LEI: 213800WTQKOQI8ELD692
OneSavings Bank plc - 2022 Annual Report and Accounts
In compliance with its obligations under Sections 4.1.3 and 6.3.5(1) of the Disclosure Guidelines and Transparency Rules, OneSavings Bank plc (the "Company") hereby releases the unedited full text of its 2022 Annual Report and Financial Statements ended 31 December 2022.
The document is now available on the company's website at:
A copy of the above document has been filed with the National Storage Mechanism and will be available for inspection shortly at:
Requests:
OSB GROUP PLC
Nickesha Graham-Burrell
Group manager company secretariat t: 01634 835 796
Investor Relations
E-Mail: t: 01634 838 973
Braunschweig
Robin Wrench/Simone Selzer t: 020 7404 5959
Über OSB GROUP PLC
OSB began trading as a bank on 1 February 2011 and was admitted to the main market of the London Stock Exchange in June 2014 (OSB.L). OSB was included in the FTSE 250 Index in June 2015. On October 4, 2019, OSB acquired Charter Court Financial Services Group plc (CCFS) and its subsidiaries. On November 30, 2020, OSB GROUP PLC became the publicly traded entity and holding company of OSB Group. The group provides retail specialty lending and savings and is authorized by the Prudential Regulation Authority, part of the Bank of England, and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The group reports in two segments, OneSavings Bank and Charter Court Financial Services.
A savings bank
OSB primarily targets market sub-sectors that offer high growth potential and attractive risk-adjusted returns, where it can take a leading position and where it has established expertise, platforms and capabilities. These include private rental buy-to-let, commercial and semi-commercial mortgages, home finance, customized and specialty home finance, secured lines of finance and asset finance.
OSB originates mortgages organically through specialist brokers and independent financial advisors through its specialist brands, including Kent Reliance for Intermediaries and InterBay Commercial. It features highly skilled, bespoke underwriting and an efficient operating model.
OSB is funded primarily by retail savings, coming through the long-established Kent Reliance name, which includes online and postal channels and a network of branches across the south east of England. Funding is currently being diversified through securitization schemes and the Bank of England's Term Funding Scheme with additional incentives for SMEs.
Charter Court Financial Services Group
CCFS is focused on providing buy-to-let and specialty residential mortgages, mortgage services, administration and savings products to retail customers. It operates through its brands: Precise Mortgages and Charter Savings Bank.
It features risk management expertise and world-class automated technologies and systems that ensure efficient processing, strong credit and collateral risk controls, and the speed of product development and innovation. These factors have enabled strong balance sheet growth while maintaining high credit quality mortgage investments.
CCFS is predominantly funded by retail savings originated through its Charter Savings Bank brand. Diversification of funding is currently provided by securitisation programmes and the Bank of England’s Term Funding Scheme with additional incentives for SMEs.
OneSavings Bank plc
Annual report and financial statements
For the year ended December 31, 2022
Company number: 07312896
| company information | 2 |
| Strategic Report | 3 |
| Directors' Report | 70 |
| Statement of the directors' responsibilities in relation to the strategy report, the directors' report and the financial statements | 76 |
| Report of the independent auditor | 77 |
| statement of comprehensive income | 92 |
| Presentation of the financial situation | 93 |
| Statement of Changes in Equity | 94 |
| cash flow statement | 96 |
| Notes to the Financial Statements | 97 |
| DIRECTORS | Graham Allatt Kalvinder Atwal Andreas Golding Noel Harwerth Sarah Hecker Rajan Kapoor Maria McNamara April Talintyre Simon Walker David Weymouth |
| COMPANY SECRETARY | Jason Elfick |
| REGISTERED OFFICE | house of trust Sound Pier Chatham Kent ME4 4ET Great Britain |
| REGISTERED NUMBER | 07312896 (England and Wales) |
| AUDITORS | Deloitte LLP |
| auditor | |
| Birmingham Great Britain |
The Directors present their annual report, including the strategy report, the Directors' report and the Directors' statement of responsibilities, together with the audited consolidated financial statements and auditor's report for the year ended 31 December 2022.
OneSavings Bank plc (the Company or OSB) is a wholly owned subsidiary of OSB GROUP PLC (OSBG). The group includes OSB and its subsidiaries; The OSB Group includes OSBG and its subsidiaries.
Our business model
The group is a leading specialist mortgage lender, focusing primarily on carefully selected sub-segments of the UK mortgage market. Our specialist lending is backed by our retail savings franchises Kent Reliance and Charter Savings Bank. Our goal is to help our customers, colleagues and communities to thrive.
resources and relationships
brands and heritage
We have a family of specialist lending brands targeting select segments of the mortgage market that are underserved by the UK's major banking institutions. We have well established savings franchises through Kent Reliance with its 150 year history and the Charter Savings Bank brand.
Colleagues
Our team of highly qualified professionals has specialist knowledge and in-depth knowledge of the credit, real estate, capital and savings markets, underwriting and underwriting and client management.
Infrastructure
We benefit from the cost and efficiency advantages of our wholly owned subsidiary, OSB India, and the credit expertise and mortgage servicing services of Charter Court Financial Services (CCFS).
Relationships with intermediaries and customers
Our strong and deep relationships with the mortgage brokers who sell our products continue to earn us industry recognition.
capital strength
We have a strong Common Equity Tier 1 (CET1) ratio and the ability to generate capital through profitability.
Our business model explained
The Group operates its lending business in two segments: OSB and CCFS.
A savings bank
Through our brands, we tailor our loan offering to the specific needs of our borrowers. Under our Kent Reliance and Interbay brands, all of our loans are underwritten by experienced and skilled underwriters, supported by technology to reduce administrative burdens for underwriters and mortgage brokers. We refer to scorecards and office data to support our qualified underwriter loan ratings. We look at each loan individually and react quickly and flexibly in order to offer each of our customers the best solution. No case is too complex for us, and for borrowers with more individual or larger credit requirements, our Transactional Credit Committee meets three times a week to demonstrate our responsiveness to client needs.
Buy-to-let/KMU-Teilsegmente
Purchase for rental
We provide loans to corporations and individuals that are secured by investment property. We are aimed at experienced and professional landlords or wealthy private individuals with established and extensive real estate portfolios.
Commercial Mortgages
We provide loans to corporations and individuals secured by commercial and semi-commercial real estate held for investment or personal use.
housing estate
We provide development loans to small and medium-sized residential real estate developers.
lines of finance
We provide loans to non-bank financial companies that are secured by portfolios of financial assets, primarily mortgages.
wealth financing
We provide UK SMEs and small businesses with credit under hire-purchase, leasing and refinancing arrangements to fund business-critical assets.
Residential sub-segment
First load
We grant loans to individuals who are secured by a first mortgage on their home. Our target clients include people with high net worth and complex income streams, as well as prime borrowers. We are also experts in co-ownership, first-time buyer loans and key workers buying a property in partnership with a housing association.
Our business model explained(Continuation)
Financial Services of the Charter Court
Specialized credit business
Our Precise Mortgages brand uses an automated underwriting platform to manage mortgage applications and make a quick policy decision based on strict credit standards and credit ratings. The platform is underpinned by extensive underwriting know-how that enables the identification of new niches and the determination of suitable lending parameters. It allows for consistent underwriting within the Group's risk appetite. Fast response times help the group compete for “first sight” on credit opportunities, while a robust manual verification process further reinforces the disciplined approach to credit risk.
Purchase for rental
We provide professional and non-professional landlords with good credit histories across a broad range of products including personal and limited liability property.
residential
We offer a range of competitive products to prime and complex prime borrowers, including self-employed, as well as near prime borrowers.
bridging
We focus on lending to clients with short-term cash flow needs, for example to cover minor home renovations, refurbishments, auction purchases and to 'bridge' delays in obtaining mortgages and 'chain breaks'.
Second load
Precise Mortgage branded second charge products were discontinued in the first half of 2022 and are no longer available to new customers.
Our business model explained(Continuation)
Retail Savings
The group is funded primarily by retail savings, collected through two brands: Kent Reliance and Charter Savings Bank (CSB).
Kent Reliance is an award-winning savings retail franchise with over 150 years of heritage and nine stores across the south east of England. It also accepts deposits by mail, phone and online, while CSB, a multi-award winning retail savings bank, offers its products online and by mail.
Both banks have a wide range of savings products including easily accessible fixed-term bonds, cash ISAs and business savings accounts. CSB and Kent Reliance have diversified their retail funding sources through pooled funding platforms. The range of products sourced through these platforms includes easily accessible longer-dated bonds and non-retail deposits.
In 2022 both banks won industry awards including the prestigious Moneyfacts Consumer Awards for Best Bank Savings Provider, Best Cash ISA Provider and ISA Provider of the Year for CSB and Yourmoney.com Personal Finance Awards for Best Cash ISA Provider Kent Reliance.
Kent Reliance's offer to savers is simple: to offer consistently great value savings products that meet customer needs for money savings and loyalty rates for existing customers.
CSB's philosophy is to maintain and develop its award-winning business and to offer savings products at competitive prices. CSB operates with an agile, nimble approach and can quickly respond to the company's financing needs at advantageous financing costs.
Our securitization platforms
The group has created attractive diversification opportunities to complement its retail financing.
CCFS uses its securitization platform as a means of providing low-cost term financing. Wholesale financing allows the company to balance the weighted average maturity of debt away from shorter-dated retail financing, thereby optimizing the financing mix. The Group recognizes the cyclical nature of capital markets funding and therefore deploys it opportunistically, taking advantage of favorable market conditions.
CCFS is a programmatic issuer of high-quality Residential Mortgage Backed Securities (RMBS) through its Precise Mortgage Funding and Charter Mortgage Funding (CMF) franchises and as of 31 December 2022 has completed 14 securitisations valued at over £4.5 billion.
In 2019, OSB set up its Canterbury Finance securitization program to issue high quality RMBS. Since then, through 31 December 2022, the firm has issued five organic mortgage securitizations totaling £5.6bn.
OSB has closed three deals totaling $971 million through Rochester Financing since 2013.
The Group is also able to complete transactions that could lead to the full derecognition of the underlying mortgage loans by selling residual positions in its securitization vehicles.
The group also uses the Bank of England's funding programmes. Drawings under the Term Funding Scheme for SMEs remained at £4.2bn and drawings under Index Long-Term Repo were £301m as at 31 December 2022 (2021: £4.2bn or nil £).
Our business model explained(Continuation)
Unique operating model
Customer service
The group operates customer service functions from multiple locations in the UK including Chatham, Wolverhampton, Fareham, London and Fleet. These, together with our wholly owned subsidiary OSB India, help us achieve our goal of putting the customer first.
The group has proven collections capabilities and expertise in case management and assisting clients in financial difficulties.
This provides valuable insight into how mortgage loan products are performing, as well as an opportunity to learn from them. We have in-depth credit know-how through strong data analysis skills.
We deliver cost efficiency through excellent process design and management. We have an efficient, scalable and resilient infrastructure backed by strong IT security and continue to invest in improving our digital offering as customer demand changes.
OSB If
OSB India (OSBI) is a wholly owned subsidiary based in Bangalore and Hyderabad, India.
OSBI places customer service at the heart of everything we do and we reward our colleagues based on the quality of service they provide to customers, as evidenced by our excellent Customer Net Promoter Score (NPS).
At OSBI we employ highly talented and motivated colleagues at competitive costs. We benchmark our processes against industry best practices, question our actions and eliminate customer issues as they arise. We continue to invest in the development of skills that enable highly efficient service management and adapt them to business needs in both India and the UK.
Various functions are also supported by OSBI including Support Services, Operations, IT, Finance and Human Resources. We have a one team approach between the UK and India. Employee turnover in India compares favorably to the local industry average, despite an unfortunate increase in the turnover rate to 24% in 2022 due to a very buoyant recruitment market.
OSBI operates a fully paperless office - all data and processing takes place in the UK.
Environment, Social and Governance (ESG)
We operate in a sustainable manner, with relevant environmental, social and governance issues at the heart of everything we do.
As a specialized lender, we have long been aware of our responsibility and the positive impact we can make on society through our activities.
In 2022, we made progress on our journey to meet our net-zero greenhouse gas emissions commitment by 2050. We have also launched our first in a range of mortgage products to improve a property's energy efficiency.
We also renewed our pledge to have 33% women in leadership positions in the UK by 2023 and gave nearly £225,000 to charity over the course of the year.
Relationships with our key stakeholders
Building strong relationships with all of our stakeholders through regular engagement and open dialogue is fundamental to achieving the Group's goal of helping our customers, colleagues and communities thrive. Our relationships with our stakeholders are central to the Group's strategy and culture; and are embedded in the responsibilities of the Management Board.
Below we describe how the Group and its Directors have engaged with key stakeholders while fulfilling their obligations under Section 172 of the Companies Act 2006.
Colleagues
Our colleagues are our greatest asset and our success depends on the 2,021 talented people we employ.
We have always favored interactive communication between management and our colleagues through regular town hall meetings, informal meetings with management and opportunities to ask questions anonymously directly to the Chief Executive Officer (CEO), with the questions and answers being available on the intranet. These methods of engagement proved popular with employees and contributed to many initiatives implemented by the company throughout the year.
How the Board interacted with colleagues
The group has adopted a combination of methods to engage its workforce, including the establishment of a formal Human Resources Advisory Board and a designated Non-Executive Director (NED).
In 2022, Mary McNamara was the board-appointed NED with responsibility for representing employees at the board level and is a permanent member of the Workforce Advisory Forum (known internally as OurVoice). Mary is in direct contact with the workforce by attending OurVoice meetings and other events organized by the Diversity and Inclusion Working Group. This gives her an insight into the culture and concerns of the workforce, which she can bring to the attention of the Management Board. Sarah Hedger will become a permanent member of OurVoice, replacing Mary McNamara as NED-designate in charge of OurVoice on May 11, 2023.
OurVoice gives the board and management insight into a broad representative spectrum of employee views to guide strategic decisions for the future of the company and to monitor their alignment with the values.
OurVoice has its own Terms of Service outlining the objectives and composition of the forum. Employees are invited to apply to be employee representatives.
Members of the Board of Directors and management attended OurVoice meetings throughout the year to understand and discuss employee-related issues directly with representatives across the company. Worker representatives are encouraged to be open and honest in their feedback at every meeting. The topics from OurVoice discussions are shared and discussed with the Board of Directors, and this influences the approach to new policies, benefits, resource allocations and other employee-related projects.
Engagement also took place via the annual Best Companies to Work For survey. 82.5% of UK employees completed the survey in 2022, showing a high level of engagement. Based on the results of the survey, the group received a 2-star accreditation, meaning it was recognized as an “outstanding” company to work for. The Group Executive Committee and the Board reviewed the results, considered the key issues that emerged from the responses and discussed what steps could be taken to capitalize on the positive issues and also to address areas for improvement. OSB India participates in a separate engagement survey and was officially certified as a Great Place to Work for the sixth consecutive year in 2022.
The Management Board and its committees were also regularly informed of matters affecting senior management and the Group's Human Resources staff. The members of the Management Board oversee the Group's talent management initiatives and succession planning for senior management.
Relationships with our key stakeholders(Continuation)
Finally, the Board oversees the group's whistleblowing activities and reviews and approves the group's reporting on the gender pay gap and its commitment to the Women in Finance Charter.
The Board monitors the effectiveness of its retention methods and adjusts them as necessary.
Other areas of focus include developing a broader people and culture strategy for the group and continuing to improve in areas that have been underperformed by employee survey results.
Results after engagement
- a key topic of discussion at board level was the impact of continued interest rate rises and the cost of living and credit on our colleagues, both professional and personal, on their well-being and mental health.
- A one-off living cost payment of £1,200 was made to lower paid staff and two further payments of £600 were authorized for payment in 2023 to the same population.
- The group has been formally accredited as a Living Wage Employer.
- updated the group's work-from-home policy to formalize hybrid working arrangements for employees.
- decided on an above-average salary increase for more than 80% of the employees in view of the high inflation rate.
Customers
We pride ourselves on building strong, long-term relationships with our customers. With the cost of living and borrowing rising, our continued commitment to providing excellent service to borrowers and savers remained a priority in 2022.
We offer our savers the opportunity to update us on our work whenever they call or interact with the banks, by listening to their views and acting on their communication. Customer feedback is collected
during the year and resulting satisfaction values.
Throughout 2022, as interest rates continued to rise, we saw a significant increase in call volume from our savers looking to take advantage of attractive savings products and from our borrowers concerned about rising borrowing costs. As a result, there was a decrease in savings and broker NPS compared to 2021. Service levels have since improved and remain our primary focus.
How the board interacted with customers
The Board's engagement with clients is indirect and Board members are kept informed of client-related matters through regular reporting, feedback and research. Satisfaction scores and retention rates, along with the number of complaints and resolution times, form part of management's and board's monthly reporting packages to ensure visibility of our customers' experiences. Customer satisfaction scores are also used as part of executive compensation assessments and form the basis for new initiatives and actions that continuously improve the customer experience.
In addition, the Board allocates additional time each year at a board meeting to further consider a number of matters related to the treatment of clients.
Relationships with our key stakeholders(Continuation)
The Board has been kept updated on progress on embedding the new FCA excise tax requirements as well as support for customers who require additional assistance.
Customers and intermediaries may be consulted when the company is considering launching a new product to ensure it meets their needs and any concerns raised are addressed.
Results after interaction with customers
- ensures that additional support is available to customers who need it.
- a £50m pledge to the newly established Landlord Leader Fund to help landowners improve energy efficiency.
- introduced the first in a series of products for landlords looking to improve the energy efficiency of their properties.
The Savings NPS for Kent Reliance in 2022 was +64 (2021: +70) and for Charter Savings Bank was +61 (2021: +71).
mediator
With the exception of subsidy lines and mortgage loans, our credit products are sold via mortgage brokers. Mortgage brokers are critical to our success; It's important for us to understand the challenges they face and what they want to achieve in terms of serving their customers, so we can adapt the way we support them to provide an even better service.
How the board has worked with intermediaries
The Directors' interaction with intermediaries is indirect and the Directors are kept informed of client-related matters through regular updates at Board meetings. Broker and borrower satisfaction scores, along with the details of any complaints, are regularly tracked and reviewed by the Board and senior management in monthly reporting packages.
Towards the end of 2022, research was commissioned with the aim of supporting our brokers and landlords in improving the sustainability of their investment properties. A number of key results were identified, including the creation of a Landlord Leaders community to bring brokers, landlords and other industry members together. The Board received updates and reviewed the progress of this initiative. See page 14 for more information.
We pride ourselves on providing unique and consistent loan offerings across all lending brands that meet our goal of making it easier for intermediaries to serve their customers, our borrowers. Regular engagement with the brokerage community goes beyond our offerings and allows us to continuously improve the service we offer, with our business development managers working closely with brokers to discuss cases and help make fast and reliable decisions.
The Group's sales teams participated in 330 physical and virtual matchmaking events in 2022. The events provide the sales team with an opportunity to interact with brokers, discuss their needs and keep up to date with industry developments.
Outcomes after engagement with intermediaries
- Introducing the Landlord Leaders Thought Leadership Report and creating a landlord leadership community that brings together agents, landlords and other industry members.
Broker NPS for OSB in 2022 was +37 (2021: +55) and for CCFS +39 (2021: +42), both impacted by high application and deal volumes following the market disruption following the September mini-budget.
Relationships with our key stakeholders(Continuation)
Delivery
Our business is supported by a large number of suppliers, which allows the group to offer high standards of service to our customers.
How the board deals with suppliers
The members of the Board of Directors do not interact directly with the Group's suppliers; However, they are involved in overseeing the Group's supplier relationships and are kept informed by management of supplier considerations and developments.
Reports on supplier payment practices are published every six months and are approved and signed off by the CFO and Chief Operating Officer on behalf of key operating entities. The Group enters into standard terms with suppliers that include payment terms within 30 days of the invoice date upon receipt of a valid invoice. Over 95% of all invoices are paid within 30 days according to the standard payment term for qualifying contracts. The average payment period for invoices across the Group is between five and eleven days. The maximum agreed contractual payment period varies between 30 days and 45 days. There were no changes to the standard payment terms during the reporting period.
Any complaints received regarding bill payments will be considered part of the dispute resolution process. During the year, the Group did not deduct any amounts from payments under qualifying contracts as a charge for remaining on a supplier list.
In 2022, the Board also addressed the following aspects of supplier relationships: considering the risks associated with suppliers and the assurance framework; Overseeing key supplier relationships, including the collaboration between the Group Audit Committee and the external auditor; and oversight of all levels of insurance in place for the group.
We are committed to complying with both laws and best practices regarding modern slavery, labor rights and the environment. We expect our suppliers to share this commitment by complying with our Supplier Code of Conduct and Ethics.
The Group's Modern Slavery and Human Trafficking Statement is reviewed and approved annually by the Board and can be found on our website at osb.co.uk.
ESG is embedded into every aspect of our business, and part of that is ensuring our suppliers share similar values and aspirations as we do.
Throughout 2022, our suppliers and business partners were asked to complete a questionnaire to help us understand how they are addressing issues such as climate change, diversity, equity and inclusion, and modern slavery, and to identify future focus areas. We understand that companies are at different stages on their own ESG and sustainability journey, and we are committed to encouraging and supporting our suppliers in their transition to an ESG strategy aligned with the group's ambitions.
Results after working with suppliers
- Improved understanding of suppliers' ESG and sustainability strategies to ensure they align with the group's ESG ambitions.
Relationships with our key stakeholders(Continuation)
regulators
The Board recognizes the importance of an open and ongoing dialogue with all our regulators as well as other government agencies, trade associations and the UK Revenue Commissioner.
How the board works with regulators
The group maintains a proactive dialogue with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). Engagement typically takes the form of regular and ad hoc meetings attended by board members, senior executives and subject matter experts alike.
Although Directors do not attend all meetings, senior management, including the Group Chief Risk Officer and Group Chief Credit and Compliance Officer, provide feedback and regular updates to the Board and its committees on broader regulatory developments and compliance considerations. The PRA was invited to and attended a board meeting in 2022.
The group also regularly interacts and maintains constructive relationships with the Bank of England and HM Revenue & Customs, among others, which helps ensure that the group is aligned with the relevant regulatory framework and that the business addresses issues pertaining to the impact the financial services industry.
Results after engagement
- During the year, meetings with regulators included operational resilience, operational continuity in resolution, the framework for assessing resolvability, business continuity, capital management and the optimization of our capital structure. These are all areas discussed by the Board of Directors at its meetings.
communities
The group works with national and local charities that offer employees the opportunity to make a difference both nationally and closer to home. Giving back to our community, whether through volunteering, fundraising or efforts that help protect our environment, is important to all of us and aligns with the values of the group. Our nominated Charity Partners are selected by employees with the goal of making a significant impact on those charities and the lives of those the charities help.
How the board interacts with communities
The Board and Management actively encourage and support engagement with our local communities to make a positive impact.
Outcomes after engagement with communities
- The total amount donated to charity partners and causes by the group and colleagues over the year was almost £225,000.
Relationships with our key stakeholders(Continuation)
Surroundings
Sustainability is becoming increasingly important for the board and management. The group operates to the highest standards of governance and ethics and focuses on reducing its impact on the environment.
Aware of the impact of social and environmental changes on our business and our stakeholders, the Board and management regularly promote awareness of environmental issues among our employees and remain committed to our plan to become a greener organization and to comply with stricter regulations and disclosures.
The Board is responsible for promoting and overseeing an environmentally friendly culture and ensuring that the company is ready to respond to the growing impact of climate change on the Group's activities, consistent with its stewardship value.
Section 172 Declaration
The Directors are bound by their duties under Section 172(1)(a) to (f) of the Companies Act 2006 and the manner in which they have been discharged; in particular their duty to promote the success of the company in good faith for the benefit of its shareholders as a whole.
The preceding pages 8 to 12 show how the Board has engaged with the Group's key stakeholders (customers, intermediaries, colleagues, shareholders, suppliers, regulators and the local communities in which we are based). Examples of strategic decisions that have impacted the Group's key stakeholders are listed below. See pages 8 to 12 et seq. for examples of how the Directors have complied with the requirements of section 172 during the year.
decision making
The Board recognizes that considering our stakeholders when making important business decisions is fundamental to our ability to execute the Group's strategy in line with our long-term values and to run the business sustainably. Balancing the needs and expectations of our key stakeholders has been at the forefront of the Board's deliberations and was more important than ever in 2022 due to the economic environment and rising cost of living. The Board recognizes that some decisions will produce different outcomes for each stakeholder.
Section 172 Declaration(Continuation)
Important strategic decisions of the year
employee compensation
The Board has considered the impact of the continued rise in interest rates and the rising cost of living and borrowing costs in the UK on its employees in terms of their financial and psychological wellbeing.
The rise in the cost of living and its impact on employees was discussed in the Workforce Advisory Forum (OurVoice), which was also attended by members of the Board of Directors and the Executive Committee. In line with the Group's commitment to ensure staff are treated fairly, the Board supported the decision endorsed by the Group Executive Committee for a one-off payment of £1,200 to all qualifying UK staff in lower grades, representing approximately 80% the workforce. The board also backed the decision to increase the salaries of the group's lowest-paid employees in the UK to £19,250 in line with the Living Wage Foundation. The Board recognizes the continuing challenges faced by employees in the current economic environment. In January 2023 the Group Remuneration and People Committee discussed and approved the payment of two further living allowances of £600 each for all qualified UK staff.
landlord guide
The Board has been updated on the progress of the Landlord Leaders initiative. After working with landlords and brokers, and as part of its commitment to helping clients succeed, the group is committed to running a number of initiatives to help build a forward-thinking, sustainable industry. The group has pledged £50m to the newly established Landlord Leader Fund to help landlords improve energy efficiency. Other initiatives include new product launches
Assist landlords in renovating their properties, redesign the underwriting process and work with tax specialists to provide tax planning advice and guidance to sharecroppers looking to professionalize. As part of this commitment, the group will launch a new Landlord Leaders Community to bring brokers, landlords and other industry members together.
customer experience
The board was updated on a number of improvements to the customer journey. In particular, the launch of a new, simplified product range, which was proactively communicated to customers to ensure they had adequate time to take action before their set deadline. Additional resources were deployed to improve the customer experience, including tracking customers who did not take action after entering the reversal period. In addition, the group's eligibility criteria have been improved to allow more customers to take advantage of the revised rates to minimize payment shocks and withdrawals.
