TIDM95VC TIDMBN65
RNS Number : 1744H
Santander UK Group Holdings PLC
26 July 2023
The information contained in this report is unaudited and does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006 ('the Act'). The statutory accounts for
the year ended 31 December 2022 have been filed with the Registrar
of Companies. The report of the auditor on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
This report provides a summary of the unaudited business and
financial trends for the six months ended 30 June 2023 for
Santander UK Group Holdings plc and its subsidiaries (Santander
UK), including its principal subsidiary Santander UK plc. The
unaudited business and financial trends in this statement only
pertain to Santander UK on a statutory basis (the statutory
perimeter). Unless otherwise stated, references to results in
previous periods and other general statements regarding past
performance refer to the business results for the same period in
2022.
This report contains non-IFRS financial measures that are
reviewed by management in order to measure our overall performance.
These are financial measures which management believe provide
useful information to investors regarding our results and are
outlined as Alternative Performance Measures in Appendix 1. These
measures are not a substitute for IFRS measures. A list of
abbreviations is included at the end of this report and a glossary
of terms is available at:
https://www.santander.co.uk/about-santander/investor-relations/glossary
Santander UK Group Holdings plc
Quarterly Management Statement
for the six months ended 30 June 2023
Paul Sharratt Head of Investor Relations ir@santander.co.uk
Stewart Todd Head of External Affairs mediarelations@santander.co.uk
For more information: See Investor Update presentation www.santander.co.uk
Mike Regnier, Chief Executive Officer, commented:
"We maintained our focus on supporting our customers during the
first half of the year, working to provide products and services to
meet their needs in the current climate. We know that the ongoing
volatility in the mortgage market and continuing inflationary
pressures are creating challenges, and we encourage anyone facing
difficulties to get in touch as soon as possible. We are pleased to
be supporting the UK Government's new Mortgage Charter, in addition
to the measures we have already put in place.
"While the wider economy has continued to be unsettled we have
maintained our prudent approach to risk, while taking a sensible
approach to managing our mortgage book. Our Corporate and
Commercial Banking business has performed strongly, with our
Navigator platform helping to increase the number of customers
expanding internationally. Our new Edge Up current account and
simplified range of savings products paying up to 5% interest have
demonstrated our commitment to providing value and we intend to
continue this with the adoption of Consumer Duty.
"These results reflect our prudent approach in an economically
uncertain environment which is set to remain for the rest of 2023,
impacting consumer spending and the housing market. However, the UK
labour market remains strong and our customers have continued to
show resilience. We will continue to prioritise providing them with
the best support we can."
H1-23 financial and business highlights
We continued to help and support our customers facing the
pressures of the current environment
-- Built on the range of borrower support we already have in place
and signed up to the new Mortgage Charter.
-- Proactively contacted 1.8 million customers this year to offer support
with the increased cost of living.
-- Edge Up current account launched with 3.5% interest rate on deposits
and cashback benefits.
-- Refurbishment programme across our branch network providing customers
with improved facilities and service.
-- NPS ranked 5(th) for Retail and 1(st) for Business & Corporate.
Customer service is integral to our strategy and remains a key area
of focus(1) .
Good set of results with profit before tax of GBP1,173m (H1-22:
GBP993m), higher income partially offset by higher costs and
provisions
-- Banking NIM(2) up 18bps to 2.21% (H1-22: 2.03%) largely driven by
base rate increases.
-- CIR(2) improved to 46% (H1-22: 49%) as higher income and transformation
programme savings more than offset the cost of inflation.
Adjusted CIR(2) of 44% (H1-22: 46%).
-- Invested GBP97m in our transformation programme in H1-23 (H1-22:
GBP101m).
-- Credit impairment charges down GBP13m to GBP105m with cost of risk(2)
of 14bps (H1-22: -2bps), no material deterioration in credit quality.
-- Profit before tax up 18%, RoTE(2) of 15.3% (2022: 12.0%). Adjusted
profit(2) before tax up 16%, adjusted RoTE (2) of 15.8% (2022: 14.1%).
Customer loans and deposits reduced following market trends and
our disciplined pricing actions
-- With a slower housing market and higher mortgage rates, applications
fell in the first half of the year.
-- Our decision to optimise the balance sheet given higher funding
costs has seen mortgage lending reduce by GBP8.4bn.
-- Customer deposits decreased by GBP5.8bn to GBP190.7bn with increased
market competition.
-- As a result of these changes, our LDR reduced to 112% (Dec-22: 113%).
Our strategy delivers strong liquidity, funding and capital with
prudent balance sheet management
-- Strong LCR of 160% (2022: 163%) with liquidity pool of GBP50.2bn
(2022: GBP49.0bn), 81% cash and central bank reserves (2022: 91%).
