard multiplier for the
calculation is based on.
Credit risk exposures by exposure class 2019
The Pillar 1 capital requirement for Credit Risk is set out in
the table below. The Pillar 1 requirement in respect of credit risk
is based on 8% of the RWAs for each of the following standardised
exposure classes.
Capital
Exposures subject to the standardised Exposure Value RWA Required
approach GBP'million GBP'million GBP'million
Central governments or central
banks 3,200 - -
Institutions 212 42 3
Corporates 764 683 55
Retail 608 414 33
Secured by mortgages on immovable
property 13,526 6,005 480
Covered bonds 469 47 4
Claims on institutions and - - -
corporates with a short-term
credit assessment
Securitisation position 1,580 316 25
Exposure at default 93 95 8
Items associated with particularly
high risk 18 27 2
Other exposures 999 962 77
Total 21,469 8,591 687
Credit risk exposures by exposure class 2018
Exposure Capital
Exposures subject to the standardised Value RWA Required
approach GBP'million GBP'million GBP'million
Central governments or central
banks 2,652 - -
Institutions 188 38 3
Corporates 633 574 46
Retail 859 565 45
Secured by mortgages on immovable
property 12,989 6,015 482
Covered bonds 507 51 4
Claims on institutions and
corporates with a short-term
credit assessment 134 66 5
Securitisation position 3,061 595 48
Exposure at default 59 65 5
Other exposures 622 591 47
Total 21,704 8,560 685
Total credit risk exposures at the end of 2019 have decreased by
GBP235 million primarily driven by the sale of GBP1.5 billion of
Treasury assets but this is partially offset by increases on
lending secured on immovable property GBP574 million and increases
in cash held with central banks GBP548 million.
Overall the RWAs have remained relatively flat. There was an
increase in other assets due to the adoption of IFRS 16 lease
accounting during 2019 but this was offset by the sale of Treasury
Assets.
Capital Resources
The table below summarises the composition of regulatory
capital.
31 December 31 December
2019 2018
GBP'million GBP'million
Share capital and premium 1,964 1,605
Retained earnings (210) (236)
(Loss)/profit for the year(18) (183) 27
Available for sale reserve (2) (3)
Other reserves 14 10
Intangible assets (168) (197)
Net deferred tax assets/deferred
tax liabilities 4 (47)
Other regulatory adjustments 8 12
CET 1 capital 1,427 1,171
Tier 1 capital 1,427 1,171
Tier 2 capital 249 249
Total capital resources 1,676 1,420
The bank's capital adequacy was in excess of the minimum
required by the regulators at all times.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SELSIMESSESE
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