Market Overview
The UK Housing and Mortgage Market
The past 12 months have been marked by changing market conditions due to the war in Ukraine, ongoing supply chain issues, high inflation, rising cost of living and borrowing, and the post-September mini-budget disruption. Despite these developments, housing and mortgage markets have been resilient and activity levels have remained strong.
Inflation accelerated after the invasion of Ukraine, exacerbating supply chain problems and causing energy and food prices to rise sharply. Data from the Office of National Statistics (ONS) estimated that prices were up 10.5% year-on-year at the end of December 2022, down slightly from a peak of 11.1% in late October.
The Bank of England implemented eight consecutive interest rate hikes in 2022 to bring inflation towards its 2.0% target. Overall, the policy rate rose from 0.25% in December 2021 to 3.5% in December 2022.
Mortgage rates rose significantly throughout 2022, with rising financing costs for lenders and volatile swap spreads. According to the Bank of England, the average interest rate on a new two-year fixed-rate mortgage with a 75% loan-to-value ratio increased from 1.64% in January 2022 to 5.43% in December 2022, an increase of +3.79%.
The most notable rise in mortgage rates over the year was seen after September's mini-budget, which saw mortgage lenders withdraw products and raise rates due to volatile swap spreads.
Overall UK residential property transactions fell by 14% to 1.3 million in 2022 from a record high of 1.5 million in 2021, but the level of activity in 2021 was hampered by the Stamp Duty Land Tax holidays, which experienced a large number of transactions, over-advanced property purchases to take advantage of lower transaction costs. Aside from this year-on-year comparison, 2022 saw more real estate transactions than any year since 2007
UK gross mortgage lending rose 4% to £322bn in 2022, reflecting a resilient market buoyed by rising house prices, with the average house price rising 9.8% in 2022, buoyed by strong demand and a lack of supply.
The British savings market
2022 marked the end of the "accidental savings" caused by pandemic lockdowns, as the rising cost of living meant many customers withdrew or were unable to top up their savings.
There was more competition on the savings market because, despite considerable delays in the first half of the year, providers passed on some of the increases in key interest rates to savers in the form of attractively priced savings products. The Bank of England reported that UK savings rose by £67 billion from £2,135.3 billion at the start of the year to £2,202.4 billion in December 2022.
There were also more providers and more savings accounts on offer this year, with 1,690 savings products advertised in December 2022 compared to 1,646 in December 2021.
According to the ONS, the household saving rate, which peaked at 26.8% in 2020 due to "accidental saving", fell to 9.0% by the fourth quarter of 2022.
The interest rate hikes introduced by the Bank of England resulted in higher interest rates on all types of savings accounts. By the end of 2022, fixed-rate bonds were up 293 basis points over the year.
Market Overview(Continuation)
Easily accessible financial institution accounts continued to outpace fixed deposit accounts. According to the Household Deposits Report, this was partly due to higher interest rates for traditionally low-earning, easy-to-access accounts and a likely desire by customers to remain flexible.
The UK mortgage market and climate change
It has been estimated that privately owned dwellings account for 15% of the UK's total carbon emissions and it is recognized that there are significant barriers to the implementation of energy efficiency improvements. The UK government's focus on achieving its net zero targets has highlighted the need to improve the energy efficiency of the UK housing stock.
The Department for Business, Energy and Industrial Strategy conducted two important consultations on improving household energy efficiency, the results of which are yet to be published:
- Improving the Energy Performance of Privately Rented Homes in England and Wales was completed in January 2021. It is widely expected that the result will introduce a minimum requirement to ensure that all rental properties achieve an Energy Performance Certificate (EPC) rating of C or higher from 2028. It is also expected that the currently required cap on works (the maximum amount , payable to improve the property's EPC rating) from £3,500 to £10,000 before exemptions can be applied for.
- Improving Home Energy Performance through Lenders was completed in February 2021. The outcome is expected to require all lenders to report the EPC of their loan portfolio, along with the obligation to demonstrate annual improvements towards an average rating of C or higher.
These changes could have a significant impact on the private rental sector in the UK. The industry eagerly awaits the release of the final outcome of each of these consultations, however, discussions and action by lenders have already taken place as a 'green financial sector' has emerged. The Green Finance Institute reported that 19 buy-to-let lenders had launched dedicated green finance products by the end of May 2022, a notable increase from nine lenders at the end of 2021.
The sub-segments of the Group's lending
Purchase for rental
According to UK Finance, buy-to-let gross advances reached £55.7bn in 2022, up 17% from £47.4bn in 2021. This was supported by strong funding activity throughout the year, with buy-to-let refinancing rose 33% to £37.0bn as the early wave of five-year fixed income products added following the PRA's changes to underwriting standards reached the end of their original maturity.
Research conducted by BVA BDRC on behalf of the group showed that the number of landlords planning to buy new properties fell from 14% in 2021 to 9% in the fourth quarter of 2022 and the proportion of landlords who planning to sell has risen to 30% from 24% in 2021. The Landlords Panel survey found that landlords with larger portfolios were more likely to make changes to their portfolio over the next year, with 16% looking to buy and 44% looking to sell. It also showed that of those planning to buy new properties in the next 12 months, the majority (57%) planned to do so through a limited liability company, further supporting the market-wide trend towards professionalization.
Market Overview(Continuation)
Tenant demand remained strong, with RICS reporting that demand was still rising at the time of the December report while supply remained weak, evidenced by a fall in landlord orders coming to market this month. This demand/supply imbalance continued to put upward pressure on rents to support private rental sector fundamentals. Rightmove reported that the average asking rent in Greater London rose by 15.7% in 2022 and by 9.7% in the rest of the country.
residential
According to UK Finance, total home loans to homeowners reached £251bn in 2022, down marginally from £255bn in 2021. However, this stability in total lending masked a shift in the nature of deals underwritten, prompted by a buoyant refinancing market a declining purchasing market over the course of the year was compensated for.
Transactions fell by 9% to £193bn in 2022 (2021: £213bn) as the previous year benefited from a surge in transactions whilst the stamp duty exemption was in effect. Despite this, annual sales were still significantly higher than in the pre-pandemic period of 2019 (£158bn). Mortgage loan completions rose 30% to £107bn (2021: £83bn) as borrowers sought to secure the best deals before mortgage affordability deteriorated and interest rates continued to rise, with mortgage loans up 36% of the total market (2021: 28%).
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Confidence in commercial real estate remained strong throughout the first half of the year, supported by improving valuations and rising rents. In the first quarter, capital values increased by 3.9% and in the second quarter by a further 3.0%, with rents increasing by 1.5% and 1.0% respectively. However, in late summer broader geopolitical and macroeconomic challenges began to take hold, reversing the value growth seen in the first half, although some property types were hit harder than others.
Retail rents remained broadly flat in 2022, according to CBRE, with some protection from further declines from pandemic-related price corrections in 2020 and 2021. Mixed-use asset classes, such as semi-commercial real estate, which offer a diverse income stream underpinned by residential rentals, remained attractive for investors. This property type proved more resilient as apartment rents beat expectations. Overall, CBRE reported that capital values for all retail fell 8.1% over the year, while rents rose about 0.7%.
In 2022, all commercial segments saw a 10% increase in demand since 2021. Commercial real estate investment transaction volume reached £50.4bn in 2022, just 8% below the five-year average.
housing estate
Despite the government withdrawing support for the pandemic, housing demand remained strong for most of 2022, although easing towards the end of the year on uncertainty about future economic conditions and rising interest rates.
The demand for houses that were affordable for the local population remained strongest. Notably, sales rates for the few housing projects funded in London were also high, seemingly bucking this trend.
Key Performance Indicators (KPIs)
Throughout the strategy report, the Key Performance Indicators (KPIs) are presented on a legal and underlying basis.
Management believes that the underlying results and underlying KPIs provide a more consistent basis for comparing the Group's performance between financial periods. Underlying results for 2022 and 2021 exclude exceptional items, integration costs and other acquisition-related items.
A reconciliation of the statutory results to the underlying results can be found on page 29.
1. Gross new lending
Statutory £5.8bn (2021: £4.5bn)
Definition – Gross new lending is defined as organic gross new lending before repayments.
Performance 2022:
Gross new lending rose 29% for the year, reflecting a return to pre-pandemic criteria across our core sub-segments, including the reintroduction of lending at higher loan-to-value ratios to customers with better credit ratings.
2. Loan Loss Ratio
Legal 13 bps (2021: -2 bps)
Underlying 14 basis points (2021: -2 basis points)
Definition - The loan default rate is defined as impairment losses expressed as a percentage of a 13-point average of gross loans and advances. It is a measure of the creditworthiness of the loan book.
Performance 2022:
Statutory and underlying credit loss ratios increased during the year as the Group adopted tighter forward-looking macroeconomic scenarios and ex-post model adjustments to reflect the potential impact of rising cost of living and borrowing concerns. Loan book growth and changes in the observed risk profile also contributed to the strain, partially offset by an unwinding of pandemic-related adjustments and house price increases.
3. Net interest margin (NIM)
Legal 278 bps (2021: 253 bps)
Base value 303 basis points (2021: 282 basis points)
Definition – NIM is defined as net interest income as a percentage of a 13-point average of interest-bearing assets (cash, securities, loans and amounts due from customers and financial institutions). It represents the margin earned on loans and advances and liquid assets after swap expense/income and funding cost.
Performance 2022:
Both the statutory and underlying NIM improved in 2022, mainly due to the benefit of delays in the market fully passing on policy rate increases to savers, particularly in the first half of the year, partially offset by a net effective interest loss as higher reversionary returns were more than offset by earlier customer refinancing.
performance metrics(Continuation)
4. Cost-Income Ratio
Legal 27% (2021: 26%)
Underlying 25% (2021: 24%)
Definition - Cost-to-Income Ratio is defined as administrative expenses as a percentage of total income. It is a measure of operational efficiency.
Performance 2022:
Statutory and underlying cost/income ratios increased in 2022 as a result of increases in administrative expenses, primarily due to more normalized post-pandemic spending levels, inflationary headwinds and planned investments in the business, including refresh and modernization of our post-pandemic technology infrastructure. Integration. These costs were mitigated by strong revenue generation for the year, including fair value gains from hedging activities.
5. Administrative Expenses Ratio
Legal 81 bps (2021: 71 bps)
Underlying 80 basis points (2021: 70 basis points)
Definition - Management expense ratio is defined as management expenses as a percentage of a 13-point average of total assets. It is a measure of operational efficiency.
Performance 2022:
Statutory and underlying administrative expense ratios increased in 2022 primarily due to higher administrative expenses reflecting normalized post-pandemic spending levels, inflationary headwinds and planned investments into the business, including refreshing and modernizing our post-integration technology infrastructure.
6. Return on Equity
Statutory 20% (2021: 20%)
Underlying 23% (2021: 24%)
Definition - Return on Equity (RoE) is defined as income attributable to common shareholders, which is calculated as income after tax and after deducting coupons on AT1 securities before tax as a percentage of a 13-point average of shareholders' equity (excluding $150 million). £) results from AT1 securities).
Performance 2022:
Statutory and underlying return on equity remained strong in 2022 due to strong profitability in the year.
performance metrics(Continuation)
7. OSB Solo CRD IV Common Equity Tier 1 Ratio
The PRA granted the company an exemption to comply with the Capital Requirements Regulation (CRR) as an individual consolidation, which includes the company and subsidiaries excluding offshore services company OSBI, special purpose vehicles (SPVs) in relation to securitisations and the acquired CCFS companies in October 2019, defined as OSB solo.
OSB beam 18.4% (2021: 19.4%)
Definition
This is defined as CET1 capital as a percentage of risk-weighted assets (calculated in a standardized manner) and is a measure of the company's capital strength.
Performance 2022:
CET1 ratio remained strong, although slightly declining, as capital generation from profitability during the year was offset by loan book growth and dividend payments.
8. Customer Satisfaction Savings – Net Promoter Score (NPS)
OSB 64 (2021: 70)
CCFS 61 (2020: 71)
Definition - The NPS measures customer satisfaction with services and products. It is based on customer responses when asked if they would recommend us to a friend. The answer scale ranges from 0 for "absolutely not" to 10 for "absolutely yes". Based on the score, a customer is a detractor between 0 and 6, a passive between 7 and 8, and a promoter between 9 and 10. Subtracting the percentage of detractors from the promoters gives an NPS between -100 and +100.
Performance 2022:
Savings customer NPS decreased slightly due to very strong demand throughout the year, which temporarily impacted service response times and performance levels.
Financial review
Summary legal results for 2022 and 2021
| For the past year December 31 2022 | For the past year December 31 2021 | |
| Aggregated Gain or Loss | Mio. £ | Mio. £ |
| interest income | 709.9 | 587.6 |
| Net fair value gain on financial instruments | 58.9 | 29.5 |
| Profit from the sale of financial instruments | – | 4.0 |
| The other operating income | 6.6 | 7.9 |
| administrative expenses | (206.5) | (166,5) |
| provisions | 1.6 | (0,2) |
| Impairment of Financial Assets | (29.8) | 4.4 |
| Impairment of intangible assets | – | 3.1 |
| integration costs | (7.9) | (5.0) |
| Exceptional items | – | (0,2) |
| profit before taxes | 532.8 | 464.6 |
| profit after taxes | 411.3 | 345,0 |
| metrics | ||
| Net interest spread | 278 bps | 253 bps |
| cost-income ratio | 27% | 26% |
| administrative expense ratio | 81 bps | 71 bps |
| default rate | 13 bps | -2bps |
| return on equity | 20% | 20% |
| As in December 31 2022 | As in December 31 2021 | |
| Excerpts from the balance sheet | Mio. £ | Mio. £ |
| Loans and advances to customers | 23.612,7 | 21.080,3 |
| deposits in retail | 19.755,8 | 17.526,4 |
| total assets | 27.567,5 | 24.532,5 |
Financial review(Continuation)
Legal Profit
The Group's statutory profit before tax increased by 15% to £532.8m (2021: £464.6m) after special items, integration costs and other acquisition-related items from £59.6m (2021: £57.6m .£). The increase was primarily due to loan book growth, an improved net interest margin and net fair value gains on financial instruments due to rising swap rates, partially offset by higher administrative expenses and an impairment compared to an impairment credit in 2021.
Statutory profit after tax was £411.3m in 2022, up 19% from £345.0m in the previous year, and included exceptional items after tax, integration costs and other acquisition-related items of £38.7m .£47.8m (2021: £47.8m). ).
The Group's effective tax rate decreased to 22.8% from 25.7% in the prior year, mainly due to a reduction in the deferred tax provision following the entry into force of the expected reduction in the bank surcharge from 8% to 3% from April 2023.
The statutory return on equity for 2022 was 20% (2021: 20%).
interest income
Net statutory interest income increased by 21% to £709.9m in 2022 (2021: £587.6m), largely reflecting loan book growth and an improved net interest margin.
The net statutory interest margin (NIM) was 278 basis points compared to 253 basis points a year ago, up 25 basis points mainly due to the benefit of interest rate hikes. In the first half of the year in particular, there were delays in the market passing on the interest rate hikes in full to savers. In addition, as interest rates rose, mortgage interest income benefited from higher expected declining yields after the maturity of the fixed product. This benefit was partially offset by the expectation that customers would, on average, spend less time at the higher repayment rate before refinancing. The impact of this, together with other behavioral changes, resulted in a net effective interest rate (EIR) reset loss of £31.6m (2021: £11.5m gain).
Net fair value gain on financial instruments
The statutory net fair value gain on financial instruments of £58.9m in 2022 (2021: £29.5m) included a net gain of £57.1m on unmatched swaps (2021: £10.3m) following the significant increase in swap prices in the fourth quarter and a net loss of £8.1m (2021: £2.4m gain) relating to the ineffective portion of hedges.
The group also recorded a net gain of £10.2m (2021: £13.4m gain) from the unwinding of acquisition-related initial adjustments, a gain of £1.2m (2021: £3.0m) from the amortization of hedge accounting initial adjustments and a loss of £1.5m from other items (2021: gain of £0.4m).
The net gain on unmatched swaps related primarily to market value movements on mortgage pipeline swaps before they were matched to completed mortgages. This benefited from an increase in the interest rate outlook for the SONIA yield curve, largely in response to the measures announced in September's 'mini-budget'. The Group economically hedges its committed pipeline of mortgages and this unrealized gain is amortized over the life of the swaps through initial hedge accounting adjustments.
Financial review(Continuation)
Profit from the sale of financial instruments
No financial instruments were sold in 2022.
The £4.0m gain on sale of financial instruments in 2021 related to the sale of A2 Notes in the PMF 2019-1B Securitization in February 2021.
The other operating income
Other operating income required by law of £6.6m (2021: £7.9m) consisted mainly of commissions and service fees from CCFS, including those relating to servicing of securitized loans, which have been derecognised from the group's balance sheet .
administrative expenses
Statutory administrative spending increased by 24% to £206.5m in 2022 (2021: £166.5m), mainly driven by spending to return to normalized post-pandemic levels, inflationary headwinds and planned investments in the company, including refreshing and modernizing our post-integration technology infrastructure.
The Group's statutory cost-income ratio increased to 27% (2021: 26%), driven by the increase in administrative expenses, mitigated by strong revenue generation for the year, including fair value gains from hedging activities.
The statutory administrative expense ratio increased to 81 basis points in 2022 (2021: 71 basis points), reflecting higher administrative expenses.
Impairment of Financial Assets
The Group recorded a statutory impairment of £29.8m in 2022 (2021: £4.4m loan) resulting in a statutory credit loss ratio of 13bp (2021: -2bp).
The group adopted more stringent macroeconomic scenarios in its IFRS 9 models as the outlook deteriorated, resulting in a charge of £11.6m. Adjustments under the model to reflect rising living costs and borrowing concerns amounted to a charge of £13.3m and strong loan book growth and changes in risk profile over the year resulted in a charge of £15.2m. £. These were partially offset by a £10.3m release due to house price increases for the year and an £8.3m release from a reduction in pandemic-related post-model adjustments and modeling improvements. Other fees amounted to
8,3 Mio. £.
In the previous year, the impairment credit was largely due to the Group incorporating less stringent forward-looking macroeconomic scenarios into its IFRS 9 models, reflecting an improved outlook together with the benefit of strong house price developments during the year.
Financial review(Continuation)
Impairment of intangible assets
There was no impairment of intangible assets in 2022.
The impairment credit on intangible assets of £3.1m in the prior year related to a partial reversal of the impairment of brokerage intangibles of £7.0m recognized in 2020 as the loan volume in 2021 was higher than previously expected.
integration costs
The group recorded integration costs of £7.9m in 2022 (2021: £5.0m), mostly related to severance costs and consultant fees for advising on the future operational structure of the group.
Exceptional items
There were no special charges in 2022.
Last year there were exceptional costs of £0.2m related to the incorporation of OSB GROUP PLC as the new holding company and publicly traded company of the group.
balance sheet growth
On a regulatory basis, net loans and advances to customers increased by 12% to £23,612.7m in 2022 (31 December 2021: £21,080.3m), supported by lending of £5.8bn in the year.
Total assets also grew by 12% to £27,567.5m (31 December 2021: £24,532.5m) mainly due to this
the growth in accounts receivable from customers and an increase in cash and cash equivalents.
On a regulatory basis, retail deposits increased by 13% to £19,755.8m as at 31 December 2022 compared to £17,526.4m a year earlier as the group's well-priced savings products proved popular with customers.
The group supplemented its retail deposit funding with drawings under Bank of England schemes. Drawings under the SME Term Funding Scheme as at 31 December 2022 were flat from £4.2bn at the end of 2021 and drawings under the Index Long-Term Repo Scheme were £300.9m.
liquidity
OSB and CCFS are subject to the liquidity regime of the Prudential Regulation Authority and are managed separately for liquidity risk. Each bank maintains its own significant liquidity buffer of high quality liquid assets (HQLA) eligible for the Liquidity Coverage Ratio (LCR).
Each bank operates within a liquidity target that is above the minimum regulatory requirement for the LCR, which is based on internal stress tests. Every bank has a range of contingent liquidity and funding options for possible stress periods.
As at 31 December 2022 OSB had £1,494.1m and CCFS £1,522.8m in HQLA (31 December 2021: £1,322.8m and £1,318.0m respectively).
Financial review(Continuation)
OSB and CCFS also held portfolios of unencumbered, pre-positioned, Bank of England Level B and C eligible collateral in the Bank of England Single Collateral Pool.
As of December 31, 2022, OSB had an LCR of 229% and a CCFS of 148% (December 31, 2021: 240% and 158% respectively) and the group's LCR was 185% (December 31, 2021: 196%), all of them well above the regulatory minimum of 100% plus individual liquidity guidelines.
Capital city
OSB solo capital position remained strong with a CET1 capital ratio of 18.4% as of December 31, 2022 (December 31, 2021: 19.4%).
Summary Cash Flow Statement
| For the past year December 31 2022 | For the past year December 31 20211 | |
| profit before taxes | 532.8 | 464.6 |
| Net cash generated/(used in): | ||
| operational activities | 428.2 | (347.1) |
| investment activity | 63.2 | 80.6 |
| financing activity | (184.0) | 632.6 |
| Net increase in cash and cash equivalents | 307.4 | 366.1 |
| Cash and cash equivalents at the beginning of the period | 2.736,7 | 2.370,6 |
| Cash and cash equivalents at the end of the period | 3.044,1 | 2.736,7 |
1. The figures for 2021 have been restated, see note 1 b) in the Group's consolidated financial statements for more details.
cash flow statement
The Group's cash and cash equivalents increased by £307.4m over the year to £3,044.1m at 31 December 2022.
In 2022, loans and advances to customers increased by £2,563.1m, mainly funded by retail customer deposits of £2,229.4m. The group received £434.3m in cash collateral for derivative exposures and
paid £137.5m in initial margin reflecting new derivatives throughout the year. Cash used from financing activities of £184.0m included £300.9m drawdowns under the ILTR scheme which were offset by £193.6m debt repayments, £233.1m dividend payments and 45 £.3m in interest on financing debt has been settled. Total drawings under the Bank of England's TFSME program were unchanged at £4.2 billion. Cash generated from investing activities was £63.2m.
In 2021, loans and advances to customers grew by £1,844.0m over the year, partly funded by retail deposits of £923.3m and a decline in loans and advances to credit institutions (mainly the overnight deposit account Bank of England) by £167.4M. Additional funding was provided by cash from financing activities of £632.6m, including £633.9m of net borrowings under the Bank of TFS and TFSME programmes England and £36.1m net proceeds from mortgage securitization offset by £86.7m dividend payments and £8.4m interest on financing liabilities during the year. Cash generated from investing activities was £80.6m.
Financial review(Continuation)
Summary of underlying results for 2022 and 2021
| For the past year December 31 2022 | For the past year December 31 2021 | |
| Aggregated Gain or Loss | Mio. £ | Mio. £ |
| interest income | 769.1 | 650,5 |
| Net fair value loss of financial instruments | 48.5 | 18.5 |
| Profit from the sale of financial instruments | – | 2.3 |
| The other operating income | 6.6 | 7.9 |
| administrative expenses | (202.7) | (161.7) |
| provisions | 1.6 | (0,2) |
| Impairment of Financial Assets | (30.7) | 4.9 |
| profit before taxes | 592.4 | 522.2 |
| profit after taxes | 450,0 | 392.8 |
| metrics | ||
| Net interest spread | 303 bps | 282 bps |
| cost-income ratio | 25% | 24% |
| administrative expense ratio | 80 bps | 70 bps |
| default rate | 14 bps | -2bps |
| return on equity | 23% | 24% |
| Excerpts from the balance sheet | As in December 31 2022 | As in December 31 2021 |
| Mio. £ | Mio. £ | |
| loans and advances | 23.529,8 | 20.936,9 |
| deposits in retail | 19.755,2 | 17.524,8 |
| total assets | 27.488,4 | 24.404.2 |
Alternative performance metrics
The Group presents alternative performance measures (APMs) in this strategy report because management believes they provide a more consistent basis for comparing the Group's performance between financial periods.
Underlying results for 2022 and 2021 exclude exceptional items, integration costs and other acquisition-related items. A reconciliation of the statutory results to the underlying results is given on page 29.
APMs reflect an important aspect of the way operational goals are defined and performance is monitored by the board. However, any APMs in this document are not a substitute for IFRS measures and readers should also consider the IFRS measures.
Financial review(Continuation)
Underlying Profit
The group's underlying profit before tax increased by 13% to £592.4m from £522.2m in 2021. The increase was mainly due to loan book growth, an improved net interest margin and net fair value Gains on financial instruments attributed to rising swaps partially offset by higher administrative costs and an impairment versus an impairment credit in 2021.
Underlying profit after tax was £450.0m, up 15% (2021: £392.8m), broadly in line with the increase in profit before tax. The Group's effective tax rate on an underlying basis decreased to 24.0% for 2022 (2021: 24.8%).
On an underlying basis, return on equity for 2022 was 23% (2021: 24%).
interest income
Underlying net interest income increased by 18% to £769.1m in 2022 (2021: £650.5m), largely due to loan book growth and an improved net interest margin.
The underlying net interest margin increased to 303 basis points from 282 basis points in 2021, mainly due to the increase in interest rates. In the first half of the year in particular, there were delays in the market passing on the interest rate hikes in full to savers. In addition, as interest rates rose, mortgage interest income benefited from higher expected declining yields after the maturity of the fixed product. This benefit was partially offset by the expectation that customers would, on average, spend less time at the higher repayment rate before refinancing. The impact of this, together with other behavioral changes, resulted in a net effective interest rate (EIR) reset loss of £23.1m (2021: £18.6m gain).