-- Customer deposits mainly retail with low average balances, 85% of
these are covered by depositor guarantee scheme (FSCS).
-- 85% of lending is prime UK retail mortgages with an average LTV
of 51% (2022: 50%). Unsecured retail constitutes 2% of lending.
-- Corporate customers are diversified across operating sectors. Stable
CRE portfolio: 2% of customer loans and with 48% average LTV.
-- Resilient asset quality with low arrears across all portfolios.
Stage 3 ratio of 1.38% (2022: 1.24%).
-- CET1 capital ratio of 15.4% (2022: 15.2%) and UK leverage ratio
of 5.3% (2022: 5.2%), well above regulatory requirements.
-- Repaid GBP4.0bn TFSME in Q2-23 with GBP21.0bn outstanding. Stable
and diversified wholesale funding programmes.
-- Passed the Bank of England's 2022/23 ACS Stress Test with no management
actions required.
Looking ahead
-- The challenges faced by households and businesses are expected to
continue.
-- Inflation is likely to reduce real consumer spending and we expect
further declines in house prices in 2023.
-- LDR is expected to trend lower and Banking NIM (2) to be higher
than 2022 reflecting base rate increases and disciplined pricing
actions.
-- Going forward we expect inflationary pressures on operating expenses
to be partially offset by transformation programme savings.
1. See page 12 for more on NPS.
2. Non-IFRS measure. See Appendix 1 for details and a reconciliation
of APMs to the nearest IFRS measure.
Summarised consolidated income statement
H1-23 vs H1-22 Adjusted(2)
-----------------------------------------------------------------
H1-23 H1-22 Change H1-23 H1-22 Change
GBPm GBPm % GBPm GBPm %
---------------------------------- -------- -------- --------- -------- -------- ----------
Net interest income 2,361 2,148 10 2,361 2,148 10
Non-interest income(1) 297 267 11 294 274 7
Total operating income 2,658 2,415 10 2,655 2,422 10
Operating expenses before
credit impairment (charges)
/ write-backs, provisions
and charges (1,232) (1,186) 4 (1,167) (1,103) 6
Credit impairment (charges)
/ write-backs (105) (118) (11) (105) (118) (11)
Provisions for other liabilities
and charges (148) (118) 25 (113) (107) 6
---------------------------------- -------- --------
Profit before tax 1,173 993 18 1,270 1,094 16
-------- --------
Tax on profit (315) (233) 35
Profit after tax 858 760 13
---------------------------------- -------- -------- ---------
Banking NIM(2) 2.21% 2.03% 18bps
CIR(2) 46% 49% -3pp 44% 46% -2pp
Profit before tax up 18%
-- Net interest income up 10% largely due to the impact of higher base
rate also increasing Banking NIM(2) .
-- Non-interest income up 11% largely due to a revaluation gain of
GBP46m of our shares in Euroclear(3) .
-- Operating expenses(4) up 4% largely due to inflation, partially
offset by lower transformation programme spend in the last six months
and ongoing efficiency savings.
-- Credit impairment charges down 11% with no material deterioration
in the credit quality of the portfolios.
-- Provisions for other liabilities and charges up 25%, largely due
to higher transformation programme charges.
-- Tax on profit increased by GBP82m as a result of both higher profits
and an increase in underlying tax rates overall for the period,
2022 was also impacted favourably by a legislative reduction in
the bank surcharge rate.
Adjusted profit before tax up 16%(2)
-- After transformation related adjustments, variances are explained
above or are not material.
Summarised balance sheet 30.06.23 31.12.22
GBPbn GBPbn
------------------------------ --------- ---------
Customer loans 210.8 219.7
Other assets 73.5 72.5
Total assets 284.3 292.2
------------------------------ --------- ---------
Customer deposits 190.7 196.5
Total wholesale funding 59.9 63.0
Other liabilities 18.8 18.0
------------------------------ --------- ---------
Total liabilities 269.4 277.5
Shareholders' equity 14.9 14.7
Total liabilities and equity 284.3 292.2
------------------------------ --------- ---------
1. Comprises 'Net fee and commission income' and 'Other operating income'.
2. Non-IFRS measure. See Appendix 1 for details of APMs, a reconciliation
to the nearest IFRS measure and a prior period adjustment for H1-22.
3. Euroclear shares held at fair value were revalued in Q2-23 during
negotiations for a sale. We signed an agreement to sell a portion
of our shares in Euroclear in July 2023.
4. Operating expenses before credit impairment (charges) / write-backs,
provisions and charges.