Net fair value gain on financial instruments
Underlying net fair value gain on financial instruments of £48.5m in 2022 compared to a gain of £18.5m in 2021. This includes a gain on unadjusted swaps of 57.1 £8.1m loss (2021: £2.4m gain) on hedge ineffectiveness following the significant rise in swap prices in the fourth quarter. The group also recorded a gain of £1.2m (2021: £5.4m) on the amortization of initial hedge accounting adjustments and a loss of £1.7m (2021: gain of £0.4m). £m) from other items.
The net gain on unmatched swaps related primarily to market value movements on mortgage pipeline swaps before they were matched to completed mortgages. This benefited from an increase in the interest rate outlook for the SONIA yield curve, largely in response to the measures announced in the September mini-budget. The Group economically hedges its committed pipeline of mortgages and this unrealized gain is amortized over the life of the swaps through initial hedge accounting adjustments.
Profit from the sale of financial instruments
No financial instruments were sold in 2022.
The £2.3m gain on sale of financial instruments in 2021 related to the sale of A2 Notes in the PMF 2019-1B securitization in February 2021.
Financial review(Continuation)
The other operating income
On an underlying basis, other operating income was £6.6m in 2022 (2021: £7.9m) and comprised mainly CCFS commissions and service fees, including those from servicing securitized loans arising from the balance sheet of the group were derecognised.
AdministrationCost
Underlying administrative costs increased by 25% to £202.7m in 2022 (2021: £161.7m), primarily reflecting spending on the return to normalized post-pandemic levels, inflationary headwinds and planned capital expenditure into the company, including the refresh and modernization of our post-integration technology infrastructure.
The Group's underlying cost-income ratio increased to 25% (2021: 24%), driven by the increase in administrative expenses, mitigated by strong revenue generation during the year, including fair value gains on hedging activities .
The underlying administration expense ratio increased to 80 basis points in 2022 (2021: 70 basis points) reflecting the higher administration expenses.
Impairment of Financial Assets
The group recorded an underlying impairment of £30.7m in 2022 (2021: £4.9m loan) representing an underlying credit loss ratio of 14bps (2021: -2bps).
The group adopted more stringent macroeconomic scenarios in its IFRS 9 models as the outlook deteriorated, resulting in a charge of £11.6m. Adjustments under the model to reflect rising living costs and borrowing concerns amounted to a charge of £13.3m and strong loan book growth and changes in risk profile over the year resulted in a charge of £15.2m. £. These were partially offset by a £10.3m release due to house price increases for the year and an £8.3m release from a reduction in pandemic-related post-model adjustments and modeling improvements. Other fees amounted to
9,2 Mio. £.
In the previous year, the impairment credit was largely due to the Group incorporating less severe forward-looking macroeconomic scenarios into its IFRS 9 models, reflecting an improved outlook together with the benefit of strong house price developments during the year.
balance sheet growth
On an underlying basis, net loans and advances to customers were £23,529.8m (31 December 2021: £20,936.9m), up 12%, supported by gross originations of £5.8bn .£ a year.
Total underlying assets increased by 13% to £27,488.4m (31 December 2021: £24,404.2m) mainly due to growth in loans and advances to customers and an increase in cash.
On an underlying basis, retail deposits grew by 13% to £19,755.2m (31 December 2021: £17,524.8m) as the group's well-priced savings products proved popular with customers in 2022 .
The group supplemented its retail deposit funding with drawings under Bank of England schemes. Drawings under the Term Funding Scheme for SMEs (TFSME) as at 31 December 2022 were flat from £4.2bn at the end of 2021 and drawings under the Index Long-Term Repo scheme were £300.9m .£.
Financial review(Continuation)
Reconciliation of the legal to the underlying results
| 2022 | 2021 | ||||||||||||||
| legal Results Mio. £ | Turning back acquisition-related and special items Mio. £ | Underlying Results Mio. £ | Legal Outcomes Mio. £ | Turning back acquisition-related and exceptional items Mio. £ | Underlying Results | ||||||||||
| interest income | 709.9 | 59.21 | 769.1 | 587.6 | 62.91 | 650,5 | |||||||||
| Net fair value gain/(loss) on financial instruments | 58.9 | (10.4)2 | 48.5 | 29.5 | (11.0)2 | 18.5 | |||||||||
| Profit from the sale of financial instruments | – | – | – | 4.0 | (1.7)3 | 2.3 | |||||||||
| The other operating income | 6.6 | – | 6.6 | 7.9 | - | 7.9 | |||||||||
| total income | 775.4 | 48.8 | 824.2 | 629,0 | 50.2 | 679.2 | |||||||||
| administrative expenses | (206.5) | 3.84 | (202.7) | (166,5) | 4.84 | (161.7) | |||||||||
| provisions | 1.6 | – | 1.6 | (0,2) | - | (0,2) | |||||||||
| Impairment of Financial Assets | (29.8) | (0,9)5 | (30.7) | 4.4 | 0,55 | 4.9 | |||||||||
| Impairment of intangible assets | – | – | – | 3.1 | (3.1) | - | |||||||||
| integration costs | (7.9) | 7.97 | – | (5.0) | 5.06 | - | |||||||||
| Exceptional items | – | – | – | (0,2) | 0,27 | - | |||||||||
| profit before taxes | 532.8 | 59.6 | 592.4 | 464.6 | 57.6 | 522.2 | |||||||||
| profit after taxes | 411.3 | 38.7 | 450,0 | 345,0 | 47.8 | 392.8 | |||||||||
| Summary balance sheet | |||||||||||||||
| Loans and advances to customers | 23.612,7 | (82.9)9 | 23.529,8 | 21.080,3 | (143.4)8 | 20.936,9 | |||||||||
| Other financial assets | 3.878,9 | 9.110 | 3.888,0 | 3.382,3 | 22.09 | 3.404.3 | |||||||||
| Other non-financial assets | 75.9 | (5.3)11 | 70.6 | 69.9 | (6.9)10 | 63,0 | |||||||||
| total assets | 27.567,5 | (79.1) | 27.488,4 | 24.532,5 | (128.3) | 24.404.2 | |||||||||
| Amounts owed to retail clients | 19.755,8 | (0,6)12 | 19.755,2 | 17.526,4 | (1.6)11 | 17.524,8 | |||||||||
| Other Financial Liabilities | 5.548,5 | 0,813 | 5.549,3 | 4.908,7 | 2.312 | 4.911,0 | |||||||||
| Other non-financial liabilities | 61.4 | (30.2)14 | 31.2 | 72.6 | (45,0)13 | 27.6 | |||||||||
| Total Liabilities | 25.365,7 | (30.0) | 25.335,7 | 22.507,7 | (44.3) | 22.463,4 | |||||||||
| net worth | 2.201,8 | (49.1) | 2.152,7 | 2.024,8 | (84.0) | 1.940,8 | |||||||||
1. Amortization of the merger's net fair value increase in CCFS' mortgage loans and retail deposits
2. Initial adjustment to CCFS derivative assets and liabilities upon merger
3. Recognizing a loss on the sale of securitized bonds
4. Amortization of intangible assets recognized on combination
5. Adjustment of expected credit losses on CCFS loans on merger
6. Reversal of impairment of intangible assets
7. Cancellation of Merger-related Integration Costs
8. Dissolution of Special Items
9. Recognition of a fair value increase in CCFS's loan book less the cumulative amortization of the fair value increase and a movement in loan provisions
10. Fair value adjustment on hedged assets
11. Recognition of acquired intangible assets upon merger
12. Fair value adjustment of CCFS retail deposits less accumulated depreciation
13. Fair value adjustment to hedged liabilities
14. Adjustment to Deferred Tax Liability and Other Acquisition-Related Adjustments
Risk Review
Summary
In 2022, progress was made towards the Group's strategic risk management objectives for the year, including the priority areas set out in the Annual Report and Accounts for the year ended 31 December 2021.
The group delivered strong financial performance amid the UK's uncertain macroeconomic outlook due to high inflation and ongoing conflict in Ukraine. The strong performance was achieved within a prudent risk appetite. The group operated within the limits of its risk appetite limits in 2022.
The impact of the rising cost of living, rising borrowing costs and the prospect of further increases in the Bank of England's base rate were the focus of the group's interest in 2022. The group led
additional analysis and adjustments to macroeconomic scenarios used in modeling and deployment to ensure customer affordability implications are covered.
The group remained vigilant to the heightened cyber risk environment caused by the situation in Ukraine and the introduction of the hybrid working model for colleagues across the group. Our cybersecurity capabilities have been maintained through continuous investment and frequent penetration testing.
The overall quality of the group's assets remained stable in terms of client behavior and affordability, while collateral values improved over the year. The level of arrears remained largely stable. The group has negligible exposure to Ukrainian, Russian and Belarusian clients and closely monitors and manages these clients as required.
The Group's risk management framework ensures that risks continue to be identified, monitored and managed effectively, which in turn supported the strong operational and financial performance for the year. In 2022, a full review of risk appetite statements and limits for all major risk types was conducted, informing the management of the Group's lending and retail savings businesses in an uncertain and highly competitive business environment. Group risk appetite statements and limits have been designed and implemented based on agreed approaches calibrated to what is expected
Financial forecasting and stress test analysis. Risk appetite is monitored and managed at both group and individual bank level.
The group has also maintained strong levels of capital and funding throughout 2022, recognizing the increased uncertainty going forward. Capital and funding levels have been assessed against the impact of extreme but plausible economic, business and operational shocks and reflected in the Group's solvency and liquidity risk appetite. A series of reverse stress tests were performed to determine the severity of a macroeconomic scenario that could cause the Group and its businesses to breach minimum legal requirements used in assessing going concern and viability.
The group faced some operational challenges in 2022. The number of rate hikes drove strong demand for savings accounts and the number of product rate changes required was operationally challenging. In the second half, the market saw an increasing number of borrowers looking to refinance with their existing lender and, in some cases, early refinancing to avoid expected future interest rate increases. This led to an increase in inquiries and application deadlines, which also led to increased waiting times for calls.
Risk Review(Continuation)
The group continues to focus on improving forecasting and stress testing capabilities, with a particular focus on internal ratings-based (IRB) stress testing and stress testing using Basel 3.1 scenarios.
The group continues to progress towards IRB accreditation with progress being made throughout the year. The group has carried out an extensive self-assessment to validate its level of compliance, coupled with the drafting of all the required documents for the submission of Module 1 that have passed the internal governance. The group has taken note of the industry level feedback from the PRA to ensure effective compliance with regulatory expectations. Prior to the application, discussions were held with the PRA to outline the group's approach to integrating IRB capabilities and compliance. The group is now actively engaging with the PRA on a submission date for Module 1. The program continues to integrate IRB capabilities that inform the business, key risk and capital management disciplines of the group.
Actively monitoring and assessing the drivers of the Group's credit risk portfolio is a critical risk management discipline. This was achieved through active monitoring of loan portfolio performance indicators, sensitivity and stress testing analysis and thematic deep dives.
Cross-functional expertise was used to review emerging trends and take preventative actions in line with defined risk appetite and governance standards. The group's investment in advanced credit analytics has significantly enhanced monitoring capabilities, enhanced forward-looking assessments, and supported stress testing and capacity planning analysis. This, in turn, enabled the Board to make more informed decisions in the uncertain macroeconomic and political environment.
Ensuring that the Group continues to maintain adequate provisions for expected credit losses has been an important consideration for the Board and management. The Group performed a detailed analysis to assess portfolio risks and whether they were adequately reflected in the IFRS 9 models and frameworks. The Group identified a number of areas that required adjustments under the model, particularly to account for increased credit risk due to increases in the cost of living and borrowing costs, resulting in an increase in provisions and a more significant increase in Stage 2 account balances given the mechanics of the IFRS 9 framework was expected. In addition, a new suite of IFRS 9 models was implemented, further enhancing alignment across the Group. Provisions for expected credit losses were measured using the Group's revised IFRS 9 methodology, individually assessed provisions and portfolio segment-based stress and sensitivity analyses. A benchmarking analysis was provided to the Board and senior management, allowing for a review and challenge of the funded status of the provisions and the underlying macroeconomic scenarios.
Significant investments in the Group's risk management capabilities and resources continue to be made to ensure that all risk categories continue to be managed effectively. An independent third-party assurance exercise was conducted during the year and found that the Group's risk management framework was well designed and embedded to support the Group's current and future strategic plans. The review's recommended actions confirmed management's existing plans and will drive further improvements to ensure the Group continues to meet evolving regulatory expectations while supporting shareholder returns through the management of financial risks.
A series of in-depth thematic reviews of all core loan portfolios were conducted to ensure credit risk strategies and operational capabilities remained appropriate. As a secured lender, the Group has prudent credit risk limits which, together with established managerial skills, place the Group well in the position to manage the impact of potential affordability issues stemming from continued increases in the cost of living or further increases in interest rates. The group continues to perform sensitivity and stress testing analyzes to understand the financial and operational impact of different scenarios on arrears, financial performance metrics and regulatory requirements. These scenarios also support operational capacity planning to ensure the right level of resources are in place within the service and collections function. During the pandemic, the group has demonstrated the effectiveness of its skills in managing and supporting clients during a period of stress.
Risk Review(Continuation)
The continued delivery of planned improvements to the Group's operational resilience remains a focus area. The Group's work program to ensure that appropriate skills and processes are in place to enable an orderly resolution of the Group as planned, including the successful completion of a resolution scenario fire drill that guided selected board members and senior management through the key steps of the company's resolution timeline. The group has taken precautions to ensure that it can continue to serve its customers following a resolution and any post-stabilization reorganization.
The group continues to implement a work program to further embed the operational risk management framework across the group, including the completion of an enhanced risk and controls self-assessment process and the provision of a more aligned approach for determining operational risk readiness. The Group's Risk and Control Self-Assessment (RCSA) process has been integrated into a Group-wide risk framework that ensures more dynamic and continuous assessment, adherence to common standards, an improved user interface and more review and challenge.
The Group views fair client outcomes and the delivery of timely and effective support to clients in need as a central pillar in support of its purpose, vision and values. The group has customer-focused policies and procedures that are subject to ongoing review and benchmarking. The group was also appropriately attuned to the emerging industry and regulatory focus on customer vulnerability, recognizing that consumer duty regulations place higher expectations on the group to demonstrate that delivering good outcomes for its customers is at the core of its strategy and policies business goals of the group.
The Group has further anchored its approach to climate risk management by further developing its climate risk management framework. A dedicated ESG technical committee ensures improvements are provided as needed.
Priorities for 2023
A significant degree of uncertainty remains regarding the UK economic outlook and operating environment for 2023 and beyond. Therefore, the ongoing close monitoring of the Group's risk profile and operational effectiveness remains a key priority for the Risk and Compliance function. Other priorities are:
- Continue to leverage the group's enterprise risk management framework and existing capabilities to actively identify, assess and manage risk in line with approved risk appetite.
- Leveraging improvements made in the group's portfolio analysis capabilities, including the implementation of an enhanced stress testing capability to improve risk-based pricing, balance sheet management, capital planning and stress testing.
- Continue to progress towards IRB accreditation and leverage skills in broader risk management disciplines such as IFRS 9 expected credit loss (ECL) calculations, underwriting, client management and collections to drive portfolio performance benefits and shareholder return improvements.
- Implementing and embedding the FCA's consumer duty rules and requirements across 5 main pillars of activity to ensure the group is compliant with the new consumer principle, cross-sectoral rules and the four consumer duty outcomes for new and existing products by 31st July 2023 and 31st July 2024 for closed products.
- Continue to increase engagement and support of the first line of defense to improve behavioral, regulatory and financial crime risk awareness and key preventive and detective controls.
- Further enhance and embed the group's resolution framework, including examining valuation and funding in resolution capabilities and examining the interactions between other resolution barriers.
- Maintain oversight of capital management including the impact of MREL, Basel 3.1 and IRB.
Risk Review(Continuation)
- Continuation of the optimization of the financing strategy and improvement of the sensitivity analysis with regard to key liquidity drivers.
Enterprise Risk Management Framework
The Enterprise Risk Management Framework (ERMF) sets out the principles and approach related to the management of the Group's risk profile in order to successfully fulfill its business strategy and objectives, including compliance with all codes of conduct and regulation.
The ERMF is the overarching framework that enables the board and senior management to actively manage and optimize the risk profile within the scope of their risk appetite. The ERMF also enables timely informed risk-based decisions and ensures that the interests and expectations of key stakeholders can be met.
The ERMF also provides a structured mechanism to align critical components of an effective risk management approach. The ERMF links overarching risk principles with day-to-day risk monitoring and risk management activities.
The modular construct of the ERMF provides a flexible approach to keep pace with evolving risk profiles and underlying factors. The ERMF and its core modular components are subject to periodic review and approval by the Board and its relevant committees.
The key modules of the ERMF structure are as follows:
1. Risk Principles and Culture – The Group has established a set of risk management and oversight principles that inform and guide all underlying risk management and assessment activities. These principles are based on the group's purpose, vision and values.
2. Risk strategy and appetite - The group has developed a clear business vision and strategy, supported by an articulated risk vision and underlying principles. The Board is responsible for ensuring that the Group's ERMF is structured in line with the strategic vision and is delivered within the agreed risk appetite thresholds.
3. Risk Assessment and Control - The Group is committed to building safe banking operations through an integrated and effective strategic risk management framework for the business.
4. Risk definitions and categorization - The Group sets out its main risks, which represent the main risks to which the Group is exposed.
5. Risk Analysis - the Group uses quantitative analysis and statistical models to improve its business decisions.
Risk Review(Continuation)
6. Stress Testing and Scenario Development – Stress testing is an important risk management tool used to assess the potential impact of a particular event and/or movement in a number of variables to determine the impact on the financial and operational performance of the to understand the group. The Group has a stress testing framework that sets out the Group's approach.
7. Risk Data and Information Technology – The maintenance of high-quality risk information and the Group's data enrichment and aggregation capabilities are central to achieving the risk function's objectives.
8. Risk Management Framework Policies and Procedures – Risk framework, policies and supporting documentation describe the process by which risks are effectively managed and controlled within the Group.
9. Risk Management Information and Reporting – The Group has established a comprehensive set of risk management (MI) information and reports covering all major risk types.
10. Risk Governance and Functional Organization – Risk governance refers to the processes and structures put in place by the board to ensure that risks are taken and managed within the risk appetite approved by the board, with clear distinctions between risk-taking, oversight and assurance. The Group's risk governance framework is structured to conform to the three lines of defense model.
11. Utilization and Embedding – Disseminating key components of the framework throughout the group to ensure business activities and decision-making are conducted in line with board expectations.
organizational structure of the group
The Board of Directors has ultimate responsibility for the oversight of the Group's risk profile and risk management framework and delegates its powers to the relevant committees when it deems appropriate. The Board of Directors and its committees receive adequate and timely information on the nature and level of the risks to which the Group is exposed and on the adequacy of the risk controls and mitigations.
The internal audit function provides the Board and its committees with independent assurance on the effectiveness of systems and controls and the level of compliance with internal policies and regulatory requirements. The Board also commissions third-party expert opinions and reports on topics and areas that require more in-depth technical assessment and guidance.
Risk appetites
The Group aligns its strategic and business objectives with its risk appetite, which defines the level of risk the Group is willing to accept and allows the Board of Directors and senior management to monitor the risk profile in relation to its strategic and business performance objectives. Risk appetite is a critical mechanism by which the board and senior management are able to identify negative trends and respond in a timely and prudent manner to unexpected developments.
Risk appetite is calibrated to reflect the Group's strategic objectives, business plans and external economic, business and regulatory constraints. In particular, risk appetite is calibrated in such a way that the Group continues to meet its strategic objectives and operates with sufficient financial buffers, even when faced with plausible but extreme stress scenarios. The Board's risk appetite goal is to ensure that the strategy and business model are sufficiently resilient.
Risk Review(Continuation)
The Group's risk appetite is calibrated using statistical analysis and stress testing to inform the process of setting triggers and limits for management based on key risk indicators. The calibration process aims to ensure that appropriate actions are taken in a timely manner to keep the risk profile within approved thresholds. The board and senior management actively monitor actual performance against approved management triggers and limits. There are currently two regulated banking companies within the group. Risk appetite metrics and thresholds are set at both the individual company and group levels.
The Group's risk appetite is fully updated annually for all main types of risk and is subject to a mid-year review during which all metrics can be assessed and updated as necessary.
Management of climate change risk
During 2022, further embedding of the Group's approach to climate risks took place, with the climate risk management framework and ESG governance structures now in place.
The Group is exposed to the following climate-related risks:
- Physical risk – refers to climate or weather-related events such as heat waves, drought, floods, storms, sea level rise, coastal erosion and subsidence. These risks could result in financial losses related to its own real estate and customer loan portfolios.
- Transition risk – arises from the impact of adjustment to a low-carbon economy and changes in appetite, strategy, policy or technology. These changes could result in asset repricing and increased credit risk for banks and other lenders as the costs and opportunities posed by climate change become apparent. Reputational risk arises when the changing and more demanding expectations of society, investors and regulators are not met.
Approach to analyzing climate risk in the loan book
As part of the ICAAP, the risk function has worked with a third party to provide detailed collateral-level climate assessments for the Group's loan portfolios. The data was in turn used to create profiles and financial risk assessments.
a) Considered climate scenarios
The standard metric for assessing climate change risk is the global concentration of greenhouse gases measured against the values of the Representative Concentration Pathway (RCP). The four tiers adopted by the Intergovernmental Panel on Climate Change for its Fifth Assessment Report (AR5) in 2014 are:
Risk Review(Continuation)
emission scenario
| scenario | Temperature change (°C) up to 2100 |
| RCP 2.6 | 1,6 (0,9 – 2,3) |
| RCP 4.5 | 2,4 (1,7 – 3,2) |
| RCP 6.0 | 2,8 (2,0 – 3,7) |
| RCP 8.5 | 4,3 (3,2 – 5,4) |
Note: The numbers in the brackets above indicate the temperature range. Individual numbers outside the brackets indicate the average values.
b) Considered climate risks
The following three physical hazards of climate change were assessed:
- Floods – wetter winters and more concentrated precipitation events will increase flooding.
- Settlement - drier summers increase settlement by shrinking or swelling of clay.
- Coastal Erosion - Increased storm surges and rising sea levels will increase the rate of erosion.
For each of the physical hazards and climate scenarios described above, a decade-by-decade forecast from the current year to 2100 has been provided at the respective probability.
For floods and subsidence, the probability was given in terms of a probability that a flood or subsidence event will occur in the next ten years. For coastal erosion, the property's distance to the shoreline is reported by scenario and decade.
All hazard effects are calculated at the lot level with an accuracy of one meter. This resolution is essential as flood and subsidence risk factors can vary significantly between adjacent properties.
In addition to physical hazards, each property's current Energy Performance Certificate (EPC) was considered to allow for an assessment of transition risk due to policy changes. EPC ratings are based on a Standard Energy Procedure (SAP) calculation, which uses a methodology to determine a property's energy efficiency by considering factors such as building materials, heating systems, insulation and air leakage.
Both the OSB and CCFS portfolios have been profiled against each of the hazards listed under the best (RCP 2.6) and worst (RCP 8.5) climate scenarios.
- flood risk
By the 2030s, at the group level, the percentage of properties predicted to flood is expected to increase from 0.49% in the worst scenario to 0.51% in the worst scenario. Both scenarios represent a small portion of the Group's loan portfolio.
- lowering
During the 2030s, at the Group level, the percentage of properties predicted to sink is expected to increase from 0.42% in the worst case scenario to 0.45% in the worst case scenario. The outcome of both scenarios represents a small portion of the Group's loan portfolio.
- coastal erosion
Coastal erosion risk consists of two elements. The first relates to the property's proximity to the coast. The second depends on whether the area in which the property is located is likely to suffer coastal erosion in the future.
Risk Review(Continuation)
Both banks have over 93% of their portfolios located more than 1000 meters from shore, indicating very low risk of coastal erosion across the group.
CCFS bank company has 32 properties within 100 meters from the shore, while OSB bank company has 34.
c) Profile of the Energy Performance Certificate
The EPC profile of both banks follows a similar trend as the national average. At the group level, 40% of the properties have an EPC of C or better, 45% an EPC of D, 13% an EPC of E and negligible percentages in F or G. Over 90% of the properties supporting the group's loan portfolios have the potential, at least to have an EPC rating of C.
Value-at-Risk assessment
The value-at-risk for each bank, as measured by the change in expected credit loss (ECL) and standardized and IRB risk-weighted assets (RWA), is assessed by applying stress to collateral valuations according to the methodology described below. The impact is assessed using the most recent year-end position.
Climate change scenarios
In order to capture the full spectrum of impacts, the stress scenarios with the greatest and least impacts of climate change were considered.
The strictest, RCP 8.5, assumes that there will be no concerted efforts at the global level to reduce greenhouse gas emissions. In this scenario, the predicted increase in global temperature is 3.2-5.4°C by 2100.
The least severe scenario, RCP 2.6, assumes that early action is taken to limit future greenhouse gas emissions. In this scenario, the predicted increase in global temperature is 0.9-2.3°C by 2100.
Methodology - physical risks
Updated assessments are produced for the physical risks to reflect the impact of flooding, subsidence and coastal erosion risks.
Methodology - Transition Risks
The Group anticipates that as part of the Early Action Scenario (RCP 2.6), the Government will require all properties to achieve EPC Classes A, B and C where possible. We only considered this risk for buy-to-let accounts.
d) Analysis result
The physical risks currently pose an insignificant ECL or capital risk to the group. The sensitivity to transition risks is greater than that to physical risks, albeit still very low, especially given the aggressive timeframes of government policy in relation to the minimum requirements for the EPC considered.
e) Planned improvements over the course of 2023
Going forward, the group's climate risk data and scenario analysis capabilities will be further enhanced.
Main Risks and Uncertainties
1. Strategic and Business Risk
The risk to the Group's results and profitability arising from its strategic decisions, changing business conditions, improper implementation of decisions, or lack of responsiveness to industry changes.
Risk appetite statement: The Group's strategic and business risk appetite states that the Group does not intend to take medium to long-term strategic actions that would jeopardize its vision to be a leading specialist lender backed by strong and reliable savings businesses. The group applies a long-term sustainable business model, focused on niche sub-sectors but able to adapt to growth targets and external developments.