Customer deposits by segment 30.06.23 31.12.22
GBPbn GBPbn
--------------------------------- --------- ---------
Retail Banking 155.7 161.8
- Current accounts 71.4 76.6
- Savings accounts 67.4 67.0
- Business banking accounts 11.2 12.2
- Other retail products 5.7 6.0
Corporate & Commercial Banking 23.5 24.8
Corporate Centre 11.5 9.9
Total 190.7 196.5
--------------------------------- --------- ---------
Prudent approach to risk evident across product portfolios
-- Mortgages: average stock LTV of 51% (2022: 50%) and average new
loan size of GBP225k (2022: GBP237k). c.GBP60bn of fixed rate and
tracker mortgages reach end of incentive period over the next 18
months. Most of the mortgage book was subject to a stressed affordability
assessment at origination. Average stress rate used for new mortgage
applications prior to Dec-21 was 6.35%(1) .
-- Credit cards: 57% (2022: 55%) of customers repay full balance each
month.
-- UPL: Average customer balances GBP6k (2022: GBP6k).
-- Business Banking: includes GBP2.0bn (2022: GBP2.4bn) of BBLS with
100% Government guarantee.
-- Consumer Finance: 87% (2022: 84%) of lending is collateralised on
the vehicle.
Arrears over 90 30 June 2023 31 December 2022
days past due
% %
------------------ ------------- -----------------
Mortgages 0.68 0.62
Credit cards 0.48 0.49
UPL 0.64 0.61
Overdrafts 2.26 2.24
Business Banking 2.81 3.47
Consumer Finance 0.38 0.44
------------------ ------------- -----------------
-- Slight increase in mortgages, UPL and overdraft arrears over 90
days past due. Mortgage arrears remain well below pre-Covid-19 average,
90 days past due arrears was 1.31%(2) .
H1-23 ECL provision increased by GBP12m to GBP1,019m (Dec-22:
GBP1,007m)
-- Modest increases in CCB from the single name cases that emerged
in Q4-22.
-- Gross write-off utilisation of GBP97m (H1-22: GBP71m).
Strong credit performance reflecting our longstanding prudent
approach to risk
30 June 2023 31 December 2022
------------------------------ ------------------------------
Stage Stage Stage Stage Stage Stage
Total 1 2 3(3) Total 1 2 3(3)
Customer loans GBPbn % % % GBPbn % % %
------------------------ ------ ------ ------ ------ ------ ------ ------ ------
Retail Banking 185.9 90.8 8.0 1.19 194.6 91.5 7.4 1.08
- Mortgages 178.7 91.2 7.7 1.09 187.1 91.8 7.3 0.99
- Credit Cards 2.6 84.6 14.0 2.48 2.5 85.7 12.9 2.53
- UPL 2.0 84.5 14.4 1.14 2.0 87.3 11.7 1.07
- Overdrafts 0.4 29.8 64.7 6.34 0.5 33.5 61.0 5.93
- Business Banking 2.2 88.2 5.8 6.14 2.5 88.3 5.3 6.55
Consumer Finance 5.3 92.7 6.8 0.49 5.4 93.0 6.5 0.54
Corporate & Commercial
Banking 18.4 77.9 18.6 3.66 18.5 78.3 18.8 3.08
Corporate Centre 1.2 99.7 0.2 0.09 1.2 99.6 0.3 0.10
------------------------
Total 210.8 89.8 8.9 1.38 219.7 90.4 8.4 1.24
------------------------ ------ ------ ------ ------ ------ ------ ------ ------
1. Only applied to lending with a fixed term below 5-years and also
excluded remortgages without additional lending.
2. Average of 9 years to Dec-19.
3. Non-IRFS measure. See Appendix 1 for details and a reconciliation
of APMs to the nearest IFRS measure.
Updated economic scenarios
-- The economic outlook for 2023 remains uncertain. Inflation is forecast
to remain well above the 2% target rate for 2023 putting further
pressure on real disposable income.
-- The stubborn inflation scenario is based on higher inflation, which
is persistently above the Bank of England target, and higher base
rate which is expected to peak at 7%. These further add to the cost
of living crisis and falling consumer demand.
-- The other downside scenarios capture a range of risks, including
continuing weaker investment reflecting the unstable environment;
a larger negative impact from the EU trade deal and a continuing
and significant mismatch between job vacancies and skills, as well
as a smaller labour force.
-- In Q2-23 we increased the weighting on Upside by 5% with a corresponding
decrease in downside 1 scenarios to rebalance the overall weighted
ECL and following updated economic data. All other scenario weightings
were unchanged from Q1-23.
Economic scenarios Upside Base Downside Stubborn Downside Weighted
30-Jun-23 case 1 Inflation 2
% % % % %
----------------------------- ------- ------ --------- ----------- ---------
GDP
(calendar
year annual
growth rate) 2022 4.1 4.1 4.1 4.1 4.1 4.1
2023 0.3 0.1 -0.2 -0.5 -1.6 -0.2
2024 1.1 0.3 -0.4 -1.9 -3.2 -0.5
2025 2.3 1.3 0.4 0.0 0.1 0.9
2026 2.4 1.5 0.3 0.4 1.1 1.2
Peak to
trough(1) - -0.2 -1.0 -2.8 -5.2 -1.3
Base rate
(At 31
December) 2022 3.50 3.50 3.50 3.50 3.50 3.50
2023 5.00 5.50 6.00 7.00 5.00 5.75
2024 3.75 4.75 5.25 5.50 3.00 4.68
2025 2.75 3.75 4.00 4.00 2.50 3.60
2026 2.50 3.25 3.25 3.25 2.50 3.10
5 yr Peak 5.00 5.50 6.00 7.00 5.25 5.78
HPI
(Q4 annual
growth rate) 2022 5.0 5.0 5.0 5.0 5.0 5.0
---------------
2023 -3.6 -7.0 -5.8 -7.5 -11.8 -7.1
2024 -4.4 -2.0 -7.6 -10.2 -12.9 -5.5
2025 2.0 2.0 2.0 2.0 2.0 2.0
2026 3.0 3.0 3.0 3.0 3.0 3.0
Peak to
trough(2) -10.2 -11.0 -15.0 -19.0 -25.0 -14.3
---------------------------- ------- ------ --------- ----------- --------- ---------
Unemployment
(At 31
December) 2022 3.7 3.7 3.7 3.7 3.7 3.7
---------------
2023 4.2 4.2 4.5 4.5 6.6 4.5
2024 4.2 4.5 5.0 5.7 8.3 5.1
2025 3.9 4.4 5.4 6.1 7.7 5.1
2026 3.8 4.3 5.9 6.5 7.1 5.1
5yr Peak 4.3 4.5 6.1 6.5 8.5 5.4
---------------------------- ------- ------ --------- ----------- --------- ---------
Weighting Jun-23: 10% 50% 10% 20% 10% 100%
Weighting Mar-23: 5% 50% 15% 20% 10% 100%
ECL 30-Jun-23 Upside Base Downside Stubborn Downside Weighted
case 1 Inflation 2
(100% weight to GBPm GBPm GBPm GBPm GBPm GBPm
each scenario)
------------------------ ------- ------ --------- ----------- ---------
Retail Banking 451 478 535 606 752 530
Consumer Finance 71 72 71 75 75 73
Corporate & Commercial
Banking 382 394 428 458 504 416
Corporate Centre - - - - - -
------------------------ ------- ------ --------- ----------- --------- ---------
Total 904 944 1,034 1,139 1,331 1,019
------------------------ ------- ------ --------- ----------- --------- ---------
1. Peak is taken from GDP level at Q1-23.
2. Peak is taken from HPI level at Q3-22.
Treasury
Highly liquid balance sheet
-- Strong LCR of 160%, (Dec-22: 163%), with GBP18.6bn LCR eligible
liquid assets surplus to minimum requirement.
-- LCR eligible liquidity pool of GBP50.2bn (Dec-22: GBP49.0bn), includes
GBP40.7bn cash and central bank reserves (Dec-22: GBP44.5bn). Remaining
assets predominantly Sterling and USD denominated government bonds
and covered bonds.
-- Term duration in the LCR eligible liquidity pool is hedged with
swaps to offset mark to market movements from interest rate changes.
Strong and diversified funding across well-established issuance
programmes
-- LDR reduced to 112% with lower customer lending and deposits after
pricing actions in Q4-22 to optimise the customer balance sheet
with mortgages down GBP8.4bn and deposits down GBP5.8bn.
-- Repaid GBP4.0bn TFSME in Q2-23 with GBP21.0bn remaining. GBP17.1bn
due for repayment by 2025 and the remaining GBP3.9bn due for repayment
between 2027 and 2031.
-- In H1-23 we issued c.GBP3.8bn Sterling equivalent medium term funding,
including c.GBP1bn of MREL issuance and c.GBP2.8bn of other secured
issuance from Santander UK plc. We also issued GBP300m Tier 2 which
was bought by Banco Santander.
-- We expect to issue GBP1.5bn to GBP2.0bn of MREL in 2023.
Capital ratios well above regulatory requirements
-- In the 2022/23 BoE ACS stress test, our lowest post-stress CET1
capital ratio was modelled to be 11.3% before management actions
in excess of the CET1 hurdle rate established by the BoE of 8.1%.
-- The CET1 capital ratio increased 20bps to 15.4%. This was largely
due to higher profit. We remain strongly capitalised with significant
headroom to minimum requirements and MDA.