1.1 Performance against Goals
Performance against strategic and business objectives does not meet stakeholder expectations. This can damage the franchise value and reputation of the group.
reduction
Regular monitoring of business and financial performance by the Board of Directors and the Group Executive Committee against the strategic agenda and risk appetite. The financial plan is subject to regular new forecasts. The Balanced Business Scorecard is the primary mechanism to support how the Board evaluates management performance against key objectives. Using stress testing to change core business planning assumptions and assess potential performance under stressed operating conditions.
Direction: elevated
The group has delivered strong performance against targets in 2022, despite the ongoing impact of inflation, rising interest rates and the conflict in Ukraine. Ongoing macroeconomic uncertainty and its potential impact on net interest margin, affordability levels and property prices pose an increased risk to the Group's performance in 2023.
1.2 Economic Environment
The economic environment in the UK is an important factor affecting the strategic and business risk profile.
A macroeconomic downturn may impact the credit quality of the Group's existing loan portfolios and affect future business strategy as the Group's new business proposition becomes less attractive due to lower yields.
reduction
The Group's business model as a secured lender helps limit potential credit risk losses and supports performance over the business cycle. The Group continues to use and improve its stress testing capabilities to assess and mitigate potential areas of macroeconomic vulnerability.
Direction: elevated
The increase in macroeconomic environment risk in 2022 was related to inflation and rising interest rates, which put pressure on borrower affordability. Ongoing macroeconomic uncertainty will continue into 2023, with an increased risk to the Group's credit risk profile, including the possibility of a decline in property prices.
1.3 Risk of Competition
The risk that new banks and existing peer banks will shift focus to the group's sub-market segments and increase competition.
Main Risks and Uncertainties(Continuation)
reduction
The group continues to develop products and services that meet the needs of the markets in which it operates. The group has a diversified range of products and capabilities which, together with significant financial resources, it can leverage to respond to changes in competition.
Direction: unchanged
The current economic outlook may limit the number of competitors shifting their focus to the Group's key submarket segments.
2. Reputationsrisiko
The potential risk that the Group's reputation will be adversely affected due to factors such as unethical practices, adverse regulatory action, customer or agent dissatisfaction and complaints, or adverse/negative publicity.
Reputational risk can arise from a variety of sources and is a second order risk – the emergence of a major risk can result in an impact on reputational risk.
The group has a very low appetite for reputational risk. The Group will not conduct its business or engage in any way with stakeholders that could adversely affect its reputation or franchise value. The Group recognizes that reputational risk is a consequence of other risks materializing and in turn seeks to actively manage all risks within the risk appetite approved by the Board. The Group strives to protect and enhance its reputation at all times.
2. 1 Damage to reputation
Possible loss of trust from our stakeholders in us as a responsible and fair provider of financial services.
reduction
Culture and commitment to treat customers fairly and be open and transparent in communications with key stakeholders. Established processes to proactively identify and manage potential sources of reputational risk. Review of relevant management information (MI) including complaint volume, Net Promoter Scores, customer satisfaction scores, social media and Trustpilot feedback.
Direction: elevated
The challenging macro environment in 2022 led to significant shifts in both UK credit and savings markets. This has resulted in all banks having to become increasingly agile with their product offerings to ensure all core objectives continue to be met. Operational scalability and efficiency issues have impacted the Group's reputational risk profile.
3. Credit risk
Potential for loss due to a counterparty's failure to meet its contractual obligation to repay a debt in accordance with the agreed terms.
Risk appetite statement: The Group aims to maintain a quality loan portfolio that generates reasonable returns under normal and stressed conditions. The portfolio is actively managed to operate within specified criteria and limits based on earnings volatility, with an emphasis on key sectors, recoverable values, affordability and exposure. The Group aims to continue to generate sufficient income and to control loan losses to the point that it remains profitable even when exposed to a 1 in 20 stress scenario on the loan portfolio.
Main Risks and Uncertainties(Continuation)
3.1 Individual Borrower Defaults
Borrowers may encounter idiosyncratic problems in repaying their loans, e.g. B. Loss of job or execution problems on a development project.
While in most cases of default the Group's lending is collateralised, some borrowers may not be able to hold the value of the security, which could result in a loss.
reduction
At both OSB and CCFS, a sound underwriting assessment is performed to ensure a client has the ability and willingness to repay and sufficient collateral is available to support the new loan requested. CCFS uses an automated scorecard approach, while OSB uses a bespoke manual underwriting approach, complemented by bespoke application scorecards to inform the credit decision.
Should problems arise with a loan, the collections and collections team will work with clients who are unable to meet their credit service obligations to a satisfactory resolution, while adhering to the principle of fair dealing with clients.
Our strategic focus on lending to professional landlords means properties are likely to be well managed, with returns from a diversified portfolio mitigating the impact of lost rents or maintenance costs. Lending to owner-occupiers is subject to a detailed affordability test, including the borrower's ability to continue making payments as interest rates rise. Commercial property lending is more security based and is reviewed by both the Group's independent property team and external appraisers.
Lending for development finance is only granted after a thorough examination of the borrower's track record and a stress test of the project's economic viability.
Direction: elevated
Drivers of borrower default risk have shifted to rising inflation and consequent rate hikes impacting affordability of accounts reverting to higher interest rates and increasing the risk of borrower default.
3.2 Macroeconomic downturn
A general deterioration in the UK economy would adversely affect both the ability of borrowers to repay loans and the value of the Group's collateral. Credit losses would impact the Group's loan portfolios, even if the individual impacts were small, the overall impact on the Group could be significant.
reduction
The group operates within portfolio limits for LTV, affordability, name, sector and geographic concentration approved by the Group Risk Committee and the Board of Directors. These are checked every six months. In addition, stress tests are performed to ensure that the Group has sufficient capital to absorb losses in an economic downturn and continues to meet its regulatory requirements.
Direction: elevated
The uncertain economic outlook and ongoing geopolitical risk stemming from the conflict in Ukraine led to high inflation and rate hikes could lead to higher customer defaults, rising depreciation and falling residential and commercial collateral values.
Main Risks and Uncertainties(Continuation)
3.3 Wholesale Credit Risk
The group has wholesale exposures both through overnight accounts used for transaction and liquidity purposes and through derivative exposures used for hedging purposes.
reduction
The Group enters into transactions only with first class wholesale counterparties. Derivative exposures include collateral arrangements to mitigate credit exposures.
Direction: unchanged
The Group's wholesale credit exposure remains limited to first class counterparties, overnight exposures to clearing banks and swap counterparties.
4. Market Risk
Possible loss due to changes in market prices or values.
Risk appetite statement: The Group actively manages market risk arising from structural interest rate positions. The Group does not aim for a significant interest rate position or a directional view of interest rates and limits its mismatch and basis risk.
4.1 Risks
The risk of loss due to adverse movements in the overall interest rate level. It arises from mismatches in the timing of revaluations of assets and liabilities, both on and off-balance sheet. It includes the risks resulting from incomplete hedging of receivables and the risk of interest-related customer behavior, e.g. premature detachment.
reduction
The Group treasury function actively hedges to match the timing of cash flows from assets and liabilities.
Direction: unchanged
Interest rate risk remained unchanged in 2022 due to the Group's simple asset and liability structure and continued diligent management.
4.2 Basic risk
The risk of loss due to an adverse interest rate deviation. It arises when assets and liabilities are re-evaluated by various floating rate indices. These indices may be market, administered or other discretionary floating rates or those held on demand accounts with other banks.
reduction
Due to its balance sheet structure, the Group did not require active basis risk management in 2022.
Direction: decreased
The basis risk was reduced compared to the previous year as a result of the LIBOR changeover at the end of 2021.
Main Risks and Uncertainties(Continuation)
5. Liquidity and Funding Risk
The risk that, despite being solvent, the Group does not have sufficient financial resources to be able to meet its obligations when they fall due.
Risk appetite statement: The Group will maintain sufficient liquidity to meet its liabilities as they come due under normal and stressed business conditions; This is achieved by maintaining a strong retail savings franchise, supported by high quality portfolios of liquid assets comprised of cash and readily realizable assets, and access to pre-arranged secured financing facilities. The Board's requirement to maintain sufficient balance sheet resources to withstand a range of severe but plausible stress scenarios is interpreted in relation to the Liquidity Coverage Ratio and the ILAAP stress scenarios.
5.1 Financing stress in retail
As the group is primarily funded by retail customer deposits, a retail customer run could leave it in a position where it could not meet its financial obligations.
Increased competition for retail savings is driving up financing costs and negatively impacting retention rates and profitability.
reduction
The Group's funding strategy focuses on a highly stable retail deposit business. The group's large number of depositors ensures diversification, with a high proportion of balances covered by the FSCS protection scheme, thereby largely mitigating the risk of a retail run.
In addition, the group performs in-depth liquidity stress tests and maintains a portfolio of liquid assets sufficient to meet obligations under stress. The group maintains regulatory liquidity buffers to manage funding needs under both normal and stressed conditions.
The group has continued to diversify its retail channels by expanding the range of pooled deposit providers.
The Group proactively manages its savings offering through both the Liquidity Working Group and the Group Assets and Liabilities Committee. Finally, the group has pre-positioned mortgage collateral and securitized debt with the Bank of England, allowing it to consider alternative sources of funding to ensure it is not solely reliant on retail savings. The group also has a personal mortgage due
Backed Security (RMBS)-Programm.
Direction: elevated
The group's funding level and mix remained strong throughout the year.
In 2022, OSB and CCFS were able to attract significant flows of new deposits and depositors, despite the volatile interest rate environment and competitive savings market. During periods of exceptionally high volatility, funds were raised from the Bank of England using the Index Long-Term Repo Scheme to support retail investor funding and client operations.
5.2 Stress in wholesale financing
Market-wide stress could shut down securitization markets or make issuance costs unattractive for the Group.
reduction
The group continuously monitors the wholesale finance markets and is experienced in taking proactive management actions where necessary.
Main Risks and Uncertainties(Continuation)
The group issued a securitization in 2022 and has a range of wholesale financing options outside of retained securitisations, including Bank of England facilities for which collateral has been pre-positioned.
Direction: unchanged
The Group's range of available wholesale financing options, including repo or sale of retained notes or collateral upgrade trades, remained broadly unchanged.
5. 3 refinancing of TFSME
The group's Current Term Funding Scheme for Small and Medium-sized Enterprises (TFSME) borrowing remained at £4.2 billion at the end of 2022, with a refinancing concentration planned for October 2025.
reduction
The Group has other wholesale options available to it, including securitization programs and repo or sale of debt securities held, as well as private financing through its strong franchises to progressively replace TFSME borrowing over the next few years prior to the maturity of this financing.
Direction: unchanged
TFSME borrowing was flat during the year; However, the current financing plan to refinance TFSME requires a significant securitization issuance. These markets have experienced heightened volatility in 2022 that may continue into 2023, so additional refinancing options are being considered.
6. Solvenzrisiko
The Group's potential inability to ensure that it remains adequately capitalized for its business strategy and risk profile under both baseline and stressed financial projections.
Risk appetite statement: The Group seeks to ensure its ability to meet its Board level capital buffer requirements under a severe but plausible stress scenario. The solvency risk appetite is determined by the regulatory requirements as well as the strategic and financial objectives of the group. We manage our capital resources in a manner that avoids excessive leverage and allows us flexibility in raising capital.
6.1 Deterioration in Capital Ratios
Significant risks to solvency arise from balance sheet growth and unexpected losses, which may result in the Group's capital requirements increasing or capital resources being depleted beyond the solvency ratios mandated by the PRA and the Board's risk appetite.
The regulatory capital regime is subject to change and could result in an increase in the amount and quality of capital that the Group is required to hold in order to comply with regulatory requirements. In particular, we note the PRA's recently published Consultation Paper (CP) on the implementation of Basel 3.1.
reduction
The group operates from a strong capital position and has a consistent track record of strong profitability.
The Group actively monitors its capital needs and resources against financial forecasts and plans, and performs stress testing analyzes to subject its solvency ratios to extreme but plausible scenarios.
The group also holds prudent capital buffers based on CRD IV requirements and expected balance sheet growth.
Main Risks and Uncertainties(Continuation)
The group actively works with regulators, industry bodies and advisors to stay informed of potential changes and provides feedback as part of the consultation process.
Direction: elevated
The stable credit profile and ongoing profitability ensure that the Group remains well capitalized.
Risks remain of adverse credit profile developments due to rising inflation and interest rates.
We have estimated the impact of Basel 3.1 on our CET1 ratio as of December 31, 2022 to be a reduction of up to 2 percentage points if the proposed rules are implemented as drafted in the CP and before the Group adopts the internal ratings-based (IRB ) received accreditation .
7. Operational Risk
The risk of loss or an adverse impact on the Group resulting from inadequate or defective internal processes, people or systems, or from external events.
Risk appetite statement: The Group's operational processes, systems and controls are designed to minimize disruption to customers, damage to the Group's reputation and any adverse impact on financial performance. The Group actively promotes the continuous development of its operating environment through the identification, assessment and mitigation of risks, recognizing that it is not possible to completely eliminate operational risk.
7.1 IT security (including cyber risk)
The risks arising from a failure to protect the Group's systems and the data they contain. This includes both internal and external threats.
reduction
The Group's IT and cyber improvement program continued with the aim of improving protection against IT security threats by deploying a range of tools designed to detect and prevent network/system attacks. This is further supported by documented and tested procedures designed to ensure an effective response to a security breach.
Direction: unchanged
The group has processes in place that allow it to work effectively when employees work from home and to manage the cyber risks associated with working remotely.
As IT security risks evolve, work continues to improve the maturity of the Group's controls and defenses, supported by dedicated IT security professionals.
The group has an ongoing penetration testing program to drive improvements by identifying potential areas of risk.
7. 2 Data quality and completeness
The risks arising from inaccurate or incomplete data.
reduction
The group previously established a dedicated data strategy program that includes the appointment of a chief data officer and a data governance director to ensure a consistent approach to data care and use. This includes both documented procedures and frameworks as well as tools designed to improve the consistency of data usage.
Main Risks and Uncertainties(Continuation)
Direction: unchanged
In 2022, progress was made towards embedding group-wide governance frameworks, driven in part by the group's IRB project. Further work is planned for 2023 in order to get closer to the target final state of the group.
7.3 Change Management
The risks stemming from unsuccessful change management implementations, including failure to respond effectively to release-related incidents.
reduction
The group recognizes that implementing change entails significant operational risk and as such has implemented a number of control gateways designed to ensure that each phase of the change management process has the required level of oversight.
Direction: elevated
The group has continued to adopt an ambitious change agenda that has been well monitored and managed in 2022. We are now turning our attention to identifying opportunities to further digitize our operations, achieve additional efficiencies and invest in the group to ensure it stays strong. positioned to meet the changing needs of our clients, brokers and stakeholders.
7.4 IT-Ausfall
The risks arising from a failure of a major IT application or infrastructure affecting access to the Group's IT systems.
reduction
The group continues to invest in improving the resilience of its core infrastructure. It has identified its prioritized business services and the infrastructure required to support them. Tests are performed regularly to validate the ability to recover from an incident.
The group has established a base in Hyderabad to ensure that services can be maintained in the event of a disruption to operations in Bangalore.
Direction: unchanged
While progress has been made in reducing both the likelihood and impact of an IT failure, risks remain, particularly due to new hybrid forms of work. Further work is planned in the course of 2023.
8. Conduct Risk
The risk that the Group's culture, organisation, behaviors and actions result in poor outcomes and disadvantage for customers and/or damage consumer confidence and the integrity of the markets in which it operates.
Risk appetite statement: The Group has a very low willingness to take risks that may result in either poor or unfair client outcomes and/or cause disruption in the market segments in which it operates. The group strives to avoid harm or harm to its customers and acts according to the highest standards of behavior. The Group treats its customers, third party partners, investors and regulators with respect, fairness and transparency. The Group will proactively seek to identify where its products and services may cause poor outcomes or harm to its customers and will take appropriate action to mitigate this. When a customer claim occurs, the group ensures effective solutions are implemented to address the root cause and a fair outcome is achieved.
Main Risks and Uncertainties(Continuation)
8.1 Conduct Risk
The risk that the Group does not meet its expectations with regard to conduct risk.
reduction
The culture of the group is clearly defined and monitored through its behaviors guided by purpose, vision and values.
The group has a strategic commitment to provide simple, customer-focused products. In addition, a product governance framework will be put in place to both oversee the emergence of new products and to review the ongoing suitability of the existing product suite.
The Group has an embedded conduct risk management framework that clearly defines roles and responsibilities for conduct risk management and oversight across the Group's three lines of defense.
Direction: elevated
Conduct risk levels increased due to macroeconomic uncertainty. Some customers, particularly vulnerable ones, may experience financial difficulties due to rising living costs and borrowing costs. Volatile credit and savings markets resulted in unprecedented volumes of new business, which negatively impacted customer service arrangements and led to increased complaints and reputational risk.
Behavioral losses have remained stable, and no risk-taking violations have been reported in the past 12 months.
9. Regulatory Risk
The risk of not effectively identifying, interpreting, implementing and complying with all regulatory or legal changes affecting the Group.
Risk appetite statement: The Group views ongoing compliance with regulatory requirements and standards in all jurisdictions in which it operates as a critical aspect of its risk culture. The Group has a very low willingness to take regulatory risk that could result in poor client outcomes, client disadvantage, regulatory sanctions, financial loss or reputational damage. The Group proactively monitors and does not tolerate systematic non-compliance with any applicable law, regulation or code of conduct relevant to its operations.
The Group recognizes that regulatory rules and standards are subject to interpretation and subsequent translation into internal policies and procedures. The group interprets requirements to ensure compliance with the intended purpose and spirit of the regulation while being aware of commercial considerations and good customer outcomes. To mitigate regulatory risk, the Group works proactively and transparently with its regulators, participates in industry forums and, where appropriate, seeks external advice to validate its interpretations.
9.1 Regulatory Changes
The Group continues to face a large number of important regulatory compliance changes affecting its operations. These include the implementation of Basel 3.1 capital requirements and increased requirements of the Resolvability Assessment Framework, including updated minimum requirements for own funds and eligible liabilities (MREL).
Main Risks and Uncertainties(Continuation)
reduction
The group has an effective horizon scanning process to detect regulatory changes.
All major regulatory initiatives are managed through structured programs overseen by the project management team and sponsored at senior level.
The Group has proactively sought external expert opinions to assist in the interpretation of the requirements and the validation of its response where necessary.
Direction: unchanged
The group has continued to interact extensively with UK regulators and continues to identify and respond effectively to any regulatory changes.
9.2 Implementing Regulation
Regulatory changes focused on how business is conducted could force changes in the way the Group conducts its business and incur significant compliance costs.
These include the risk that product design, underwriting, arrears and forbearance, and policies for vulnerable customers are not aligned with regulatory expectations, resulting in customers not being treated fairly, particularly those experiencing financial difficulties or who are vulnerable customers, with the potential for reputational damage, redress and other regulatory action.
reduction
The Group has a regulatory horizon scanning program linked to a formal regulatory change management program. Additionally, the focus on simple products and a customer-centric culture means that current practice may not need to change significantly to meet new codes of conduct.
All Group companies apply insurance, delinquency and forbearance and high-risk customer policies designed to comply with regulatory principles, rules and expectations. This policy expresses the Group's commitment to ensuring that all customers, including those who are vulnerable or experiencing financial difficulties, are treated fairly, consistently and in a manner that takes into account their individual needs and circumstances.
The group will not tolerate any systematic failure to deliver fair client outcomes. Occasionally, incidents can lead to damage due to human and/or operational error. When such incidents occur, they are thoroughly investigated and appropriate remedial actions are taken to mitigate any customer disadvantage and prevent recurrence.
Direction: elevated
The level of regulatory change has remained high, but the Group has sufficient resources and capabilities to respond effectively and efficiently to any change.
The group continues to work proactively with regulators to engage in thematic reviews and information requests as needed.
Identifying, monitoring and assisting at-risk customers remains a key focus.
Ongoing reviews of long-term arrears and forbearance continue to ensure that payment terms remain reasonable.
The group has initiated a formal project to implement the FCA's new consumer duty requirements within the required timelines.
Main Risks and Uncertainties(Continuation)
10. Financial Crime Risk
The risk of financial or reputational loss due to inadequate systems and controls to mitigate financial crime risks.
Risk appetite statement: In order to minimize the risk of financial crime, the Group will develop and maintain robust systems and controls to identify, evaluate, manage and report all activities (internal or external in nature) that place the Group at risk Exposing financial crimes in the form of money laundering, human trafficking, terrorist financing, sanctions violations, bribery, corruption and fraud. The Group recognizes the need to continually review its systems and controls to ensure they are appropriate for the nature and extent of financial crime risk to which it is currently and prospectively exposed.
10.1 Financial Crime Risk
The risk of financial or reputational loss resulting from failure to implement systems and controls to manage the risk of money laundering, terrorist financing, sanctions, bribery, corruption and cybercrime.
reduction
The group operates in a low-risk environment, offering relatively simple products to UK-based customers serviced through a UK-registered bank account. The Group has an established screening program deployed at the point of origin and regularly throughout the customer lifecycle. Where appropriate, enhanced due diligence is applied to ensure that any increase in risk is appropriately managed and all activities remain within the risk appetite.
The group has a horizon scanning program that identifies changes to money laundering regulations and other financial crime related laws to ensure we comply with all regulatory obligations.
The group reacted quickly to the events in Ukraine and the regularly published updates regarding the financial sanctions in Russia and Belarus. The Group has negligible exposure to the affected jurisdictions and no exposure to any specific person or entity included in the revised sanctions lists.
The group's cyber improvement program continued with the aim of improving protection against IT security threats by deploying a range of tools designed to detect and prevent network/system attacks. The Group's Financial Crimes Team will support the Information Security Team as appropriate to ensure robust and effective controls are in place and all colleagues are adequately trained and made aware.
Direction: Unchanged
The group continues to focus primarily on the UK market with accounts serviced from UK bank accounts.
The group has processes in place that allow it to work effectively when employees work from home and to manage the cyber risks associated with working remotely. As IT security risks evolve, the level of maturity of the Group's controls and defenses has increased significantly, supported by dedicated IT security professionals.
Main Risks and Uncertainties(Continuation)
10.2 Fraud Risk
The risk of financial loss through fraudulent actions by an internal or external person.
reduction
The group continues to invest in a range of systems and controls deployed across its product range to detect and prevent the risk of fraud throughout the customer lifecycle. All new business applications are subject to a number of controls to detect and mitigate fraud. Customer activity is monitored to detect suspicious activity or behavior that may indicate fraud.
These controls are also supported by documented policies and procedures administered by experienced staff in a dedicated financial crimes unit.
The Group continuously monitors its detection capability through regular reviews of parameters within its systems and control framework to ensure these remain fit for purpose and aligned to mitigate emerging risks.
Direction: Elevated
The Group recognizes that any potential downturn in the broader economic environment may increase the risk of fraudulent activity across its product range and will closely monitor changes in trends that indicate new or emerging risks.
Emerging Risks
The Group proactively searches for emerging risks that could impact its ongoing operations and strategy and considers the following to be its key emerging risks:
Political and macroeconomic uncertainty
The Group's lending activity is primarily focused in the UK (with a legacy of mortgages in the Channel Islands) and is therefore affected by risks arising from changes in the macroeconomic environment. Rising inflation and interest rates harbor risks for the development of the Group's credit portfolio.
reduction
The group has mature and robust monitoring processes in place and through various stress testing activities (i.e. ad hoc, risk appetite and internal capital adequacy assessment process (ICAAP)) understands how the group is performing under a variety of macroeconomic stress scenarios and has developed a set of early detection warning indicators, which are closely monitored to detect changes in the economic environment. The Board of Directors and management review detailed portfolio reports to identify changes in the Group's risk profile.
climate change
As the focus on climate change increases, both physical risks and transition risks associated with climate change continue to increase. Climate change risks include:
- Physical risks related to specific weather events such as storms and floods, or to longer-term climate changes such as sea level rise. These risks could include adverse performance of certain properties located in coastal and low-lying areas or in areas prone to increased subsidence and uplift.
- Transition risks can arise from moving to a low-carbon economy, such as B. the tightening of energy efficiency standards for residential and commercial buildings. These risks could include potentially adverse performance of properties that require significant upgrades to meet future energy efficiency requirements.
- Reputational risk arising from failure to meet changing societal, investor or regulatory requirements.
Main Risks and Uncertainties(Continuation)
reduction
In 2022, the group further embedded its approach to climate risk management, which included developing a climate risk appetite. Further details are set out in the OSBG Annual Report and Task Force on Climate-related Financial Disclosures (TCFD) report.
The Group's Chief Risk Officer has delegated responsibility for managing climate change risk to senior management.
Model risk
The risk of financial loss, adverse regulatory outcomes, reputational damage or customer disadvantage resulting from deficiencies in the development, application or ongoing operation of models and rating systems.
The group also takes note of changes in industry best practice related to model risk management, including a PRA consultation paper that sets out proposed expectations for banks' management of model risk.
reduction
The Group has well-established model risk governance arrangements with Board and Executive Committees to ensure sound oversight of the Group's model risk profile. Dedicated resources are in place to ensure model governance arrangements continue to meet any changes in industry and regulatory expectations.
Regulatory Change
The Group remains subject to a high level of regulatory oversight and an extensive and far-reaching regulatory change agenda, including meeting the requirements of the Resolvability Assessment Framework and Operational Continuity in Resolution. The Group is therefore required to respond to prudential and behavioral regulatory changes and participate in thematic reviews as necessary.
There is also residual uncertainty with regard to the regulatory landscape after the United Kingdom has left the European Union.
reduction
The group has established horizon scanning capabilities coupled with dedicated regulatory and conduct oversight professionals to ensure the group effectively manages future regulatory changes.
The group also maintains close relationships with regulators and participates in forthcoming regulatory consultations through membership of UK Finance.
Risk Review
Performance overview risk profile
Credit risk
The Group's loan portfolios have performed robustly in 2022. Prudent new origination criteria delivered strong new business quality while the back book also exceeded forecast expectations. In particular, the group reported lower than forecast arrears and better than expected home price inflation.