-- UK leverage ratio remained broadly stable at 5.3% (2022: 5.2%).
UK leverage exposure reduced slightly to GBP245.7bn (2022: GBP248.6bn).
-- Total capital ratio remained broadly stable at 20.3% (2022: 20.4%).
Structural hedge evolution
-- Our structural hedge position decreased, with c.GBP100bn at Jun-23
(Dec-22: c.GBP108bn), and duration of c.2.5 years (Dec-22: c.2.5
years).
Key metrics 30 June 2023 31 December
2022
GBPbn % GBPbn %
-------------------------------------- ------ ----------- -------- -----------
LCR 50.2 160 49.0 163
CET1 capital 11.1 15.4 10.8 15.2
Total qualifying regulatory capital 14.6 20.3 14.5 20.4
UK leverage 13.1 5.3 12.9 5.2
RWA 72.0 - 71.2 -
LDR - 112 - 113
Total wholesale funding and AT1 62.1 - 65.2 -
- term funding 54.7 - 57.8 -
- TFSME 21.0 - 25.0 -
- with a residual maturity of
less than one year 13.0 - 11.0 -
-------------------------------------- ------ ----------- -------- -----------
Summarised changes to CET1 capital
ratio
Profit net of distributions +0.51pp
Pension -0.11pp
Expected loss less provisions -0.06pp
RWA growth and other -0.19pp
------------------------------------- ---------- --------------- -----------------
CET1 capital ratio MDA trigger Minimum
(headroom 4.2%) %
---------------------------------- --------------------------------------
Pillar 1 4.5
Pillar 2A 3.2
Capital conservation buffer 2.5
Countercyclical capital
buffer 1.0
------------------------------ ------------------------------------------
Current MDA trigger 11.2
------------------------------ ------------------------------------------
Summary income statement by segment
H1-23 Retail Consumer CCB Corporate Total
Banking Finance Centre
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- --------- --------- ------ ---------- --------
Net interest income 1,873 79 405 4 2,361
Non-interest income(1) 85 100 67 45 297
Total operating income 1,958 179 472 49 2,658
Operating expenses before credit
impairment (charges) / write-backs,
provisions and charges (912) (73) (170) (77) (1,232)
Credit impairment (charges)
/ write-backs (55) (14) (36) - (105)
Provisions for other liabilities
and charges (106) (3) 4 (43) (148)
Profit / (loss) before tax 885 89 270 (71) 1,173
-------------------------------------- --------- --------- ------ ---------- --------
H1-22(2) Retail Consumer CCB Corporate Total
Banking Finance Centre
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- --------- --------- ------ ---------- --------
Net interest income 1,792 92 241 23 2,148
Non-interest income(1) 107 101 70 (11) 267
Total operating income 1,899 193 311 12 2,415
Operating expenses before credit
impairment (charges) / write-backs,
provisions and charges (832) (73) (181) (100) (1,186)
Credit impairment (charges)
/ write-backs (126) (13) 20 1 (118)
Provisions for other liabilities
and charges (101) - (2) (15) (118)
Profit / (loss) before tax 840 107 148 (102) 993
-------------------------------------- --------- --------- ------ ---------- --------
RWA by segment 30.06.23 31.12.22
GBPbn GBPbn
------------------------------------------------------------ ---------- ----------
Retail Banking 44.5 44.6
Consumer Finance 7.7 7.3
Corporate & Commercial Banking 14.5 14.0
Corporate Centre 5.3 5.3
Total 72.0 71.2
------------------------------------------------------------ ---------- ----------
1. Comprises 'Net fee and commission income' and 'Other operating income'.
2. In December 2022, we transferred social housing loans, and non-core
liabilities to our CCB segment from Corporate Centre to reflect
the way these assets are managed, and restated comparatives accordingly.
This resulted in an increase in H1-22 profit before tax in CCB of
GBP1m and an equal but opposite impact in Corporate Centre.
Appendix 1 - Alternative Performance Measures
In addition to the financial information prepared under IFRS,
this Quarterly Management Statement contains non-IFRS financial
measures that constitute APMs, as defined in ESMA guidelines. The
financial measures contained in this report that qualify as APMs
have been calculated using the financial information of the
Santander UK group but are not defined or detailed in the
applicable financial information framework or under IFRS.
We use these APMs when planning, monitoring, and evaluating our
performance. We consider these APMs to be useful metrics for
management and investors to facilitate operating performance
comparisons from period to period. Whilst we believe that these
APMs are useful in evaluating our business, this information should
be considered as supplemental in nature and is not meant as a
substitute for IFRS measures.
a) Adjusted profit metrics
As shown in the table below, profit before tax is adjusted for
items management believe to be significant. We adjust for these to
facilitate operating performance comparisons from period to
period.
Ref. H1-23 H1-22
GBPm GBPm
---------------------------------------- ------- -------- --------
Non-interest income
Reported (i) 297 267
Adjust for transformation related
net loss / (gain) on sale of property (3) 7
Adjusted (ii) 294 274
---------------------------------------- ------- -------- --------
Operating expenses before credit
impairment (charges) / write-backs,
provisions and charges
Reported (iii) (1,232) (1,186)
Adjust for transformation 65 83
Adjusted (iv) (1,167) (1,103)
---------------------------------------- ------- -------- --------
Provisions for other liabilities
and charges
Reported (148) (118)
Adjust for transformation 35 11
Adjusted (113) (107)
------------------------------------------------- -------- --------
Profit before tax
Reported 1,173 993
Adjust for transformation 97 101
Adjusted 1,270 1,094
------------------------------------------------- -------- --------
Prior period adjustment: In Q1-23 we removed the operating lease
depreciation adjustment to non-interest income and operating
expenses to align to Banco Santander's presentation. Prior periods
were restated, there was no impact on adjusted profit. In H1-22
adjusted non-interest income and adjusted operating expenses
increased by GBP42m and the adjusted CIR increased by 1p.p. to
46%.
Net loss / (gain) on sale of property: previously named 'net
gain on sale of London head office and branch properties', now also
includes subsequent sale of property under our transformation
programme.
Transformation costs and charges: relate to a multi-year project
to deliver on our strategic priorities and enhance efficiency in
order for us to better serve our customers and meet our medium-term
targets.
Adjusted CIR
Calculated as adjusted total operating expenses before credit
impairment (charges) / write-backs, provisions and charges as a
percentage of the total of net interest income and adjusted
non-interest income. We consider this metric useful for management
and investors as an efficiency measure to capture the amount spent
to generate income, as we invest in our multi-year transformation
programme.
Ref. H1-23 H1-22
(iii) divided by the sum of (i)
CIR + net interest income 46% 49%
Adjusted (iv) divided by the sum of (ii)
CIR + net interest income 44% 46%
b) Adjusted RoTE
Calculated as adjusted profit after tax attributable to equity
holders of the parent, divided by average shareholders' equity less
non-controlling interests, other equity instruments and average
goodwill and other intangible assets. We consider this adjusted
measure useful for management and investors as a measure of income
generation on shareholder investment, as we focus on improving
returns through our multi-year transformation programme.
H1-23 Adjust for As adjusted
transformation
GBPm GBPm GBPm
Profit after tax 858 71 929
Annualised profit after tax 1,730 1,872
Phasing adjustments (33) (91)
Profit / adjusted profit due
to equity holders of the parent
(A) 1,697 1,781
---------------------------------- -------- ------------------- ------------
H1-23 Equity adjustments As adjusted
GBPm GBPm GBPm
Average shareholders' equity 14,812
Less average Additional Tier
1 (AT1) securities (2,196)
Average ordinary shareholders'
equity (B) 12,616
Average goodwill and intangible
assets (1,550)
---------------------------------- -------- ------------------- ------------
Average tangible equity (C) 11,066 223 11,289
---------------------------------- -------- ------------------- ------------
Return on ordinary shareholders' 13.5% -
equity (A/B)
RoTE (A/C) 15.3% 15.8%
2022 Adjust for As adjusted
transformation
GBPm GBPm GBPm
Profit after tax 1,423 254 1,677
Less non-controlling interests
of annual profit (17) (17)
Profit / adjusted profit due
to equity holders of the parent
(A) 1,406 1,660
---------------------------------- -------- ------------------- ------------
2022 Equity adjustments As adjusted
GBPm GBPm GBPm
Average shareholders' equity 15,545
Less average Additional Tier
1 (AT1) securities (2,194)
Less average non-controlling
interests (118)
Average ordinary shareholders'
equity (B) 13,233
Average goodwill and intangible
assets (1,548)
---------------------------------- -------- ------------------- ------------
Average tangible equity (C) 11,685 63 11,748
---------------------------------- -------- ------------------- ------------
Return on ordinary shareholders' 10.6% -
equity (A/B)
RoTE (A/C) 12.0% 14.1%
Adjustment for transformation
Details of these items are outlined in section a) of Appendix 1,
with a total impact on profit before tax of GBP97m. The impact of
these items on the taxation charge was GBP26m and on profit after
tax was GBP71m. Tax is calculated at the standard rate of
corporation tax including the bank surcharge, except for items such
as conduct provisions which are not tax deductible.
Equity adjustments
These adjustments are made to reflect the impact of adjustments
to profit on average tangible equity.
c) Other non-IFRS measures and their calculations
-- Banking NIM : Annualised net interest income divided by average
customer loans for the period.