The Group's prudent credit risk appetite ensures that loan portfolios are positioned to perform well in both benign and stressed macroeconomic environments.
The Group delivered net loan book growth of 12% in 2022 with strong lending in the Group's core buy-to-let and residential sub-segments, which more than offset declines in the second charge and refinancing lines sub-segments. New lending also improved in the Group's semi-commercial and commercial sub-segments, as well as in the development finance sub-segments.
Favorable property price indexation resulted in a reduction in the weighted average equity LTV for OSB and CCFS as of December 31, 2022 to 58% and 63% respectively (December 31, 2021: OSB 60% and CCFS 65%) and a cautious weighted one average LTV profile of 60% for the group versus 62% at the end of 2021.
A low and stable level of arrears continued to be observed, with only 1.1% of the Group's net loan balances being more than three months in arrears as at 31 December 2022, unchanged from the previous year. Rising arrears were observed in a small number of portfolios as deferred payments expired; However, these increases were partially offset by the improvement in the performance of other loan portfolios.
Solo bank interest coverage ratios for buy-to-let loans remained high at 207% for OSB and 191% for CCFS in 2022 (2021: 199% OSB and 188% CCFS).
In 2022, forward-looking PD and customer debt levels from external credit bureaus remained high, with some decline to pre-pandemic levels as customers returned to spending following the easing of lockdown restrictions.
Performance overview risk profile(Continuation)
Expected Credit Losses (ECL)
Expected credit losses on the balance sheet increased to £130.0m at 31 December 2022 from £101.5m to £130.0m. Other non-material items further contributed to the increase and resulted in a full year statutory impairment charge of £29.8m, representing a default rate of 13bps (2021: £4.4m release, -2bps,
respectively), with the provision charge being driven primarily by adjustments to the model to reflect rising cost of living and borrowing cost concerns, as well as strong loan book growth during the year.
A summary of key impairment drivers for 2022 included:
- – Throughout 2022, positive movements in the House Price Index (HPI) and persistently low unemployment were observed, however the outlook deteriorated over the year due to the war between Russia and Ukraine and the impact of the mini-budget. The economic outlook at the end of 2022 was dominated by rising interest rates, above-target inflation and, most importantly, a fall in house prices. The changing economic outlook contributed to £11.6m of write-downs in 2022, while improving house prices led to a release of £10.3m.
- Credit profile provisioning costs – Impairment costs related to changes in credit profile such as portfolio growth, portfolio product mix and changes in staging mix totaled £15.2m. Other charges, including changes to individually assessed provisions and depreciation, totaled £8.3m.
B. Model and staging improvements - Improvements have been made to the Group's underlying models to ensure that the estimates continue to reflect actual credit profile developments. In particular, the Group's model improvements as part of the IRB program have been integrated into the Group's IFRS 9 framework. In addition, the Group has enhanced its significant increases in credit risk (SICR) framework to introduce a credit risk trigger responsive to the economic outlook. The cumulative impact of these modeling and staging improvements was a release of £8.3m for 2022.
C. Post-model adjustments - The group made a number of post-model adjustments, mainly to account for external risks that were not adequately addressed in the model and staging framework. The most significant adjustments were made to the Stage 2 approach to reflect the cost of borrowing and cost of living burdens due to the sharp rise in interest rates and historically high inflation. In total, the Postmodel adjustments contributed to £13.3m of impairments in 2022.
The Group continued to closely monitor the level of impairment coverage throughout the year.
Impairment coverage ratios were strengthened on observed cost of living and borrowing cost drivers, as well as renewed uncertainty about the macroeconomic outlook, with coverage ratios approaching those seen at the peak of the pandemic. The Group's risk function performed a top-down analysis and assessed portfolio-specific risks, which confirmed the adequacy of the provision level after considering the post-model adjustments.
Performance overview risk profile(Continuation)
Table of coverage rates
As of December 31, 2022 | gross book value Mio. £ | Expected credit losses Mio. £ | coverage level |
| stage 1 | 18.722,3 | 7.2 | 0,04 % |
| Level 2 | 4.417,1 | 50.9 | 1,15 % |
| Stofe 3 (+ POCI) | 588.7 | 71.9 | 12,21 % |
| In total | 23.728,1 | 130,0 | 0,55 % |
| As of December 31, 2021 | |||
| stage 1 | 18.188.4 | 12.1 | 0,07 % |
| Level 2 | 2.413,6 | 25.0 | 1,04 % |
| Stofe 3 (+ POCI) | 562.1 | 64.4 | 11,46 % |
| In total | 21.164.1 | 101.5 | 0,48 % |
Macroeconomic Scenarios
Measuring ECL under the IFRS 9 approach is complex and requires a high degree of judgement. The approach includes estimating probability of default (PD), loss given default (LGD) and likely exposure at default (EAD). In addition, an assessment is made of the maximum contract period with which the Group is exposed to the credit risk of the asset.
IFRS 9 requires entities to calculate ECL allowances that simulate the effects of a range of possible economic outcomes calculated on a probability-weighted basis. This requires companies to formulate forward-looking macroeconomic forecasts and include them in ECL calculations.
I. How macroeconomic variables and scenarios are selected
During the IFRS 9 modeling process, the relationship between macroeconomic drivers and arrears, default rates and collateral values is established. For example, if unemployment figures rose, the group would see an increasing number of accounts delinquent. When residential or commercial property prices fall, the risk of realizing losses when selling a property increases.
The group has chosen an approach using four macroeconomic scenarios. These scenarios are provided by an industry-leading business consulting firm that advises management and the Board of Directors.
A base case forecast is provided along with a plausible upside scenario. Two downside scenarios are also provided (down and a severe move down).
ii. How macroeconomic scenarios are used in ECL calculations
Default probability estimates are either scaled up or down based on the macroeconomic scenarios used.
Loss given default estimates are primarily influenced by real estate price forecasts used in loss estimates in the event an account is owned and sold.
Default risk estimates are not affected by the macroeconomic scenarios used.
Each of the above components is then used directly within the ECL calculation process.
iii. Macroeconomic Scenario Governance
The group has a robust governance process to oversee macroeconomic scenarios and probability weights used in ECL calculations.
Performance overview risk profile(Continuation)
The Group's Risk function and Economic Advisor regularly provide the Group's Risk and Audit Committee with an overview of recent economic performance together with updated baseline, upside and two downside scenarios. The risk function performs a review of the scenarios and compares them to other economic forecasts, resulting in a proposed course of action to be implemented upon approval.
IV. Changes throughout 2022
Throughout 2022 the scenario suite was monitored and updated as political and geopolitical developments unfolded in the UK.
The Group's risk and audit committees focused on assessing whether certain risks have been captured in externally provided forward-looking statements. Particular focus was placed on the risks associated with rising living costs and the resulting rise in interest rates to control inflation. The Group performed a detailed analysis to assess the portfolio risks and whether they were adequately reflected in the IFRS 9 models and frameworks and identified a number of areas requiring adjustments under the model, particularly around the increased Credit risk to consider from the increased cost of living and borrowing costs leading to an increase in the account balance in Stage 2.
The Board reflected on the continued appropriateness of the probabilities associated with the set of IFRS 9 scenarios as the macroeconomic outlook evolved throughout the year. The scenarios have been adjusted to symmetric probability, with upside and downside scenarios being equally weighted, as separate post-model adjustments have been made to ensure that the current IFRS 9 framework adequately reflects the underlying portfolio risk.
Details of the scenarios used to determine the provisioning levels under IFRS 9 as of December 31, 2022 are set out in the table below.
Forecast macroeconomic variables over a five-year period
| Probability Weight (%) | scenario % | ||||||
| scenario | economic measure | end of year 2022 | end of year 2023 | end of year 2024 | end of year 2025 | end of year 2026 | |
| Basic case | 40 | BIP | 4.3 | (0,7) | 1.8 | 2.7 | 2.1 |
| unemployment | 3.7 | 4.7 | 4.2 | 3.9 | 3.8 | ||
| house price growth | 9.0 | (9.0) | (3.4) | 2.8 | 5.8 | ||
| VPI | 10.7 | 3.4 | 2.0 | 1.6 | 1.2 | ||
| Bank base rate | 2.8 | 4.0 | 3.6 | 2.6 | 1.8 | ||
| On the top | 30 | BIP | 4.6 | 1.9 | 2.9 | 3.4 | 2.2 |
| unemployment | 3.6 | 4.2 | 4.0 | 3.7 | 3.7 | ||
| house price growth | 10.6 | (6.7) | (1.3) | 4.4 | 5.6 | ||
| VPI | 11.0 | 4.7 | 2.9 | 1.4 | 1.1 | ||
| Bank base rate | 3.0 | 5.3 | 4.8 | 3.4 | 2.3 | ||
| Disadvantage | 20 | BIP | 3.7 | (4.4) | 1.0 | 2.4 | 2.1 |
| unemployment | 4.2 | 6.3 | 7.0 | 7.0 | 6.7 | ||
| house price growth | 6.8 | (14.4) | (8.0) | (1.2) | 6.1 | ||
| VPI | 10.2 | 1.6 | 1.5 | 1.8 | 0,8 | ||
| Bank base rate | 2.9 | 3.8 | 3.1 | 1.9 | 1.3 | ||
| Difficult | 10 | BIP | 3.2 | (7.5) | 0,1 | 1.9 | 2.1 |
| Disadvantage | unemployment | 4.3 | 6.8 | 7.6 | 7.6 | 7.2 | |
| house price growth | 5.0 | (18.6) | (12.1) | (5.0) | 6.5 | ||
| VPI | 9.5 | 0,7 | 0,9 | 2.1 | 0,5 | ||
| Bank base rate | 2.6 | 2.8 | 2.0 | 0,6 | 0,5 | ||
Performance overview risk profile(Continuation)
indulgence
When a borrower encounters financial difficulties that affect its ability to meet its financial obligations under the loan agreement, a forbearance can be used to achieve an outcome that is beneficial to both the borrower and the Group.
By identifying borrowers who are experiencing financial difficulties before or in arrears, a consultation process is initiated to determine the underlying reasons and determine the best course of action to enable the borrower to develop credible repayment plans to see them through the financial stress phase.
The specific tools available to support customers vary by product and customers' circumstances. The different options that are considered for customers are as follows:
- Temporary Interest Only Switch: A temporary account switch to help clients during times of financial difficulty where the contracted monthly payment is reduced to the interest amount owed in the month for the duration of the account switch. Payment arrears existing at the beginning of the contract will be retained.
- Rate Reduction: In certain circumstances, if the borrower meets the necessary eligibility criteria, the Group may transfer the mortgage to a lower contracted rate. If it is a formal contract modification, the borrower will be asked to seek independent financial advice as part of the process.
- Loan Term Extension: a permanent account switch for customers in financial distress that extends the overall mortgage term, resulting in a lower contractual monthly payment.
- Payment Holiday: a temporary account change to assist customers during times of financial difficulty where principal and interest accrued during the Payment Holiday will be repaid over the remaining term from the end of the Payment Holiday. Payment arrears existing at the beginning of the contract will be retained.
- Voluntary Sales Promotion: The borrower is given a deadline to sell the property and arrears are incurred based on the contracted monthly payment.
- Reduced monthly payments: a temporary arrangement for clients in financial distress. For example, a short-term agreement to pay less than the contractually agreed monthly rate. Arrears continue to accrue based on the contractually agreed monthly payment.
- Capitalization of Interest: Arrears are added to the loan balance and repaid over the remaining life of the facility or at maturity for interest only products. A new payment will be charged that is greater than the previous payment.
- Full or Partial Debt Forgiveness: Where appropriate, the Group will consider writing off a portion of the debt. This may occur where the Borrower has an agreed sale and the amount required to repay the Group's fee is insufficient, in which case repayment of the shortfall may be agreed over a period of time, subject to an assessment of affordability; or when the group has been taken over and on subsequent sale when there is a shortfall.
Performance overview risk profile(Continuation)
- Payment Agreement: When an agreement is reached with the borrower to repay an amount in excess of the contracted monthly payment, thereby repaying arrears over a period of time.
- Promise to Pay: When an agreement is reached with the borrower to defer payment or to pay a lump sum at a later date.
- Bridging loans that are more than 30 days past their due date. The repayment is deferred to receive a balloon or terminal payment at the end of the term extension when the institution can properly demonstrate the future availability of cash flows.
The Group seeks to proactively identify and manage forborne receivables by using information from external credit reporting agencies to analyze default probability and customer indebtedness trends over time and feed reports to the prepayment watchlist. Watch list cases, in turn, are carefully monitored and managed as necessary.
Collateral fair value methodology
The Group ensures that security valuations are continually reviewed for accuracy and appropriateness. Commercial real estate is indexed quarterly using Commercial Real Estate (CRE) data. Residential properties are indexed at least quarterly using house price index data.
Solvenzrisiko
The Group maintains an adequate level and quality of capital to meet its regulatory requirements with sufficient assurance to withstand a severe but plausible stress scenario. The solvency risk appetite is based on a stacking approach where the different capital requirements (Pillar 1, CRD IV buffer, board and management buffer) are progressively aggregated as a percentage of available capital (CET1 and total capital). Solvency risk is a function of balance sheet growth, profitability, access to capital markets and regulatory changes. The Group actively monitors all key solvency risk drivers and takes immediate action to maintain its solvency ratios at acceptable levels. The Board and management also assess solvency when considering the Group's business plans and inorganic growth opportunities. The OSB solo CET1 and total capital ratios under CRD IV decreased to 18.4% and 20.0% as of December 31, 2022 (December 31, 2021: 19.4% and 21.3%).
Liquidity and Funding Risk
The Group takes a prudent approach to liquidity management, maintaining sufficient liquidity resources to cover cash flow imbalances and funding volatility under both normal and stressed conditions arising from market-wide and bank-specific events. The liquidity risk appetites of OSB and CCFS have been calibrated to ensure that both banks always operate above regulatory minimums with a reasonable likelihood of unexpected stress, while actively minimizing the risk of holding excessive liquidity, which is detrimental to the financial efficiency of the business model would .
The group continues to attract new retail savers and has a high retention rate with existing customers. In addition, the group has access to a wide range of wholesale financing options, including the issuance of securitisations and the use of retained debt securities from both banks as collateral for Bank of England facilities and third party repurchase agreements.
In 2022, both banks actively managed their respective liquidity and funding profiles within the limits of their risk appetite, as set out in the group's ILAAP.
Performance overview risk profile(Continuation)
Retail refinancing rates rose during the year due to the significant increase in the Bank of England's base rate. However, swap rate increases during the year allowed both banks to retain a higher margin on the savings rates offered to customers. Towards the end of the first quarter, there was a brief period when retail financing was volatile as the first of the major base rate hikes boosted competitor savings rates and increased competition; However, both banks were able to attract new depositors with competitive interest rates.
Increases in swap rates in 2022 also resulted in the Group receiving a high level of margining on the Group's interest rate swaps. The group has increased internal buffers to ensure sufficient funds are held with the Bank of England to meet swap margin calls that could arise if swap rates fall.
Each bank's risk appetite is based on internal stress tests covering a range of scenarios and timeframes and is therefore a more rigorous measure of resilience to a liquidity event than the stand-alone Liquidity Coverage Ratio (LCR). As of December 31, 2022, OSB had a liquidity coverage ratio of 229% (2021: 240%) and CCFS of 148% (2021: 158%) and the group's LCR was 185%, all well above regulatory requirements.
market risk
The Group proactively manages its risk profile in relation to adverse movements in interest rates, foreign exchange rates and counterparty risk.
The Group accepts interest rate risk and basis risk as a result of structural mismatches between fixed rate mortgage loans, sight and fixed term savings and maintaining a portfolio of high quality liquid assets. Interest rate risk is continuously mitigated through portfolio diversification, reserve allocation and the use of financial derivatives within limits set by Group ALCO and approved by the Board of Directors.
The Group's balance sheet is predominantly denominated in GBP. The Group is exposed to a small foreign exchange risk through the financing of the OSBI business. This is minimized by pre-funding a few months in advance and regularly monitoring GBP/INR rates. Wholesale counterparty risk is measured daily and controlled by counterparty risk limits.
operational risk
The Group continues to take a proactive approach to managing operational risk. The operational risk management framework is designed to ensure a robust approach to identifying, measuring and mitigating operational risk, using a combination of qualitative and quantitative assessments. The Group's operational processes, systems and controls are designed to minimize disruption to customers, damage to the Group's reputation and any adverse impact on financial performance. The group actively promotes the continuous development of its operating environment.
Where risks remain, there are established processes to provide an appropriate level of governance and oversight, along with alignment to the risk appetite indicated by the Board.
A strong culture of transparency and escalation has been maintained throughout the organization, with the Operational Risk function having group-wide responsibility, ensuring a well-embedded and consistently applied risk management model. In addition, a community of risk champions representing each business area and location has been identified along with dedicated first-line risk and control teams in some key areas of the business. Both the dedicated first-line risk and control teams and the risk champions ensure that the processes for identifying and assessing operational risks are established consistently throughout the group. Risk Champions are adequately supported and trained by the Operational Risk function.
Performance overview risk profile(Continuation)
After returning to the office following the COVID-19 pandemic, a hybrid working model was implemented across the group, with the exception of front-line client-facing colleagues. With many employees working from home and accessing systems, the risk of a cyber attack has increased. As IT security risks evolve, the level of maturity of the Group's controls and defenses has increased significantly, supported by dedicated IT security professionals. The Group's ongoing penetration testing drives improvements by identifying potential areas of risk.
The group has established a base in Hyderabad to ensure that services can be maintained in the event of a disruption to operations in Bangalore.
Regulatory and Compliance Risk
The Group is committed to the highest standards of regulatory conduct and strives to minimize violations, financial costs and reputational damage associated with non-compliance.
The Group has an established compliance function that actively identifies, assesses and monitors compliance with applicable regulations and the impact of new regulations.
To mitigate regulatory risk, the group maintains a proactive relationship with key regulators, works with industry bodies such as UK Finance and seeks external expert advice. The group also assesses the impact of upcoming regulation on itself and the market in which it operates, and conducts robust assurance assessments within the risk and compliance functions.
risk behavior
The Group views its culture and behavior in ensuring that customers are treated fairly and in maintaining the integrity of the sub-market segments in which it operates as a fundamental part of its strategy and as a key driver for sustained profitability and growth. The group will not tolerate any systematic failure to deliver fair client outcomes.
Individual cases can lead to damage due to human and/or operational error. When such incidents occur, they will be thoroughly investigated and appropriate remedial actions will be taken to eliminate any detriment to the customer and prevent recurrence.
The Group views effective behavioral risk management as a product of the positive behaviors of all employees, influenced by the customer-centric culture throughout the organization, and as such continues to promote strong awareness and accountability.
Risk of Financial Crime
The group operates in a low-risk environment, offering relatively simple products to UK-based customers serviced through a UK-registered bank account. The Group has an established screening program deployed at the point of origin and regularly throughout the customer lifecycle.
The group continues to invest in a range of systems and controls deployed across its product range to detect and prevent the risk of fraud throughout the customer lifecycle. All new-to-business applications are subject to a number of controls designed to detect and mitigate fraud. Customer activity is monitored to detect suspicious activity or behavior that may indicate fraud.
Performance overview risk profile(Continuation)
Strategic and Business Risk
The Management Board has clearly articulated the Group's strategic vision and business objectives, supported by performance targets. The Group does not intend to take any medium to long-term strategic measures that would jeopardize the Group's strategic or financial goals.
In order to achieve its strategic goals and business plan, the group has implemented a sustainable business model based on a focused approach on core segments of the niche market where its experience and capabilities give it a clear competitive advantage.
The group remains focused on achieving its core strategic and financial goals in a competitive and uncertain environment.
Reputationsrisiko
Reputational risk can arise from a variety of sources and is a second order risk – the emergence of another key risk can result in a reputational risk impact.
The group monitors reputational risk by tracking media coverage, customer satisfaction scores, share price and Net Promoter Scores provided by brokers.
Non-Financial Information Statement
This section addresses the non-financial reporting requirements of Sections 414CA and 414CB of the Companies Act 2006.
We have a set of policies and guidelines that support important outcomes for all of our stakeholders. Performance against our strategic non-financial key performance indicators is an indicator of the effectiveness and results of policies and statements. Group policies and statements include, but are not limited to, those summarized in the table below.