(H1-23 : GBP215,299m; H1-22: GBP213,881m) .
-- Cost of risk: Credit impairment (charges) divided by write-backs
for the 12-month period as a percentage of average customer loans
for the last 12 months. (H1-23 : GBP217,241m; H1-22: GBP211,748m)
.
-- Cost-to-income ratio: Total operating expenses before credit impairment
(charges) divided by write-backs, provisions and charges as a percentage
of the total of net interest income and non-interest income.
-- RoTE: Profit after tax attributable to equity holders of the parent,
divided by average shareholders' equity less non-controlling interests,
other equity instruments and average goodwill and other intangible
assets.
-- Non-interest income: Net fee and commission income plus other operating
income.
-- Stage 3 ratio: The sum of Stage 3 drawn and Stage 3 undrawn assets
divided by the sum of total drawn assets and Stage 3 undrawn assets.
Appendix 2 - Additional information
30.06.23 31.12.22
Mortgage metrics
-------------------------------------------- ----------- -----------
Stock average LTV(1) 51% 50%
New business average LTV(1) 65% 69%
London lending new business average LTV(1) 63% 66%
BTL proportion of loan book 9% 9%
Fixed rate proportion of loan book 89% 89%
Variable rate proportion of loan book 7% 7%
SVR proportion of loan book 3% 3%
FoR proportion of loan book 1% 1%
Proportion of customers with a maturing
mortgage retained(2) 79% 81%
Average loan size (stock) GBP185k GBP184k
Average loan size (new business) GBP225k GBP237k
-------------------------------------------- ----------- -----------
Customer loans by segment 30.06.23 31.12.22
GBPbn GBPbn
------------------------------------------------------ --------- ---------
Retail Banking 185.9 194.6
- Mortgages 178.7 187.1
- Other (Business Banking and unsecured lending) 7.2 7.5
Consumer Finance 5.3 5.4
Corporate & Commercial Banking 18.4 18.5
Corporate Centre 1.2 1.2
------------------------------------------------------ --------- ---------
Total 210.8 219.7
------------------------------------------------------ --------- ---------
Interest rate risk
NII sensitivity(3) H1-23 2022
GBPm GBPm
+100bps 211 238
-100bps (215) (194)
-------------------- ------ ------
Well positioned in a rising interest rate environment
-- The table above shows how our net interest income would be affected
by a 100bps parallel shift (both up and down) applied instantaneously
to the yield curve. Sensitivity to parallel shifts represents the
amount of risk in a way that we think is both simple and scalable.
1. Balance weighted LTV.
2. Applied to mortgages four months post maturity and is calculated
as a 12-month average of retention rates to Mar-23 and Dec-22 respectively.
3. Based on modelling assumptions of repricing behaviour.
List of abbreviations
ACS Annual Cyclical Scenario
APM Alternative Performance Measure
AT1 Additional Tier 1
BBLS Bounce Back Loan Scheme
Banco Santander Banco Santander S.A.
Banking NIM Banking Net Interest Margin
BTL Buy-To-Let
CCB Corporate & Commercial Banking
CET1 Common Equity Tier 1
CIB Corporate & Investment Banking
CIR Cost-To-Income Ratio
CRE Commercial Real Estate
ECL Expected Credit Losses
ESMA European Securities and Markets Authority
EU European Union
FoR Follow on Rate
FCA Financial Conduct Authority
FSCS Financial Services Compensation Scheme
GDP Gross Domestic Product
HPI House Price Index
IFRS International Financial Reporting Standards
JAs Judgemental Adjustments
LCR Liquidity Coverage Ratio
LDR Loan-to-deposit Ratio
LTV Loan-To-Value
n.m. Not meaningful
MDA Maximum Distributable Amount
MREL Minimum Requirement for own funds and
Eligible Liabilities
NPS Net Promoter Score
PRA Prudential Regulation Authority
QMS Quarterly Management Statement
RFB Ring-Fenced Bank (Santander UK plc)
RoTE Return on Tangible Equity
RWA Risk-Weighted Assets
Santander Santander UK Group Holdings plc
UK
SLB Santander London Branch
SVR Standard Variable Rate
TFSME Term Funding Scheme with additional
incentives for SMEs
UK United Kingdom
UPL Unsecured personal loans
Retail NPS: Our customer experience research was subject to
independent third party review. We measured the main banking NPS of
15,588 consumers on a six month basis using a 11-point scale (%Top
2 - %Bottom 7). The reported data is based on the six months ending
30 June 2023, and the competitor set included in the ranking
analysis is Barclays, Halifax, HSBC, Lloyds Bank, Nationwide,
NatWest Group and TSB. RBS was amalgamated into NatWest Group from
January 2023 resulting in a reduced number of competitors from 9 to
8 (including Santander).