Non-Financial Information Statement
Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| environmental matters | ||
| Our environmental policy embodies our stewardship valueto outline our commitment to environmental responsibility. The policy commits to respecting the environment, minimizing environmental impacts and maintaining resilience to environmental risks and impacts, and helping to limit the pace of climate change and resource depletion. The policy articulates the Group's ambition to achieve net-zero greenhouse gas emissions in the value chain by 2050 at the latest, in line with the ambitions of the 2015 Paris Climate Agreement. | The environmental policy was reviewed by the Environmental Working Group, the ESG Technical Committee and the ESG Committee and approved by the Board of Directors. Importantly, the scope of the guidelines has been expanded to explicitly include operations within OSB India and the group's alignment with the ambitions of the Paris Climate Agreement. The policy focuses on: | Actions in 2022 focused on preparing the Group's carbon reduction plans to meet the commitments set out in the policy. Key highlights of the year include: |
| Our environmental, social and Governance (ESG) Metrics Policy sets the non-financial performance indicators, which include ethical, sustainability and corporate governance considerations, which are reported to the relevant committees. These metrics have proven to be important to the Group's stakeholders and ESG strategy and commitments. | The ESG Metric Policy is reviewed by the ESG team and approved by the Group Audit Committee. Non-financial metrics are governed by the lifecycle of ESG metrics and the principles of the Group's Data Quality Policy. This is monitored monthly by the ESG team. Functional providers of information and data are responsible for the management and reporting of the Second line review and monitoring is provided by Risk and Compliance. Internal Audit offers a third-line review and challenge annually. | Through the compilation and reporting of non-financial metrics, performance is monitored against the achievement of the Group's ESG strategy and commitments and risk management. The ESG Technical Committee reviews and challenges the reported metrics. The suitability of the metrics is reviewed annually and updates are submitted for approval as part of the governance process. The accuracy of the reported metrics is a risk managed through data quality processes and controls. |
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| employee matters | ||
| Our corporate policy for flexible workingsets out a range of flexible working arrangements and the approach the group will take in reviewing formal requests for flexible working from employees. OurHomework Group Policyapplies to all UK employees and provides clarity on the group's approach to formal home working arrangements (i.e. after agreeing a flexible work request), informal arrangements and forced arrangements (e.g. COVID-19). | The Group Flexible Working Policy was originally drafted by HR and reviewed by the Group's Legal and Corporate Secretariat function. It was last updated and approved by the Executive Committee in August 2022. A similar process as described above was undertaken for the Group Homeworking Policy, which was last updated in accordance with the Policy Review requirements and subsequently approved by the Group Executive Committee in May 2022. | We endeavor to accommodate all requests for flexible working where possible, with the majority of requests being granted. The Group Homeworking Policy provides a home working attestation (formal, informal and mandatory) requiring home working workers to certify that they are aware of the risks associated with working from home and can mitigate them accordingly privacy, information security and health and safety. |
| OurGroup policy on diversity, equal opportunities and inclusionsets out the Group's commitment to promoting equal opportunities, creating an inclusive workplace and eliminating any unfair treatment or unlawful discrimination. | To ensure the Board has adequate oversight on matters related to diversity and inclusion, regular updates are provided to the Group Remuneration and People Committee. In addition, the Group General Counsel and Company Secretary, responsible for diversity and inclusion, provides regular updates to all employees to raise awareness of ongoing internal initiatives and progress related to diversity and inclusion. The current version of the group | Our Group-wide Diversity and Inclusion Working Group advanced a number of initiatives and activities, some of which supported gender focus areas such as: The Diversity and Inclusion Working Group has ensured a much broader focus on other areas of diversity, further strengthened by the appointment of a Diversity, Equal Opportunities and Inclusion Specialist. In 2022 we began collecting diversity data from our UK workforce base across the wide range of diversity categories that comply with government guidance. This allows us to understand the diversity of our workforce and areas of under-representation. |
| Our Group Whistleblowing Policy – express concernsaims to encourage all employees and others who have serious concerns about workplace misconduct to raise their concerns as early as possible. The Group's whistleblowing arrangements seek to handle whistleblowing cases fairly, consistently and in a manner that protects individual whistleblowers. | A whistleblowing report is submitted to the Group Audit Committee on a regular basis, while the annual whistleblowing report is submitted to the Board of Directors. The Chair of the Group Audit Committee is the designated Whistleblower' Champion. | The Group Audit Committee is responsible for overseeing the effective application of the Policy; This is intended to reduce the risk of undetected misconduct and unwanted endangerment for the Group. |
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| Employee Matters (continued) | ||
| Our Group Health and Safety Policyoutlines our procedures and responsibilities according to the legal regulations. We recognize our duty and responsibility and the Health and Safety Policy ensures that the Group complies with the laws to protect its employees and customers and to provide an appropriate and safe environment for employees, customers and anyone involved in the Group's operations are affected. | The group follows a robust approach to ensure compliance with its internal policies and all legal requirements. A number of controls are in place and regularly tested to ensure their effectiveness. All controls are subject to independent supervision. The Health and Safety Working Group meets twice a year to review the goals of the Health and Safety Policy. All relevant matters arising from these meetings are reported to Operational Risk. An accountable manager is responsible for the health and safety policy and an outside consultant reviews it annually before it is approved by the board. | Health and safety statistics are provided along with an annual health and safety report on a dashboard that is shared monthly with the board. Risk assessments are carried out annually throughout the Group. Annual health and safety training is completed by all employees. Health and safety awareness in the workplace has increased with updates to the Group's intranet to reduce the possibility of employee and customer injuries. |
| social affairs | ||
| Our Modern Slavery Statement and Supplier Code of Conduct and Ethicsdescribes the actions we have taken to address the risks of modern slavery and human trafficking in our operations and supply chains. | The Modern Slavery Statement will be updated according to the requirements. In addition, as part of an annual review, the Group has updated both of its Supplier Codes of Conduct and Codes of Ethics. The UK Vendor Code of Conduct and Ethics (UK VCCE) is issued at the start of each new supplier relationship and on an annual basis for existing categorized and identified suppliers. The UK Code contains provisions on the Group's values, diversity and inclusion and human rights. It also details procedures for reporting violations. OSB India also has a Supplier Code of Conduct which receives external assurances from Indian Qualified Legal Experts and is issued for all new third parties and annually for all existing agreements in India. We conduct relevant reviews via the Organization for Economic Co-operation and Development (OECD) Watch at the onboarding stage and where required as part of our ongoing due diligence reviews. Beyond that, we continue | The Group's main modern slavery risks are its supply chain, Indian operations and employment processes. In order to adequately mitigate risks, our supplier management team incorporates specific tests of key controls into the supplier management risk assessment matrix in accordance with the supplier management framework. The Group ensures that appropriate contractual texts are included in its contract documentation in connection with recruitment, where appropriate. The Group also ensures that suppliers are paid in sufficiently reasonable terms. Procedures are in place for reporting violations and there were no reportable incidents this fiscal year. |
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| Social (continued) | ||
| The group is aware of the policies that may be affected by modern slavery and human trafficking and continues to ensure that modern slavery is referred to where appropriate. All employees are required to complete mandatory training to raise awareness with additional targeted training offered to our branch network in recognition of their personal interactions with our customers. | ||
| Unser Group Vendor Management and Outsourcing Policysets out the core requirements we must meet and provides a structure to efficiently manage potential and contracted third party relationships, while ensuring the right level of engagement and due diligence in line with our regulatory obligations. | All third parties are classified according to the type of services provided and the risk involved. During the onboarding, monitoring and exit of all third parties, due diligence is carried out with regard to issues such as data security, financial stability, legal and reputational risks. The monthly Vendor Management Committee reviews compliance with our Group Vendor Management and Outsourcing Policy and the performance of our key third parties. Regular reporting is made to the Group Risk Committee and an annual Assurance Update is presented to the Executive Board. | We recognize the importance of building strong relationships and governance with our third parties and the potential reputational risk this can entail. We actively monitor our third parties to ensure they are complying with our requirements and standards, which in turn allows us to meet our commitments to stakeholders. |
| Our credit policysets the parameters within which we are willing to lend responsibly, within our established criteria and credit risk appetite. | All changes to the lending policy must be approved by the Group Credit Committee, with significant changes escalated to the Group Risk Committee. As a second line of defense, the credit quality assurance process monitors compliance with the policy through a risk-based sampling approach. System parameters and underwriting processes serve as an additional control to ensure that lending parameters are not breached. The affordability approach is calibrated to ensure that recent changes in the cost of living are reflected in a customer's creditworthiness rating. The Group applies interest rate stress tests to ensure that customers can afford their mortgages even in a market environment with rising interest rates. In line with policy, the compliance function conducts risk-based second-line assurance reviews across the group to test regulatory compliance and client outcomes according to its annual compliance assurance plan. | The Group Risk Committee questions how the Lending Policy is being applied to ensure the right results are being achieved. The Group's credit risk appetite provides a benchmark against pre-agreed trigger limits and is therefore a measure of the overall performance of the underwriting policy. Failure to meet credit risk appetite could result in business being written outside of the agreed risk appetite. Recent increases in the cost of certain commodities (such as energy and fuel) are reflected in customer affordability assessments. The interest rate stress tests have been formally reviewed to ensure that the Group continues to lend responsibly in this volatile interest rate environment. |
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| Social (continued) | ||
| Our Group Complaints Handling Policyoutlines, at a high level, our regulatory expectations for handling complaints from a customer-centric perspective. | We follow up on complaints competently, conscientiously and impartially, supported by appropriately trained employees. Our grievance processes are designed to be easily accessible for all customers, ensuring that those in vulnerable situations receive equal grievance opportunities and a service tailored to individual needs. Root cause analysis is used to identify and resolve underlying issues rather than applying them quick fixes. Complaints handling is part of the management information provided to the Management Committees and the Board. Analyzing the outcome of complaints and the potential impact on business and customers is an integral part of the Group's processes. In line with policy, the compliance function conducts risk-based second-line assurance reviews across the group to test regulatory compliance and client outcomes according to its annual compliance assurance plan. | Complaints are also part of the executive rewards metrics that impact compensation results. Complaints can be an early warning that customers are not being treated fairly, which has regulatory consequences for the group. |
| Our Group Customer Vulnerability Politicssets the standards and approach for identifying and treating vulnerable clients and provides guidance to all areas of the group to ensure vulnerable clients receive fair results consistently. | Regular reviews of case studies by the Vulnerable Customer Review Committee ensure best practice processes are monitored across the various customer journeys and shared with representatives from various customer-facing and second-line functions. In line with policy, the compliance function conducts risk-based second-line assurance reviews across the group to test regulatory compliance and client outcomes according to its annual compliance assurance plan. | An expanded training program was developed to focus on more complex customer scenarios, including identifying vulnerable customers and how best to serve them and their changing needs. There are potential reputational implications and regulatory risks if we do not treat customers fairly. Customer complaint data shows that there were no systemic issues with vulnerability processes and outcomes this year. |
| Our Group Privacy Policy ensures that adequate policies and procedures are in place to enable compliance with the UK General Data Protection Regulation (GDPR) and the Data Protection Act 2018; and sets out the necessary steps that should be taken when processing personal data. | Twice a year, the Group Data Protection Officer reports to the Group Management and the Executive Board on compliance with legal regulations and the data protection guideline, and reports on data incidents and requests for information from affected persons. | The privacy and security of personal data is respected and protected. We view sound privacy practices as a key element of corporate governance and accountability. Failure to comply would subject the group to a potential breach of UK GDPR regulations and financial penalties. |
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| Social (continued) | ||
| Our group accounts receivable management and leniency policymakes sure we address the need for internal systems and processes for treating customers meet financial difficulties, including deal proactively with customers who Display properties of being on the peak of financial difficulties. | As a second line of defense, the credit quality assurance process monitors compliance with the policy through a risk-based sampling approach. Due consideration has been given to the implications of customers switching from fixed to floating rates in light of the improving interest rate market environment. In line with the policy, the compliance | Our arrears are monitored by the Group Credit Committee on a monthly basis to ensure management monitors the development of arrears. There is a credit risk related to credit losses after ineffectiveness Management of customer accounts. The existing forbearance and collections toolkit and mandates have been reviewed to ensure an adequate level of support is available to clients |
| Our anti-bribery and anti-corruption policy Politicsoutlines our attitude towards behavior our whole business in an honest and ethical way. We have zero tolerance Dealing with bribery and corruption and are obliged to act professionally, fairly and with integrity in all of ours Business Relationships and Relationships. The purpose of the policy is to provide The policy forms an integral part of the | The Policy is subject to an annual review process with approval by the Group Audit Committee. Anti-bribery and anti-corruption training In addition, the requirements set out in the Anti-Bribery and Anti-Corruption Policy will be incorporated into the Group's Supplier Management and Outsourcing Policy. Gifts, Hospitality and Donations | No material issues or violations have arisen from the Group's compliance with existing anti-bribery and anti-corruption policies and procedures. We recognize that this may be the case During the bidding process for a new supplier, all employees involved in the process must ensure compliance with the |
| Our Conflicts of Interest Policy aims to do this recognize, maintain and operateEffective organizational and administrative identify and take precautions all reasonable steps to avoid conflicts where possible. | The policy is subject to an annual review process with approval by the Executive Committee. Training on conflicts of interest is part of the broader financial crime training package which every employee must complete annually. Disclosures of Conflicts of Interest | No material issues or violations have arisen from the Group's compliance with the existing Conflicts of Interest Policy processes. As a financial service provider, we are regularly exposed to the risk of actual and potential conflicts of interest. We recognize that this may be the case |
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks |
| Social (continued) | ||
| Also conflicts of interest requirements are incorporated the Group's Supplier Management and Outsourcing Policy. Group Compliance maintains the | undertakes to ensure that conflicts of interest are avoided be managed fairly and efficiently interests of our customers. | |
| Our Fraud Policydescribes our duty to comply with applicable legal and regulatory requirements and to have appropriate systems and controls in place to mitigate the risk of fraud. This includes ensuring that appropriate monitoring and escalation procedures are in place and functioning efficient. Our strategy for managing fraud risk is to have a zero-tolerance approach to any form of fraud; However, we accept that fraud may occur in the course of our business. The purpose of the policy and support | The policy is subject to an annual review with approval by the Group Audit Committee. Fraud awareness training is part of the broader financial crime training package that every employee is required to complete annually. External stakeholders, customers, clients and relevant third parties are made aware of our robust fraud management stance through literature or similar communication channels. The Group will endeavor to recover any losses resulting from fraudulent activity and take the necessary action where necessary. The Group Conduct Risk Management Committee, Group Operational Risk Management Committee, Group Risk Management Committee and Group Risk Committee regularly review and monitor fraud reports. | As a financial services provider, we recognize that we are inherently at risk of fraud and that our business operations can result in losses. In We have appropriate systems and controls in place to deter, detect and disrupt those who would attempt to use the group to facilitate any form of financial crime in place. Key risk and performance indicators are agreed by management and reviewed regularly. Fraud management information |
| Our anti-money laundering and Counter Terrorist Financing Policy tries to explain the responsibility of Managers, the Money Laundering and Reporting Officer (MLRO) and all employees. The policy requires adherence to the highest ethical standards and requires all employees to act with integrity at all times. We have no interest in violating any anti-money laundering or anti-terrorist financing laws or regulations. | The policy is subject to an annual review with approval by the Group Audit Committee. Anti-Money Laundering and Counters | No material issues or violations have arisen from the Group's compliance with the existing policy on combating money laundering and countering the financing of terrorism processes. As a financial service provider, the Group is aware that it is exposed to the risk of financial crime. |
OneSavings Bank plc
Strategic Report(Continuation)
For the year ended December 31, 2022
Non-Financial Information Statement(Continuation)
| Policy Description/Statement | Due diligence carried out | Outcomes/Impact/Risks | |||
| Social (continued) | |||||
| The policy provides a consistent approach to deterrence, detection and disclosure to the suspected of laundering the proceeds of crime or those involved in the financing of terrorism necessary authorities. Politics educates integral part of group finance Framework for crime risk management. | We have documented processes and procedures to identify the Group's customers prior to entering into a business relationship. Systems and controls have been put in place for identification and reporting Activity considered suspicious. All suspicious activity is investigated by a dedicated Group Financial Crime Team, specially trained to identify and report suspicious behavior. | Key risk and performance indicators are agreed by management and reviewed regularly. Management information on financial crime-related activities is provided to senior management to provide visibility into our exposure to financial crime. | |||
| Our operational resilience of the group Politicsdocuments the procedure and Expectations of the group at the foundation and improving its resilience and recognizes operational resilience as a core area of the group. Implementation and ongoing The policy references how the group The group continues to make progress | The Group's response throughout the COVID-19 pandemic has been proportionate and pragmatic, taking into account both the needs of our employees and our customers, and the services we are providing. The widespread and long period of the pandemic called on the group to adapt its approach, which reflects both the local challenges of our business and the historical differences in corporate governance; however, where a consistent Group-wide approach was required, it was applied. While COVID-19 has brought operational resilience into focus, we recognize that there are a number of threats that will not be slow to materialize or last as long, and we are planning for these against a number of threats serious but plausible scenarios. In the event of an accident, | The group continues to invest in improving its infrastructure and is Committed to delivering a range of improvements in 2023 and beyond, with the aim of reshaping the way technology enables the services provided by the group. Improving operational resilience remains a key consideration in setting the change management agenda. The group continues | |||
| Description of the business model | |||||
A description of the business model is included on pages 4 to 7 and includes non-financial KPIs related to agent and customer satisfaction scores, customer retention, greenhouse gas emissions, sponsorships and donations, and women in leadership positions.
Main Risks and Uncertainties |
A description of the main risks and uncertainties is set out on pages 38 to 50.
This Strategic Report has been approved by the Board of Directors and signed on its behalf by:
Jason Elfick
Group General Counsel und Company Secretary
March 30, 2023
OneSavings Bank plc
Directors' Report
For the year ended December 31, 2022
The Directors present their report together with the audited financial statements and auditor's report for the year ended 31 December 2022.
Information in other sections
Information regarding future developments, key risks and uncertainties, and collaboration with suppliers, customers and others has been included in the strategy report.
Information on financial instruments, including the Group's financial risk management objectives and policies, including the Group's price risk hedging policy, credit risk hedging policy, liquidity risk and cash flow risk hedging policy, can be found in the risk overview on pages 30 to 60.
Details of how the Company has complied with Section 172 can be found in the Strategic Reports and Directors' Reports and on pages 13 and 14.
Results
The annual results are shown in the statement of comprehensive income on page 92.
directors
The Directors in office during the year and up to the date of this report were as follows:
Graham Allatt
Kalvinder Atwal (appointed 7 February 2023)
Andreas Golding
Noel Harwerth
Sarah Hecker
Rajan Kapoor
Maria McNamara
April Talintyre
Simon Walker
David Weymouth
None of the Directors had any interest in any material contract or arrangement with the Company during or at the year end.
Directors' Remuneration
The Articles of Association provide, subject to the provisions of UK law, indemnity to the directors and officers of the Group in respect of any liabilities which they may incur in the performance of their duties or in the exercise of their powers, including any liabilities in connection with the Defense of any legal action brought against them relating to anything they have done or failed to do or allegedly did or failed to do as officers or employees of the Group. Directors and officers liability insurance applies to all directors and officers.
equal opportunity
The Group is committed to applying its Group Policy on Diversity, Equal Opportunity and Inclusion at all stages of recruitment and selection. Pre-selection, questioning and selection always take place without regard to gender, gender reassignment, sexual orientation, marital or civil partnership status, skin color, race, nationality, ethnic or national origin, religion or belief, age, pregnancy or maternity leave or trade union membership. A candidate with a disability will not be disqualified unless it is clear that the candidate is unable to perform a duty inherent to the role, after appropriate accommodations have been considered. Appropriate adjustments will be made to the recruitment process to ensure that no applicant is disadvantaged because of a disability. Managers conducting interviews ensure that the questions they ask job applicants are not in any way discriminatory or unnecessarily intrusive. This commitment extends to existing employees with the necessary adjustments as circumstances change.
employee engagement
Employees are kept informed of developments within the company and related to their employment through various means such as staff meetings, briefings and the intranet. Employee participation is encouraged and opinions and suggestions are taken into account when planning new products and projects.
Sharesave's Save as you Earn scheme is an all employee stock option scheme open to all UK resident employees. The Sharesave scheme allows employees to purchase options by saving a fixed amount of between £10 and £500 per month over a three year period, at the end of which the options are normally vested, subject to exit provisions (Previously Granted Options) . 2021 have a floor of £5 and from 2021 only three year programs will be offered). The Sharesave program has been in effect since June 2014 and options are granted annually with an exercise price set at a discount of 20% of the share price on the grant date.
The Workforce Advisory Forum (known as OurVoice) is designed to gather the views of the workforce so that the Board and Group Executive Committee can consider a broad, representative range of stakeholder perspectives in making strategic decisions for the future of the Group. OurVoice is made up of volunteer representatives (of which there are 33 in total) from each of the various divisions and locations, as well as permanent members including an NED-designate, Mary McNamara; a member of the Group Executive Committee, Jason Elphick; and a representative of HR management. Other NEDs and members of the Group Executive Committee are invited to and regularly attend meetings throughout the year. Sarah Hedger will become a permanent member of OurVoice, replacing Mary McNamara as designated NED with responsibility for OurVoice effective May 11, 2023.
Members of the Board are keen to engage with our staff across all locations and find the experience of visiting our branches and offices in the UK and India invaluable.
Three OurVoice meetings were held in 2022, encouraging employee representatives to engage with employees in their nominated business units and across all Group locations prior to each meeting to identify issues impacting the workforce and theirs Should be brought to the attention of the board of directors and senior management. A number of items were reviewed and discussed by OurVoice, including bonus and salary increases for 2021, survey results on the best mental health companies and first responders, and topics related to ESG matters such as community activities, culture, diversity and inclusion, and governance pay in the group. OurVoice permanent members were particularly interested in feedback from the workforce on employee morale, employee engagement and the hybrid work/work from home environment.
The group is committed to diversity and making everyone feel included in our company. The Diversity and Inclusion Working Group has continued to develop the Group's Diversity and Inclusion strategy throughout 2022, in line with the value of Respect Others. The Diversity and Inclusion Working Group brings together a broad mix of employees from across the UK business as well as representatives from OSB India to advance our diversity and inclusion agenda to address differences in age, gender, ethnicity, religion, disability, sexual orientation, education , socio-economic background and national origin and to ensure that all employees are treated fairly, with respect and have equal opportunities . Jason Elphick, our Diversity Champion, partnered with the Diversity and Inclusion Working Group to host a number of activities throughout the year including International Women's Day, which saw women leaders from across the company participate in a Q&A panel and the Menopause Statement and National Inclusion introduced the group's 2022 week, which featured a series of daily activities under the annual theme, Time to Act: the Power of Now, featuring a series of personal stories from our employees. The 2022 calendar included a number of national holidays for our employees to celebrate.
political donations
Neither the company nor any of its subsidiaries made any political donations that year.
Going Concern Statement
Management regularly makes rigorous assessments of whether the Group will continue as a going concern given current economic conditions and all available information about future risks and uncertainties.
In assessing whether the going concern basis is appropriate, projections have been made for the Group covering its future performance, capital and liquidity for a period in excess of 12 months from the date of approval of these financial statements. These forecasts have been subjected to sensitivity testing, including stressed scenarios compared to the latest economic scenarios provided by the Group's external economic consultants and reverse stress testing.
The reviews include the following:
• Financial and capital projections have been prepared under stress scenarios assessed using the latest economic forecasts provided by the Group's external economic consultants. Reverse stress tests were also performed to assess which combinations of home price index (HPI), unemployment, default rates and consumer price index variables would cause the group to fully exhaust its regulatory capital buffers and breach the group's minimum regulatory requirements, along with analysis and insights from the Group's Internal Capital Adequacy Assessment Process (ICAAP). The Directors assessed the likelihood of these reverse stress scenarios materializing within the next 12 months and concluded that the likelihood is low.
• The most recent liquidity and contingent liquidity positions and forecasts have been assessed against the Internal Liquidity Adequacy Assessment Process (ILAAP) stress scenarios, with the Group maintaining adequate liquidity throughout the going concern assessment period.
• The Group continues to assess the resilience of its business operating model and supporting infrastructure in the context of the emerging economic, business and regulatory environment. The primary focus remains on delivering the Group's critical business services to minimize the impact of service disruptions on the Group's customers or the financial services industry as a whole. The group's response to the COVID-19 pandemic has demonstrated the inherent resilience of its critical processes and infrastructure, as well as its agility in responding to changing operational needs. The Group recognizes the need to continuously invest in the resilience of its services, with a focus in 2023 on ensuring that the third parties on which it depends have an appropriate level of resilience and processes to continue to improve automate that are sensitive to volume increases.
The Group's financial projections show that the Group has sufficient capital and liquidity to continue to meet its regulatory capital requirements as set by the Prudential Regulation Authority (PRA).
The directors have therefore concluded that the group has sufficient resources to continue as a going concern for a period in excess of 12 months and it is therefore appropriate to prepare these financial statements on a going concern basis.
Role and structure of the Board of Directors
The board of directors (the board) is responsible for the long-term and sustainable success of the company and guides the group. The Board is focused on creating value for shareholders by setting strategy, monitoring performance and ensuring that appropriate systems, controls and resources are in place to enable the company to achieve its objectives while protecting the interests of stakeholders and maintains effective corporate governance.
The Board of Directors is responsible for setting the tone on conduct, culture and values from above, ensuring they remain committed to treating customers fairly, conducting business honestly and openly and preventing bribery, corruption, fraud or the facilitation of prevent tax evasion.
The Directors operate in accordance with the Company's articles of incorporation (the Articles of Incorporation) and its own written rules of procedure. The Board of Directors has set up an Audit Committee and a Risk Committee, each with its own task and reviewed at least once a year. Details of each committee's activities in 2022 are provided below.
The Board of Directors retains specific powers in relation to approving the Group's strategic objectives, policies and other matters that are required to be approved by it by law or the Articles of Association. These powers are set out in the Board's written rules of procedure and matters reserved for the Board, which are reviewed at least annually.
The Board met 10 times during the year. The Board has a formal meeting schedule with ad hoc meetings convened when circumstances warrant. There is an annual calendar of agenda items to ensure all matters are given due consideration and reviewed at the appropriate time in the regulatory and financial cycles.
Roles of Chairman, Chief Executive Officer and Senior Independent Director
The roles of Chairman and Chief Executive Officer (CEO) are different and are held by different people. There is a clear division of responsibilities, which has been agreed upon by the board and is formalized in a task plan for everyone.
The Chairman, David Weymouth, leads the Board and is responsible for its overall effectiveness and the leadership of the Group. He ensures the Board has the right mix of skills, experience and development to focus on the key issues affecting the business and to lead the Board and ensure it is acting effectively. As CEO, Andy Golding has overall responsibility for leading the Group and implementing the strategies and policies adopted by the Board of Directors.
Noël Harwerth is Senior Independent Director (SID). The SID's role is to act as a sounding board for the Chair and to support him in achieving his goals. This includes ensuring that the views of all other Directors are communicated to and given due consideration by the Chair.
balance and independence
The effectiveness of the Board and its committees in discharging their duties is critical to the Company's success. To function effectively, the Board and its committees possess a balance of skills, experience, independence and knowledge to encourage constructive debate and challenge the decision-making process.
Audit Committee
The primary responsibility of the Committee is to assist the Board in overseeing the systems of internal control and external financial reporting. The specific tasks of the Committee are set out in its Rules of Procedure, which are reviewed at least once a year. The Audit Committee is chaired by Rajan Kapoor and the other members are Graham Allatt, Noël Harwerth, Sarah Hedger and Simon Walker. The Committee met seven times in 2022; All members attended these meetings with the exception of Noel Harwerth who attended six times. Graham Allatt will retire from the Committee on May 11, 2023. The committee considered, on behalf of the board of directors, whether the annual report 2022 and the financial statements as a whole are fair, balanced, understandable and whether the disclosures are reasonable . Further details on the Committee's activities are set out in the OSB Group's Annual Report and Accounts.
risk committee
The primary objective of the Committee is to assist the Board in fulfilling its risk oversight and governance responsibilities. The specific tasks of the Committee are set out in its Rules of Procedure, which are reviewed at least once a year. The committee is chaired by Graham Allatt, the other members are Noël Harwerth, Rajan Kapoor and Simon Walker. The committee met seven times in 2022. All members attended these meetings. Further details on the Committee's activities are set out in the OSB Group's Annual Report and Accounts.
Surroundings
Environmental aspects are considered in the above strategy report.
Internal control
The Board retains ultimate responsibility for setting the Company's risk appetite and ensuring that there is an effective risk management framework to maintain risk levels within risk appetite. The Board regularly reviews its risk identification, assessment and management processes and recognizes that a sound internal control system should be designed to manage, not eliminate, the risk of not achieving business objectives.
Key information related to the Group's ERMF, as well as objectives and processes for mitigating risks, including liquidity risk, are detailed on pages 30 to 37.
OneSavings Bank plc
Directors' Report(Continuation)
For the year ended December 31, 2022
Auditors
Deloitte LLP has been appointed Chartered Accountant for the year and has indicated its willingness to continue in office as Chartered Accountant. A resolution to reappoint Deloitte as external auditor will be tabled at the Company's annual general meeting.
Each of the persons who is a Director at the date of approval of this annual report certifies that:
- the annual financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the net assets, financial position and results of operations of the company and the companies included in the consolidation as a whole; And
- The strategy report and the directors' report provide a reasonable overview of the development and performance of the business and the condition of the company and the companies included in the consolidation as a whole, together with a description of the main risks and uncertainties to which they are exposed.
- As far as the Director is aware there is no relevant audit information which is not known to the Company's auditors; And
- The Director has taken all the steps that he should have taken as a Director to obtain information on relevant audit information and to ascertain that the Company's auditor was aware of that information.
This certification is given and should be construed in accordance with the provisions of s418 of the Companies Act 2006.
This report was approved by the Board of Directors on March 30, 2023 and signed on its behalf by:
Jason Elfick
Group General Counsel und Company Secretary
OneSavings Bank plc
Registered number: 07312896
OneSavings Bank plc
Statement of the directors' responsibilities in relation to the strategic report, the directors' report and the financial statements
For the year ended December 31, 2022
The Directors are responsible for the preparation of the annual report and the consolidated and parent company financial statements in accordance with applicable laws and regulations.
Company law requires the board of directors to prepare financial statements for the group and parent company for each financial year. Under this law they are required to prepare the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted in the UK and applicable law and have elected to prepare the parent company's financial statements on the same basis.
Company law requires the Board of Directors to approve the annual accounts only if they are satisfied that they give a true and fair view of the position of the Group and the parent company and of their profit or loss for the period. In preparing each of the Group and parent company financial statements, the Board of Directors must:
- select suitable accounting and valuation methods and apply them consistently;
- make judgments and estimates that are reasonable, relevant and reliable;
- indicate whether they have been prepared in accordance with UK endorsed IFRS;
- assess the Group's and parent company's ability to continue as a going concern, disclosing, as appropriate, matters related to going concern; And
- use the going concern basis of accounting unless they intend to liquidate the group or parent company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records sufficient to show and explain the transactions of the parent company and to disclose the financial position of the parent company and the group at all times with reasonable accuracy to enable them to ensure that the financial statements are consistent with those of the companies Act 2006. They are responsible for such internal controls as they deem necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error and have overall responsibility for taking the steps to do as reasonably possible to protect the Group's assets and to prevent and detect fraud and other irregularities.
In accordance with applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report and Directors' Report that comply with such law and regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information contained on the Company's website. Legislation in the UK governing the preparation and distribution of financial statements may differ from legislation in other jurisdictions.
Approved by the Board and signed on its behalf by:
Jason Elfick
Group General Counsel und Company Secretary
March 30, 2023
Report of the Independent Auditor to Members of OneSavings Bank plc
For the year ended December 31, 2022
Report on the audit of the annual accounts
- Opinion
According to our opinion:
- The financial statements of OneSavings Bank plc (the parent company) and its subsidiaries (the group) give a true and fair view of the group's position and parent company's affairs as at 31 December 2022 and the group's profit for the year then ended;
- the consolidated financial statements have been properly prepared in accordance with international accounting standards adopted in the UK;
- the parent company's financial statements have been properly prepared in accordance with international accounting standards adopted in the UK and applied in accordance with the provisions of the Companies Act 2006; And
- The financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the annual accounts, which break down as follows:
- the consolidated statement of comprehensive income;
- the balance sheets of the group and the parent company;
- the consolidated and parent company statements of changes in equity;
- the consolidated and parent company statements of cash flows; And
- the associated notes 1 to 53.
The accounting framework used in preparing them is current law and the UK has adopted international accounting standards and applied them in accordance with the provisions of the Companies Act 2006 for the purposes of the parent company's accounts.
- basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under these standards are further described in the “Auditor's responsibilities for the audit of the financial statements” section of our auditor's report.
We are certified by the Group and parent company in accordance with the ethical requirements relevant to our audit of UK financial statements, including the Financial Reporting Council (FRC) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical obligations in accordance with these requirements. The non-audit services provided for the Group and parent company for the year are disclosed in Note 8 to the financial statements. We confirm that we have not provided any non-audit services to the group or parent company that are prohibited by the FRC ethical standard.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
- Summary of our audit approach
Important exam matters
The key audit matters that we have identified in the current year were:
- Loan allowances; And
- Recognition of effective interest income.
This report identifies key audit matters as follows:
| Newly identified | |
| Increased risk level | |
| Similar level of risk | |
| Reduced risk level |
materiality
The materiality we used for the consolidated financial statements was £21.6m determined using profit before tax and net assets.
Scope
Our group audit scope focused mainly on three subsidiaries, which were subjected to a comprehensive audit. Subsidiaries selected for full audit were OneSavings Bank plc, Charter Court Financial Services Limited and Interbay ML Ltd. of the Group's total assets and 99% of the Group's total liabilities. All audit work was performed by the Group Engagement Team.
Significant changes in our approach
During the current year, the Group has assessed how inflation and interest rate increases may affect customers and, in estimating provisions for expected credit losses on loans, has recognized separate cost of living and borrowing costs after model adjustments (PMAs) to address these emerging risks . The calculation of these PMAs is judgmental in nature as there is limited up-to-date data to estimate how inflation and interest rate increases might affect clients. We have included these PMAs in our provision for loan impairment as a key audit matter.
In the prior year, our key audit matter related to revenue recognition from effective interest rates (EIR) included the estimation of the EIRs in relation to the Group's legacy acquired portfolios. The legacy acquired portfolios continue to shrink and the Group's revenue recognition from the acquired portfolios is less sensitive to changes in customer prepayment behavior relative to our audit relevance. This area is no longer included in our EIR revenue recognition key review issue.
- Conclusions on going concern
In our audit of the financial statements, we have concluded that the directors' use of the going concern basis of accounting is appropriate in the preparation of the financial statements.
Our assessment of the directors' assessment of the Group's and parent company's ability to continue to use the going concern basis of accounting included:
- We obtained and read the going concern assessment, which included a consideration of the Group's operational strength to understand, challenge and support key management judgments;
- We obtained an understanding of the relevant controls related to management's assessment of going concern;
- We obtained management's income statement, balance sheet, capital and liquidity projections and evaluated key assumptions, including climate risk considerations, for appropriateness and their projected impact on capital and liquidity ratios, particularly with respect to loan book growth and potential credit losses, assessed;
- Supported by our in-house regulatory risk specialists, we read the latest ICAAP and ILAAP filings, assessed management's capital and liquidity projections, assessed the results of management's capital reverse stress test and evaluated the key assumptions and methodologies used in Capital -Reverse stress test model were used and tested the mechanical accuracy of the capital reverse stress test model;
- We read correspondence with regulators to understand the capital and liquidity requirements imposed by the group's regulators and provide evidence of any changes to those requirements;
- We met with the Group's lead regulator, the Prudential Regulation Authority, and discussed their views on existing and emerging risks to the Group and verified that these were adequately reflected in management's forecasts and stress tests;
- We have assessed the historical accuracy of the forecasts made by management;
- We have assessed the impact of continued economic uncertainty, including how further increases in the cost of living and borrowing may affect potential credit losses; And
- We have assessed the Group's going concern disclosures against the requirements of IFRS and with regard to the FRC guidelines.
Based on the work we have performed, we have not identified any material uncertainties related to events or conditions that, individually or collectively, could give rise to significant doubt as to the Group's and the parent company's ability to continue as a going concern for a period of at least twelve months from the date of the release of the financial statements for release.
Our responsibilities and the directors' responsibilities with regard to going concern are described in the relevant sections of this report.
- Important exam matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and the most significant risks of material misstatement (whether due to fraud or not) assessed that we have identified. These matters included those having the greatest impact on: the overall audit strategy, the allocation of audit resources; and directing the engagement team's efforts.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5.1.Loan Allowances
| See Judgments in applying accounting policies and critical accounting estimates on page 115 and Note 22 on page 137. | |
| Description of the most important audit issues | IFRS 9 requires that allowance for credit losses be established based on expected credit losses (ECL). Estimating the ECL provisions in the Group's loan portfolios is inherently uncertain and requires significant judgment and estimates. Therefore, we consider this to be a key audit matter due to the risk of fraud or error in relation to the Group's ECL provision. ECL provisions at 31 December 2022 were £130.0m (2021: £101.5m) representing 0.54% (2021: 0.48%) of loans and advances to customers. ECLs are calculated for both individually significant loans and collectively on a portfolio basis, which requires the use of statistical models that incorporate loss data and assumptions on the recoverability of customers' outstanding receivables. As detailed on page 51, during the year the Group implemented various model and staging improvements and updated the IFRS 9 models as part of the internal ratings-based (IRB) programme. The uncertain economic environment continues to increase the complexity of estimating ECLs, particularly with regard to determining appropriate forward-looking macroeconomic scenarios and identifying customers who have experienced significant increases in credit risk. In addition, rising living and borrowing costs observed over the past year have increased the level of subjectivity in estimating a reasonable probability of default (PD) for customers. We have identified four specific areas related to ECL that require significant judgment or relate to assumptions to which the overall ECL provision is particularly vulnerable.
|
| How the scope of our audit responded to the key audit matter | We have obtained an understanding of the relevant financial controls over the ECL provision, with a particular focus on controls over significant assumptions and judgments used in the ECL determination. To challenge the group's SICR criteria, we do the following:
To challenge the Group's macroeconomic scenarios and the probability weights applied:
To challenge the cost of living and borrowing costs of the group's PMAs, here's how we do it:
To challenge the group's PPD and FSD assumptions:
|
| Important Observations | We have determined that the methodology used and the SICR criteria, PPD and FSD assumptions in determining the ECL provision as of December 31, 2022 are appropriate. We have determined that the macroeconomic scenarios selected by the directors and the probability weights applied produce an appropriate distribution of portfolio losses and we have determined that the group's cost of living and cost of credit PMAs are reasonable. We have therefore determined that value adjustments are reported appropriately. |
5.2.Recognition of effective interest income
| See judgments in applying accounting policies and critical accounting estimates on page 117, the accounting policies on page 100 and notes 3 and 4 on pages 118 and 119. | |
| Description of the most important audit issues | In accordance with the requirements of IFRS 9, directly attributable fees, rebates, incentives and commissions are to be distributed over the expected life of the loan assets based on a constant rate of return (Effective Interest Rate, EIR). EIR is complex and the Group's approach to determining EIR involves the use of models and significant estimates to determine the useful life of loan assets. Given the complexity and judgment involved in accounting for EIR, and given that revenue recognition is an area susceptible to fraud, there is an opportunity for management to manipulate the amount of interest income recognized in the financial statements. The Group's net interest income for the year ended 31 December 2022 was £709.9m (2021: £587.6m). EIR adjustments result from changes in estimated cash receipts or cash payments on loan assets for reasons other than movement in market interest rates or credit losses. They result in an adjustment to the carrying amount of the loan asset, with the adjustment being recognized in the income statement within receivables from interest and similar income. Because the EIR adjustments reflect changes in the timing and volume of projected customer repayments, they are judgmental in nature. The degree of judgment exercised is increased when historical redemption information is limited. For two of the loan portfolios, Kent Reliance and Precise, the EIR adjustments are sensitive to changes in behavioral lifetime curves. As set out on page 117, changes in the modeled useful lives of these portfolios over the year resulted in a loss of £31.6m in interest income (2021: gain of £11.0m). EIR adjustments have increased as a result of the rising interest rate environment. The current economic environment creates additional uncertainty in terms of forecasting expected duration of conduct and prepayment rates. We therefore see an increased risk for this particularly important audit matter in the current year. |
| How the scope of our audit responded to the key audit matter | We have gained an understanding of the relevant controls over EIR, focusing on the calculation and verification of EIR adjustments and the determination of prepayment curves. For the two portfolios where the EIR adjustments were most significant and sensitive to behavioral changes, Kent Reliance and Precise, we run the credit data for all products through our own independent EIR model, with the involvement of our in-house analysis and modeling specialists, below Use of the behavioral life curves derived from the group. We compared our calculation of the required EIR adjustment to the amount recognized by the group. A number of assumptions are made to adjust actual behavioral data over the past several years to reflect the Group's best estimate of expected future behavior. For key assumptions, we have independently questioned the appropriateness of the assumptions given the context of the rising interest rate environment experienced over the past year. For the same portfolios referenced above, we have independently derived, with the involvement of our in-house analysis and modeling specialists, a behavioral life curve using the Group's actual credit data over the past several years and incorporating the assumptions we have found appropriate. We used these curves in our own independent EIR model to calculate the EIR fits. We compared this performance with the amounts recorded by the Group. We also tested the completeness and accuracy of a sample of inputs to the EIR originated loan model. |
| Important Observations | We have found that the EIR models and assumptions used are reasonable and that the net interest income is reasonably disclosed for the period. |
6. Our application of materiality
6.1.materiality
We define materiality as the extent of misstatement in the financial statements that makes it likely that a reasonably knowledgeable person would change or affect the economic decisions. We consider materiality both when planning the scope of our audit work and when evaluating the results of our work.
Based on our professional judgement, we have determined materiality for the financial statements as a whole as follows:
| Consolidated Financial Statements | Annual accounts of the parent company | |
| materiality | £21.6m (2021: £20.1m) | £17.9m (2021: £16.7m) |
| Basis for determining materiality | We have set materiality for the group at around 1% of net assets of £2,201.8m (£21.6m), which equates to 4% of statutory profit before tax of £532.8m. The basis of materiality corresponds to the previous year. | We have determined materiality for the parent company using 1% of net assets. This corresponds to the previous year. |
| Rationale for the applied benchmark | Consistent with the prior year, we considered both net worth and a pre-tax income metric as benchmarks for determining materiality. We have identified net worth as the most relevant and stable benchmark for determining materiality. | The parent company is primarily a holding company and we have therefore identified net assets as the most relevant benchmark for determining materiality. |
6.2.performance materiality
We set performance materiality lower than materiality to reduce the likelihood that aggregate uncorrected and undetected misstatements will exceed materiality for the financial statements as a whole.
| Consolidated Financial Statements | Annual accounts of the parent company | |
| performance materiality | 70% (2021: 60%) of Group materiality | 70% (2021: 60%) of parent company materiality |
| Basis and rationale for determining the materiality of the service | Group performance materiality has been set at 70% of Group materiality (2021: 60%). In determining performance materiality, we considered a number of factors, including: our understanding of the control environment; our understanding of the business; and the small number of uncorrected misstatements identified in the prior year. Last year we maintained a reduced performance materiality to reflect the ongoing uncertainty arising from the Covid-19 pandemic. Now that the impact of Covid-19 has subsided, we have increased the materiality of year-to-date performance. | |
6.3.Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee any audit differences above £1.1m (2021: £1.0m) as well as any differences below that threshold that we felt warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we have identified in evaluating the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1.Component identification and scope
The scope of our group audit was focused on obtaining an understanding of the group and its environment, including group-wide controls and the assessment of the risks of material misstatement at group level.
Our scope of work for the group focused primarily on three subsidiaries: the two main banking entities, OneSavings Bank plc and Charter Court Financial Services Limited, and Interbay ML Ltd, another major lending subsidiary. These three subsidiaries were material components and subject to a comprehensive review (2021: three material components that were subject to a comprehensive review). They represent 97% (2021: 98%) of the Group's interest receivable and similar income, 94% (2021: 96%) of profit before tax, 98% (2021: 97%) of total assets and 99% (2021: 99%) of the total liabilities. The subsidiaries were selected to provide a reasonable basis for performing audit work to address the risks of material misstatement, including those identified as key audit matters above. Our audits of the individual subsidiaries were performed based on their size in relation to the group with lower levels of materiality. The materiality for each subsidiary audit ranged from £6.6m to £17.9m (2021: £5.5m to £16.7m).
We tested the Group's consolidation process and performed analytical procedures to confirm that there are no material risks of material misstatement in the aggregated financial information of the remaining subsidiaries that are not the subject of a comprehensive audit or specified audit procedures.
7.2.Our view of the control environment
We have identified those IT systems used in the areas of financial reporting, lending and savings as the key audit-relevant IT systems. For these controls, we have performed tests of general IT controls, including tests of user access and change management systems, with the involvement of our IT specialists.
Where control environment deficiencies were identified, including deficiencies in IT controls, our risk assessment procedures included an assessment of those deficiencies to determine the impact on our audit plan. Where we could not identify or test mitigating controls, we adopted a no-controls approach and performed additional substantive procedures. As a result of deficiencies identified in internal IT access controls across the group, we modified our planned audit procedures to introduce an uncontrollable approach to lending and related interest income and deposit balances and related interest expense.
7.3.Our consideration of climate-related risks
In planning our audit, we considered the impact of climate change on the Group's operations and the impact on its financial statements. The group has committed to being a net-zero bank by 2050, in line with the goals of the Paris climate agreement. For more information, see the Group's Environmental, Social and Governance Report on page 7. The Group presents its assessment of the potential impact of climate change on ECL on page 51 of the Risk Management section of the Annual Report and the potential impact on the financial statements in Note 22 page 137.
Together with our climate risk specialists, we held discussions with the group to understand:
• the process for identifying affected operations, including the management and control of that process, and the resulting impact on the Group's financial reporting; And
• the long-term strategy to respond to the evolving risks of climate change.
Our audit work included:
• Questioning the completeness of the physical and transition risks identified and addressed in the Group's climate risk assessment and concluding that there is no material impact of climate change risk on the current year's financial reporting;
• With the involvement of our credit risk specialists, assess the management approach to including and quantifying climate change risks within a PMA in the ECL provision, including:
- Assess management's chosen climate path used to quantify the potential impact of physical risk on the Group's loan book and specifically how this may impact the underlying property;
- Assessing how different credit segments may be affected by transition risks and in particular how the buy-to-let portfolio may be affected by tighter EPC criteria; And
- Assessing the relevance of the data used in the assessment.
• Evaluating the disclosures in the annual report and questioning the consistency between the financial statements and the rest of the annual report.
8. Other information
The other information comprises the information contained in the annual report with the exception of the financial statements and our opinion thereon. The directors are responsible for the other information contained in the annual report.
Our opinion on the financial statements does not cover the other information, and save as expressly stated in our report we do not express any assurance conclusion thereon.
Our responsibility is to read the other information, and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears materially misstated.
When we identify such material inconsistencies or apparent material misstatements, we need to determine whether this results in a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we have a duty to report that fact.
We have nothing to report in this regard.
9. Directors' Responsibilities
As explained more fully in the Directors' Statement of Responsibility, the Directors are responsible for the preparation of the financial statements and for satisfying themselves that they give a true and fair view and for such internal controls as the Directors consider necessary for the to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group's and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, es unless the directors intend to liquidate the group or parent company or to cease operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our aim is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that contains our audit opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit performed under the ISAs (UK) will always detect a material misstatement, if any. Misstatement can arise from fraud or error and is considered material if, individually or in the aggregate, it could reasonably be expected to influence the economic decisions of users when taking the basis of these financial statements.
A further description of our responsibilities for the audit can be found on the FRC's website at: . This description forms part of our auditor's report.
11. Extent to which the audit was deemed appropriate to detect irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures, consistent with our responsibilities outlined above, to detect material misstatements related to irregularities, including fraud. The extent to which our procedures are able to detect irregularities, including fraud, is set out below.
-
- 1.Identification and assessment of potential risks related to irregularities
In identifying and assessing the risks of material misstatement related to irregularities, including fraud and non-compliance with laws and regulations, we considered the following:
- the nature of the industry and sector, the control environment and business performance, including the design of the Group's remuneration policy, the key factors affecting directors' remuneration, the levels of bonuses and performance targets;
- the Group's own assessment of the risks that irregularities may occur either as a result of fraud or error, approved by the Board of Directors;
- Results of our interviews with management, internal audit and the Audit Committee to identify and assess their own risks of irregularities;
- Any matters we have identified after receiving and reviewing the Group's documentation on its policies and procedures relating to:
- Identifying, evaluating and complying with laws and regulations and whether they are aware of any instances of non-compliance;
- detecting and responding to fraud risks and whether they have knowledge of actual, suspected or alleged fraud;
- the internal controls put in place to mitigate the risk of fraud or non-compliance with laws and regulations; And
- the matters discussed between the assurance engagement team and relevant in-house specialists, including tax, valuation, real estate, IT, climate risk, regulatory risk, economic, credit risk and analytics and modeling specialists, in relation to how and where fraud might occur in the accounts and any signs of fraud.
As a result of these procedures, we have considered the opportunities and incentives that may exist within the organization for fraud and identified the greatest potential for fraud in the following areas: Allowance for Loans and Recognition of Actual Interest Income. As with all audits under the ISAs (UK) we are also required to carry out specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory environment in which the Group operates, focusing on the provisions of those laws and regulations that have directly affected the determination of material amounts and disclosures in the financial statements. Key laws and regulations we considered in this regard included the UK Companies Act, listing regulations and tax legislation.
In addition, we have considered provisions of other laws and regulations that do not directly affect the financial statements, but compliance with which may be essential to the Group's ability to operate or to avoid a significant penalty. These included the group's regulatory, capital, liquidity and conduct requirements.
-
- 2.Audit Response to Identified Risks
As a result of the above performance, we identified loan loss allowances and the recognition of effective interest income as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures for responding to identified risks included the following:
- reviewing the disclosures in the financial statements and reviewing supporting documentation to evaluate compliance with the requirements of relevant laws and regulations that directly affect the financial statements;
- interviewing management, the Audit Committee and internal and external legal counsel about actual and potential litigation and claims;
- Conducting analytical procedures to identify unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
- reading minutes of meetings of those responsible for corporate governance, reviewing internal audit reports and reviewing correspondence with the Prudential Regulation Authority, the Financial Conduct Authority and HMRC; And
- in addressing the risk of fraud by overriding management controls, testing the adequacy of journal entries and other adjustments; assessing whether judgments made in preparing accounting estimates indicate potential bias; and evaluating the business case for any material transaction that is unusual or outside the normal course of business.
We also briefed all members of the engagement team, including internal specialists, on relevant identified laws and regulations and potential fraud risks and remained vigilant throughout the review for indications of fraud or non-compliance with laws and regulations.
Report of the Independent Auditor to Members of OneSavings Bank plc(Continuation)
For the year ended December 31, 2022
Report on other legal and regulatory requirements
12. Opinions on other matters required by the Companies Act 2006
According to our assessment based on the work carried out as part of the test:
- the information in the strategic report and the directors' report for the year for which the financial statements are prepared is consistent with the financial statements; And
- The strategy report and the management report were prepared in accordance with the applicable legal regulations.
Against the background of the knowledge and findings about the Group and the parent company and their environment obtained in the course of the audit, we did not identify any material misstatements in the strategy report and in the management report.
13. Matters that we exceptionally have to report on
-
- 1.Adequacy of the declarations and accounting documents received
Under the Companies Act 2006, we are required to report to you where, in our opinion:
- we have not received all the information and explanations we require for our audit; or
- the parent company has not kept adequate accounting records or has not received feedback sufficient for our audit from branches not visited by us; or
- the financial statements of the parent company do not match the accounting documents and declarations.
We have nothing to report in relation to these matters.
-
- 2.Director's Salary
The Companies Act 2006 also requires us to report where, in our opinion, certain disclosures relating to directors' remuneration have not been made.
We have nothing to report in this regard.
14. Other matters we need to address
-
- 1.auditor time
On the recommendation of the Audit Committee, on May 9, 2019, we were engaged by the shareholders of the Group to audit the consolidated financial statements for the year ended December 31, 2019 and the following financial years. The Company's total uninterrupted engagement period, including prior renewals and reappointments, is four years and covers the years ended December 31, 2019 through December 31, 2022.
-
- 2.Consistency of the audit report with the additional report to the Audit Committee
Our opinion is consistent with the additional report to the Audit Committee required by ISAs (UK).
15. Use of our report
This report is addressed solely to the members of the Company as a whole, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our work was performed so that we can communicate to members of the company matters that we are required to disclose to them in an audit opinion and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and its members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements will form part of the annual financial report prepared in European Single Electronic Format (ESEF) filed with the UK's National Storage Mechanism in accordance with the FCA ESEF Regulatory Technical Standard (“ESEF RTS”). This auditor's report gives no assurance as to whether the annual financial report has been prepared using the only electronic format specified in the ESEF RTS. We have been mandated to provide assurance that the annual financial report has been prepared using the consistent electronic format specified in the ESEF RTS and will report separately publicly to members.
Neel Reed, FCA (Chief Auditor)
For and on behalf of Deloitte LLP
auditor
Birmingham, United Kingdom
March 30, 2023
OneSavings Bank plc
statement of comprehensive income
For the year ended December 31, 2022
| group | group | ||
| 2022 | 2021 | ||
| note | Mio. £ | Mio. £ | |
| Interest receivable and similar income | 3 | 1.069,3 | 746.8 |
| Interest Payable and Similar Fees | 4 | (359.4) | (159.2) |
| interest income | 709.9 | 587.6 | |
| Fair Value Gains on Financial Instruments | 5 | 58.9 | 29.5 |
| Profit from the sale of financial instruments | 6 | - | 4.0 |
| The other operating income | 7 | 6.6 | 7.9 |
| total income | 775.4 | 629,0 | |
| administrative expenses | 8 | (206.5) | (166,5) |
| provisions | 37 | 1.6 | (0,2) |
| Impairment of Financial Assets | 23 | (29.8) | 4.4 |
| Impairment of intangible assets | 9 | - | 3.1 |
| integration costs | 12 | (7.9) | (5.0) |
| Exceptional items | 13 | - | (0,2) |
| profit before taxes | 532.8 | 464.6 | |
| taxation | 14 | (121.5) | (119.6) |
| net income | 411.3 | 345,0 | |
| Other comprehensive costs | |||
| Items that can be reclassified to profit or loss: | |||
| Changes in the fair value of financial instruments measured at fair value through other comprehensive income (FVOCI): | |||
| Created in the year | 18 | 0,3 | 1.1 |
| Investment amounts reclassified to profit or loss Securities at FVOCI | (0,7) | (2.0) | |
| Taxes on items in other comprehensive expenses | 0,1 | 0,5 | |
| Revaluation of foreign transactions | (0,2) | (0,1) | |
| Other comprehensive costs | (0,5) | (0,5) | |
| Overall result for the year | 410.8 | 344,5 |
The above results come entirely from ongoing operations.
The explanations on pages 97 to 219 are part of this statement.
The financial statements on pages 92 to 219 were approved by the Board of Directors on March 30, 2023.
OneSavings Bank plc
Presentation of the financial situation
As of December 31, 2022
| group | group | Pursue | Pursue | ||
| 2022 | 2021 | 2022 | 2021 | ||
| note | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| financial assets | |||||
| Cash on hand | 0,4 | 0,5 | 0,4 | 0,5 | |
| Receivables from credit institutions | 17 | 3.365,7 | 2.843,6 | 1.506,1 | 1.405,0 |
| investment securities | 18 | 412.9 | 491.4 | 211.4 | 16.2 |
| Loans and advances to customers | 19 | 23.612,7 | 21.080,3 | 10.531,9 | 9.476,4 |
| Fair value adjustments of hedged assets | 25 | (789,0) | (138.9) | (200.8) | 1.3 |
| Derivative Assets | 24 | 888.1 | 185.7 | 234,0 | 50.5 |
| Other assets | 26 | 15.0 | 10.2 | 13.1 | 8.3 |
| Current tax credit | 1.7 | - | 2.6 | - | |
| Deferred tax assets | 27 | 6.3 | 5.6 | 4.1 | 4.9 |
| Considered as loan assets | 20 | - | - | 31.2 | - |
| Sachanlagen | 28 | 40.9 | 35.1 | 20.9 | 17.3 |
| Intangible Assets | 29 | 12.0 | 18.4 | 6.5 | 7.7 |
| Investments in subsidiaries and intercompany loans | 30 | 0,8 | 0,6 | 3.242,5 | 3.096,4 |
| total assets | 27.567,5 | 24.532,5 | 15.603,9 | 14.084,5 | |
| liabilities | |||||
| Liabilities to credit institutions | 31 | 5.092,9 | 4.319,6 | 2.568,5 | 2.420,7 |
| Amounts owed to retail clients | 32 | 19.755,8 | 17.526,4 | 11.132.2 | 9.739,4 |
| Fair value adjustments of hedged liabilities | 25 | (55.1) | (19.7) | (33.7) | (8.8) |
| Amounts owed to other customers | 33 | 113.1 | 92.6 | 0,5 | 5.7 |
| Issued Notes | 34 | 265.9 | 460.3 | - | - |
| Derivative Liabilities | 24 | 106.6 | 19.7 | 63.8 | 8.7 |
| lease liabilities | 35 | 9.9 | 10.7 | 3.6 | 3.9 |
| Other liabilities | 36 | 38.7 | 29.5 | 23.9 | 17.3 |
| provisions | 37 | 0,4 | 2.0 | 0,1 | 1.9 |
| Ongoing tax liability | - | 1.3 | - | 2.7 | |
| Deferred tax liability | 38 | 22.3 | 39.8 | - | - |
| Considered loan liabilities | 20 | - | - | - | 142.8 |
| intercompany loan | 30 | - | - | 33.3 | 33.2 |
| Subordinated Liabilities | 39 | - | 10.3 | - | 10.3 |
| Perpetual Subordinated Notes | 40 | 15.2 | 15.2 | 15.2 | 15.2 |
| 25.365,7 | 22.507,7 | 13.807,4 | 12.393,0 | ||
| Equity capital | |||||
| share capital | 42 | 4.5 | 4.5 | 4.5 | 4.5 |
| retained earnings | 2.035,0 | 1.857,4 | 1.690,9 | 1.587,6 | |
| other reserves | 43 | 162.3 | 162.9 | 101.1 | 99,4 |
| 2.201,8 | 2.024,8 | 1.796,5 | 1.691,5 | ||
| Total equity and liabilities | 27.567,5 | 24.532,5 | 15.603,9 | 14.084,5 |
Profit after tax for the year ended 31 December 2022 of OneSavings Bank plc as a company was £335.9m (2021: £255.1m). In accordance with Section 408 of the Companies Act 2006, no separate statement of comprehensive income is presented in respect of the Company.