June 2023: NPS ranked 5(th) for Retail, we note a margin of
error which impacts those from 3(rd) to 7(th) and makes their rank
statistically equivalent.
December 2022: NPS ranked 6(th) for Retail, we note a margin of
error which impacts those from 4(th) to 6(th) and makes their rank
statistically equivalent.
Business & Corporate NPS: Business and corporate NPS is
measured by the MarketVue Business Banking from Savanta. This is an
ongoing telephone based survey designed to monitor usage and
attitude of UK businesses towards banks. 14,500 structured
telephone interviews are conducted each year among businesses of
all sizes from new start-ups to large corporates. The data is based
upon 8,673 interviews made in twelve months ended 23 June 2023 with
businesses turning over from GBP0 - GBP500m per annum and are
weighted by region and turnover to be representative of businesses
in Great Britain. NPS recommendation score is based on an 11-point
scale (%Top 2 - %Bottom 7).
The competitor set included in this analysis is Barclays, RBS,
HSBC, Lloyds Bank and NatWest.
June 2023: NPS ranked 1(st) for Business & Corporate.
December 2022: NPS ranked 1(st) for Business &
Corporate.
Additional information about Santander UK and Banco
Santander
Santander UK is a financial services provider in the UK that
offers a wide range of personal and commercial financial products
and services. At 30 June 2023, the bank had around 19,400 employees
and serves around 14 million active customers, 7 million digital
customers via a nationwide 445 branch network, telephone, mobile
and online banking. Santander UK is subject to the full supervision
of the FCA and the PRA in the UK. Santander UK plc customers'
eligible deposits are protected by the FSCS in the UK.
Banco Santander (SAN SM, STD US, BNC LN) is a leading retail and
commercial bank, founded in 1857 and headquartered in Spain and is
one of the largest banks in the world by market capitalization. Its
primary segments are Europe, North America, South America and
Digital Consumer Bank, backed by its secondary segments: Santander
Corporate & Investment Banking (Santander CIB), Wealth
Management & Insurance (WM&I) and PagoNxt. Its purpose is
to help people and businesses prosper in a simple, personal and
fair way. Banco Santander is building a more responsible bank and
has made a number of commitments to support this objective,
including raising over EUR120 billion in green financing between
2019 and 2025, as well as financially empowering more than 10
million people over the same period.
At 31 March 2023, Banco Santander had more than 1.2 trillion
euros in total funds, 161 million customers, of which 27 million
are loyal and 52 million are digital, 9,000 branches and over
210,000 employees.
Banco Santander has a standard listing of its ordinary shares on
the London Stock Exchange and Santander UK plc has preference
shares listed on the London Stock Exchange.
None of the websites referred to in this Quarterly Management
Statement, including where a link is provided, nor any of the
information contained on such websites is incorporated by reference
in this Quarterly Management Statement.
Disclaimer
Santander UK Group Holdings plc (Santander UK), Santander UK plc
and Banco Santander caution that this announcement may contain
forward-looking statements. Such forward-looking statements are
found in various places throughout this announcement. Words such as
"believes", "anticipates", "expects", "intends", "aims" and "plans"
and other similar expressions are intended to identify
forward-looking statements, but they are not the exclusive means of
identifying such statements. Forward-looking statements include,
without limitation, statements concerning our future business
development and economic performance. These forward-looking
statements are based on management's current expectations,
estimates and projections and Santander UK, Santander UK plc and
Banco Santander caution that these statements are not guarantees of
future performance. We also caution readers that a number of
important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements. We have identified
certain of these factors in the forward-looking statements on page
271 of the Santander UK Group Holdings plc 2022 Annual Report.
Investors and others should carefully consider the foregoing
factors and other uncertainties and events. Undue reliance should
not be placed on forward-looking statements when making decisions
with respect to Santander UK, Santander UK plc, Banco Santander
and/or their securities. Such forward-looking statements speak only
as of the date on which they are made, and we do not undertake any
obligation to update or revise any of them, whether as a result of
new information, future events or otherwise. Statements as to
historical performance, historical share price or financial
accretion are not intended to mean that future performance, future
share price or future earnings for any period will necessarily
match or exceed those of any prior quarter.
Santander UK is a frequent issuer in the debt capital markets
and regularly meets with investors via formal roadshows and other
ad hoc meetings. In line with Santander UK's usual practice, over
the coming quarter it expects to meet with investors globally to
discuss this Quarterly Management Statement, the results contained
herein and other matters relating to Santander UK.
Nothing in this announcement constitutes or should be construed
as constituting a profit forecast.
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END
IR RAMPTMTITBLJ
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