The explanations on pages 97 to 219 are part of this statement. The financial statements on pages 92 to 219 were approved by the Directors on March 30, 2023 and signed on their behalf by:
Andy Golding, April Talintyre
Chief Executive Officer Chief Financial Officer
Company number: 07312896
OneSavings Bank plc
Statement of Changes in Equity
For the year ended December 31, 2022
| share capital | capital contribution | Devisenreserve | FVOCI-Reserve | Share-based Compensation Reserve | retained earnings | Additional Tier 1 (AT1) securities. | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 4.5 | - | (1.0) | 1.0 | 7.8 | 1.604,6 | 60,0 | 1.676,9 |
| net income | - | - | - | - | - | 345,0 | - | 345,0 |
| Other comprehensive costs | - | - | (0,1) | (0,9) | - | - | - | (1.0) |
| Taxes on items in other comprehensive expenses | - | - | - | 0,5 | - | - | - | 0,5 |
| Total Comprehensive (Expense)/Revenue | - | - | (0,1) | (0,4) | - | 345,0 | - | 344,5 |
| Coupon paid on AT1 Securities | - | - | - | - | - | (4.7) | - | (4.7) |
| dividends paid | - | - | - | - | - | (86.7) | - | (86.7) |
| Share-based Payments | - | 1.7 | - | - | 2.3 | 2.7 | - | 6.7 |
| Redemption of AT1 Securities | - | - | - | - | - | - | (60,0) | (60,0) |
| Transaction Costs when redeeming AT1 Securities | - | - | - | - | - | (3.5) | - | (3.5) |
| Issue of AT1 Securities | - | - | - | - | - | - | 150,0 | 150,0 |
| Tax recognized in equity | - | - | - | - | 1.6 | - | - | 1.6 |
| On December 31, 2021 | 4.5 | 1.7 | (1.1) | 0,6 | 11.7 | 1.857,4 | 150,0 | 2.024,8 |
| net income | - | - | - | - | - | 411.3 | - | 411.3 |
| Other comprehensive costs | - | - | (0,2) | (0,4) | - | - | - | (0,6) |
| Taxes on items in other comprehensive expenses | - | - | - | 0,1 | - | - | - | 0,1 |
| Total Comprehensive (Expense)/Revenue | - | - | (0,2) | (0,3) | - | 411.3 | - | 410.8 |
| Coupon paid on AT1 Securities | - | - | - | - | - | (9.0) | - | (9.0) |
| dividends paid | - | - | - | - | - | (233.1) | - | (233.1) |
| Share-based Payments | - | (1.7) | - | - | 1.6 | 8.4 | - | 8.3 |
| On December 31, 2022 | 4.5 | - | (1.3) | 0,3 | 13.3 | 2.035,0 | 150,0 | 2.201,8 |
Share capital is disclosed in Note 42 and reserves in Note 43.
OneSavings Bank plc
Statement of Changes in Equity(Continuation)
For the year ended December 31, 2022
| share capital | FVOCI-Reserve | Share-based Compensation Reserve | retained earnings | AT1 Securities | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 4.5 | (0,1) | 6.7 | 1.423,7 | 60,0 | 1.494,8 |
| net income | - | - | - | 255.1 | - | 255.1 |
| Miscellaneous Total | - | 0,1 | - | - | - | 0,1 |
| overall result | - | 0,1 | - | 255.1 | - | 255.2 |
| Coupon paid on AT1 Securities | - | - | - | (4.7) | - | (4.7) |
| dividends paid | - | - | - | (86.7) | - | (86.7) |
| Share-based Payments | - | - | 1.1 | 3.7 | - | 4.8 |
| Redemption of AT1 Securities | - | - | - | - | (60,0) | (60,0) |
| Transaction Costs when redeeming AT1 Securities | - | - | - | (3.5) | - | (3.5) |
| Issue of AT1 Securities | - | - | - | - | 90,0 | 90,0 |
| Tax recognized in equity | - | - | 1.6 | - | - | 1.6 |
| On December 31, 2021 | 4.5 | - | 9.4 | 1.587,6 | 90,0 | 1.691,5 |
| net income | - | - | - | 335.9 | - | 335.9 |
| Miscellaneous Total | - | 0,3 | - | - | - | 0,3 |
| Taxes on items in other comprehensive income | - | (0,1) | - | - | - | (0,1) |
| overall result | - | 0,2 | - | 335.9 | - | 336.1 |
| Coupon paid on AT1 Securities | - | - | - | (5.4) | - | (5.4) |
| dividends paid | - | - | - | (233.1) | - | (233.1) |
| Share-based Payments | - | - | 1.5 | 5.9 | - | 7.4 |
| On December 31, 2022 | 4.5 | 0,2 | 10.9 | 1.690,9 | 90,0 | 1.796,5 |
Share capital is disclosed in Note 42 and reserves in Note 43.
OneSavings Bank plc
cash flow statement
For the year ended December 31, 2022
| group | group | Pursue | Pursue | ||
| 2022 | 2021 | 2022 | 2021 | ||
| note | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| (Rephrased)1 | (Rephrased)1 | ||||
| The cash flow from operating activities | |||||
| profit before taxes | 532.8 | 464.6 | 387.3 | 314.5 | |
| Adjustments for non-cash items | 49 | 62.4 | (10.0) | 68.6 | 12.2 |
| Changes in business assets and liabilities1 | 49 | (24.5) | (684.4) | 276.6 | (775.3) |
| Cash generated/(used) in operations | 570.7 | (229.8) | 732.5 | (448.6) | |
| Net tax paid | (142.5) | (117.3) | (54,0) | (53.2) | |
| Net cash generated/(used) in operations1 | 428.2 | (347.1) | 678,5 | (501.8) | |
| Cash flows from investing activities | |||||
| Term and sale of securities held as fixed assets | 663.7 | 547.7 | 451.0 | 215.4 | |
| Purchases of Investment Securities | (596,5) | (468.2) | (556.4) | (216.6) | |
| Interest received on securities held as fixed assets | 7.7 | 1.9 | 3.0 | 0,2 | |
| Investments in subsidiaries | - | - | (3.2) | - | |
| Sale of financial instruments | 6 | - | 4.0 | - | 0,3 |
| Proceeds from the sale of property, plant and equipment | 28 | - | 2.0 | - | 2.0 |
| Acquisition of property, plant and equipment and intangible assets | 28,29 | (11.7) | (6.8) | (7.2) | (5.0) |
| Cash generated/(used) from investing activities | 63.2 | 80.6 | (112.8) | (3.7) | |
| Cash flows from financing activities | |||||
| get funding1 | 41 | 429.5 | 4.943,2 | 120,0 | 3.121,5 |
| funding repaid | 41 | (324.2) | (4.295,4) | (304.1) | (2.589,1) |
| interest on the financing | 41 | (45.3) | (8.4) | (25.5) | (6.6) |
| Coupon paid on AT1 Securities | (9.0) | (4.7) | (5.4) | (4.7) | |
| dividends paid | 15 | (233.1) | (86.7) | (233.1) | (86.7) |
| Redemption of AT1 Securities | - | (63,5) | - | (63,5) | |
| Issue of AT1 Securities | - | 150,0 | - | 90,0 | |
| Cash payments on lease liabilities | 35 | (1.9) | (1.9) | (0,8) | (0,7) |
| Cash (used)/produced from financing activities | (184.0) | 632.6 | (448.9) | 460.2 | |
| Net increase/(decrease) in cash and cash equivalents equivalents | 307.4 | 366.1 | 116.8 | (45.3) | |
| Cash and cash equivalents at the beginning of the year | 16 | 2.736,7 | 2.370,6 | 1.332,3 | 1.377,6 |
| Cash and cash equivalents at year-end | 16 | 3.044,1 | 2.736,7 | 1.449,1 | 1.332,3 |
| Movement in cash and cash equivalents | 307.4 | 366.1 | 116.8 | (45.3) |
- Adjusted figures for 2021 see Note 1 b) for further details.
OneSavings Bank plc
Notes to the Financial Statements
For the year ended December 31, 2022
1. Accounting Principles
The most significant accounting policies used in the preparation of the Group's and Company's financial statements are set out below.
A) basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the United Kingdom (UK) and the interpretations issued by the IFRS Interpretations Committee (IFRS IC).
The financial statements have been prepared on a historical cost basis modified by the revaluation of investment securities and derivative contracts held at FVOCI and other financial assets held at fair value through profit or loss (FVTPL) (see Note 1 p) vi.) .
The financial statements are presented in pounds sterling. All amounts in the financial statements have been rounded to the nearest £0.1m (£m). Foreign operations will be included in accordance with the guidelines set forth in this note.
B) reformulation
In the prior year cash collateral and interest rate swap margins received of £115.4m for the Group and £42.1m for the Company were included in financing cash flows in the statement of cash flows. Because the cash flows from hedging activities arise in relation to items classified as operating assets and liabilities in the statement of cash flows, the cash flows should be included in operating cash flows. In the year to date cash collateral and interest rate swap margins received have been reclassified as operating cash flow and the 2021 cash flow statement has been reclassified to reclassify a cash inflow of £115.4m for the group and £42.1m for the company from funding activities to operations Activities.
C) going company
Management regularly makes rigorous assessments of whether the Group will continue as a going concern given current economic conditions and all available information about future risks and uncertainties.
In assessing whether the going concern basis is appropriate, projections have been made for the Group covering its future performance, capital and liquidity for a period in excess of 12 months from the date of approval of these financial statements. These forecasts have been subjected to sensitivity testing, including stressed scenarios compared to the latest economic scenarios provided by the Group's external economic consultants and reverse stress testing.
The reviews include the following:
• Financial and capital projections have been prepared under stress scenarios assessed using the latest economic forecasts provided by the Group's external economic consultants. Reverse stress tests were also performed to assess which combinations of home price index (HPI), unemployment, default rates and consumer price index variables would cause the group to fully exhaust its regulatory capital buffers and breach the group's minimum regulatory requirements, along with analysis and insights from the Group's Internal Capital Adequacy Assessment Process (ICAAP). The Directors assessed the likelihood of these reverse stress scenarios materializing within the next 12 months and concluded that the likelihood is low.
• The most recent liquidity and contingent liquidity positions and forecasts were assessed using the Internal Liquidity Adequacy Assessment Process (ILAAP) stress scenarios and the Group maintained adequate liquidity throughout the assessment period.
OneSavings Bank plc
Notes to the Financial Statements(Continuation)
For the year ended December 31, 2022
- Accounting Principles(Continuation)
• The Group continues to assess the resilience of its business operating model and supporting infrastructure in the context of the emerging economic, business and regulatory environment. The primary focus remains on delivering the Group's critical business services to minimize the impact of service disruptions on the Group's customers or the financial services industry as a whole. The group's response to the COVID-19 pandemic has demonstrated the inherent resilience of its critical processes and infrastructure, as well as its agility in responding to changing operational needs. The Group recognizes the need to continuously invest in the resilience of its services, with a focus in 2023 on ensuring that the third parties on which it depends have an appropriate level of resilience and processes to continue to improve automate that are sensitive to volume increases.
The Group's financial projections show that the Group has sufficient capital and liquidity to continue to meet its regulatory capital requirements as set by the Prudential Regulation Authority (PRA).
The directors have therefore concluded that the group has sufficient resources to continue as a going concern for a period in excess of 12 months and it is therefore appropriate to prepare these financial statements on a going concern basis.
D) basis of consolidation
The consolidated financial statements include the results of the company and its subsidiaries. Subsidiaries are fully consolidated from the date control is transferred to the Group and are deconsolidated from the date control ends. Intercompany transactions, balances and unrealized gains on transactions are eliminated on consolidation. Unrealized losses are also eliminated unless the transaction indicates an impairment of the asset transferred. The accounting principles of the subsidiaries have been changed, where necessary, to ensure consistency as far as possible with the principles adopted by the Group.
Subsidiaries are those entities, including structured entities, over which the Group has control. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. The Group has power over an entity when it has existing rights that give it the current ability to direct the activities that have the most significant effect on the entity's earnings. Power may be determined on the basis of voting rights or, in the case of structured entities, other contractual arrangements.
If the Group does not retain a direct ownership interest in a securitization vehicle but the Directors have determined that the Group controls those vehicles, they are treated as subsidiaries and consolidated. Control exists when the group has the authority to direct the activities of each entity (e.g., managing the performance of the underlying mortgage assets and incurring debt on those mortgage assets used to fund the group) and in addition control is exposed to a variable rate of return (e.g. residual risk remains on the mortgage assets). Securitization structures that do not meet these criteria are not treated as subsidiaries and are excluded from the consolidated financial statements. The Company applies the net approach in accounting for securitization structures when it retains an interest in the securitization and offsets the retained promissory notes against the assumed loan balance.
- Accounting Principles(Continuation)
The Group is not deemed to control a company when it exercises power over a company in a proxy capacity. In determining whether the Group is acting as an agent, the Directors consider the overall relationship between the Group, the investee and other parties to the arrangement with regard to the following factors: (i) the extent of the Group's decision-making authority; (ii) the rights held by other parties; (iii) the remuneration to which the Group is entitled; and (iv) the Group's exposure to fluctuations in returns. The determination of control is based on the current facts and circumstances and is constantly reassessed. In certain circumstances, different factors and conditions may indicate that different parties control an entity, depending on whether those factors and conditions are assessed in isolation or collectively. In assessing whether the Group controls an entity, judgment is used in evaluating the relevant factors and conditions in their entirety. In particular, judgment is used in assessing whether the Group has significant decision-making rights over the relevant activities and whether it exercises power as principal or agent.
e) Foreign currency conversion
The consolidated financial statements are presented in sterling, which is the Group's presentation currency. The financial statements of each of the Company's subsidiaries are prepared using the currency of the primary economic environment in which the subsidiary operates (the functional currency). Foreign currency transactions are translated into the functional currencies at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies are translated at the rate prevailing at the period end.
Currency gains and losses resulting from the translation and settlement of these items are recognized in profit or loss. Non-monetary items valued at cost in foreign currency are translated at the spot exchange rate on the date of the transaction.
The assets and liabilities of foreign operations with functional currencies other than sterling are translated into the presentation currency at the exchange rate prevailing at the balance sheet date. Income and expenses of foreign operations are translated at the rates prevailing on the transaction date. Translation differences from foreign operations are recognized in other comprehensive income (OCI) and accumulated in the foreign currency reserve within equity.
F) segment reporting
IFRS 8 requires business segments to be identified based on internal reports and components of the group, which are regularly reviewed by the chief operating decision maker to allocate resources to the segments and assess their performance. To this end, the Management Board is the Group's main decision-making body.
The group provides credit and investment finance within the UK and Channel Islands only.
The Group segments its lending business and operates in two segments:
- OneSavings Bank (OSB)
- Charter Court Financial Services (CCFS)
The Group has disclosed relevant risk management tables in Note 45 at sub-segment level to provide a detailed analysis of the Group's core lending business.
- Accounting Principles(Continuation)
G) Interest Income and Expense
Interest income and expense for all interest-bearing financial instruments measured at amortized cost and FVOCI are recognized in profit or loss using the effective interest method (EIR). The EIR is the interest rate that discounts the expected future cash flows over the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability.
Interest income on financial assets categorized as Level 1 or 2 is recognized on a gross basis, with interest income on Level 3 assets being recognized net of expected credit losses (ECL). For purchased or credit-impaired assets (see Note 1 p) vii.) interest income is calculated by applying the credit-adjusted EIR to the amortized cost of the asset. The calculation of interest income is not switched to a gross basis even if the asset's credit risk improves. See Note 1 p) ii. for more information on stage classifications under IFRS 9.
In calculating the EIR, the Group estimates the cash flows considering all contractual terms of the instrument and behavioral aspects (e.g. prepayment options), but without considering future credit losses. The calculation of the EIR includes transaction costs and fees paid or received that are an integral part of the interest rate, as well as the discount or premium incurred in acquiring loan portfolios. Transaction costs include additional costs that are directly attributable to the acquisition or issue of a financial instrument.
The Group monitors the actual cash flows for each book and resets the cash flows monthly, discounted using the EIR, to derive a new book value, with changes recognized in profit or loss as interest income.
The EIR is adjusted when the reference interest rate (SONIA, synthetic LIBOR or base rate) changes, which affects floating rate portfolios and impacts future cash flows. The revised EIR is the rate that accurately discounts the revised cash flows to the net book value of the loan portfolio.
If the contractual terms of non-derivative financial instruments have changed as a direct result of the IBOR reform in 2021 and the new basis for determining the contractual cash flows is economically equivalent to the previous basis, the Group changes the basis for determining the contractual cash flows prospectively through revision the EIR.
Interest income from securities held as fixed assets is included in receivables from interest and similar income. Interest on derivatives is included in receivables from interest and similar income or interest expense and similar costs according to the underlying instrument that they hedge.
Coupons paid on Additional Tier 1 (AT1) securities are recognized directly in equity in the period in which they are paid.
H) Fees and Commissions
Fees and commissions that are an integral part of the EIR of a financial instrument are recognized as an adjustment to the EIR and included in interest income. The Group accounts for prepayment penalties within the EIR.
Fees received for mortgage servicing services and mortgage underwriting activities that are not an integral part of the EIR are recognized in other operating income and accounted for in accordance with IFRS 15 Revenue from Contracts with Customers, with income recognized when the services are rendered and the benefits are paid to principals and passed on to customers.
- Accounting Principles(Continuation)
Other fees and commissions are recognized on an accrual basis when services are rendered or a significant action is taken, net of value added and similar taxes.
I) integration costs and special items
Integration costs and extraordinary items are those items of income or expense that are not related to the Group's core business activities, are not expected to recur and are material in connection with the Group's performance. These items are shown separately in the consolidated statement of comprehensive income and in the notes to the consolidated financial statements.
J) taxation
Income taxes include current and deferred taxes. It is recognized in profit or loss, OCI or directly in equity in accordance with the recognition of the items to which it relates. The Group recognizes tax on coupons paid on AT1 securities directly in profit or loss.
Current tax is the expected tax charge on taxable income for the year and any adjustments in respect of previous years.
Deferred tax is the tax expected to be payable or receivable in respect of temporary differences between the carrying amounts of assets or liabilities for accounting purposes and the carrying amounts for tax purposes.
Deferred tax assets are only recognized to the extent that it is probable that future taxable profits will be available to use the asset. The recognition of deferred taxes depends primarily on forecasts of future taxable profits and future reversals of temporary differences. Current projections of future taxable income indicate that the Group will be able to utilize its deferred tax assets for the foreseeable future.
Deferred tax liabilities are recognized for all taxable temporary differences.
The Company and its UK taxable subsidiaries are in a group payment arrangement for corporation tax and accordingly report a net corporation tax liability and a deferred tax liability, with the exception of WSE Bourton Road Limited which is applying to join the arrangement.
The Company and its UK subsidiaries belong to the same VAT group.
k) dividends
Dividends are recognized in equity in the period in which they are paid or, if earlier, authorized by shareholders.
Dividend income from investments is recognized when the shareholders' right to payment has arisen.
l) Cash and cash equivalents
For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents include cash, unrestricted bank balances, highly liquid financial assets with maturities of less than three months from the date of acquisition that are subject to an insignificant risk of changing their fair value and are used by the Group to manage its short-term commitments .
- Accounting Principles(Continuation)
M) Intangible Assets
Purchased software and costs directly related to the development of computer software are capitalized as intangible assets if the software is a unique and identifiable asset that is controlled by the Group and will generate future economic benefits. Costs for establishing the technological feasibility or for maintaining existing levels of performance are expensed. The Group only recognizes internally generated intangible assets if all of the following conditions are met:
- an asset is created that can be identified after determining the technical and commercial feasibility of the resulting product;
- it is probable that the asset created will generate future economic benefits; And
- the development costs of the asset can be reliably determined.
Subsequent expenditure on an internally generated intangible asset is recognized as an expense in the period in which it is incurred after its purchase or completion. If no internally generated intangible asset can be capitalized, development costs are expensed in the period in which they are incurred.
Software-as-a-Service (SaaS) is an arrangement that gives the Group the right to have future access to the vendor's application software, which is treated as a service contract and not as software rental or purchase of a software intangible asset.
An intangible asset is only recognized if:
- The Group has the contractual right to take possession of the software during the hosting period without significant penalty; And
- The group may run the software on its own hardware or contract with a party unaffiliated with the supplier to host the software.
The cost of configuring or customizing the supplier's application software in a SaaS arrangement that is designated as a service contract is recognized as an expense or upfront payment. If the configuration and customization services are not separate from the right to access the software, the cost is expensed over the life of the agreement.
Intangible assets are reviewed for impairment semi-annually and, if determined to be impaired, are immediately written down to their recoverable amount. Previously recognized impairment losses for intangible assets other than goodwill are reversed if the estimates used to determine the asset's recoverable amount have changed. A reversal is recognized in the consolidated statement of comprehensive income and the carrying amount of the asset is increased to its recoverable amount.
Intangible assets are amortized through profit or loss over their estimated useful lives as follows:
Software and internally generated assets 5 years on a straight-line basis
Development costs, brand and technology 4 years straight
Broker Relationships 5 Year Profile
Bank license 3 years straight
- Accounting Principles(Continuation)
Development costs under construction are not amortized until the asset is available for use and is calculated using a full month when available for use.
The Group reviews the amortization period annually. If the expected useful lives of assets differ from previous estimates, the depreciation period is changed accordingly.
N) Sachanlagen
Property, plant and equipment includes land and buildings owned, significant alterations to office buildings, computer equipment and fixtures and fittings, which are valued at cost less accumulated depreciation. These assets are reviewed annually for impairment and, if determined to be impaired, immediately written down to their recoverable amount.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives as follows:
building 50 years
Leasehold improvements 10 years
Operating and office equipment 5 years
Land representing 25% of the purchase price of buildings is not depreciated.
The costs of repairs and replacements are recognized in profit or loss in the period in which the expenses are incurred.
Ö) Investments in subsidiaries
In the Company's annual financial statements, investments in subsidiaries are reported at cost less provisions for impairment. A full list of the Company's subsidiaries included in the Group's consolidated financial statements is provided in Note 30.
The Company performs an annual impairment test of its investments in subsidiaries by comparing the carrying amount of the investment in each subsidiary to the subsidiary's net asset values at the balance sheet date for any indication of impairment. When there is evidence of impairment, the entity estimates the subsidiary's value in use by estimating future profitability and the impact on the subsidiary's net assets. The Company recognizes an impairment directly in profit or loss when the recoverable amount, which is the higher of value in use or fair value less costs to sell, is less than the carrying amount of the investment. Write-ups are then made if the recoverable amount exceeds the book value.
- Accounting Principles(Continuation)
P) financial instruments
- recognition
The Group recognizes loans and receivables, deposits, debt securities issued and subordinated debt initially on the date they are originated or acquired. All other financial instruments are accounted for on the trade date on which the Group becomes a party to the instrument.
For financial instruments classified as amortized cost or FVOCI, the Group initially recognizes financial assets and financial liabilities at fair value plus transaction income or costs directly attributable to their creation, acquisition or issuance. Financial instruments classified as amortized cost are subsequently valued using the EIR method.
Transaction costs in connection with the purchase or issue of a financial instrument at FVTPL are recognized in profit or loss as they are incurred.
AT1 securities are referred to as equity instruments and are measured at fair value at issuance in equity along with the incremental costs directly attributable to the issuance of equity instruments.
- classification
The Group classifies financial instruments based on the business model and the contractual cash flow characteristics of the financial instruments. Under IFRS 9, the Group classifies financial assets into one of three measurement categories:
- Amortized acquisition cost– Assets in a business model to hold financial assets to collect contractual cash flows when the contractual terms of the financial asset give rise at specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
- FVOCI– Assets held in a business model that collects contractual cash flows and sells financial assets when the contractual terms of the financial assets give rise at specified dates to cash flows that are SPPI on the principal amount outstanding.
- FVTPL– Assets not measured at amortized cost or FVOCI. The Group rates derivatives, a purchased portfolio of mortgages and an investment security in this category.
The Group classifies non-derivative financial liabilities as measured at amortized cost.
The Group has no non-derivative financial assets or liabilities classified as held for trading.
The Group reassesses its business models in each reporting period.
The Group classifies certain financial instruments as equity if they meet the following conditions:
- the financial instrument does not involve a contractual obligation to deliver cash or another financial asset on potentially unfavorable terms;
- the financial instrument is a non-derivative financial instrument that does not contain a contractual obligation for the issuer to deliver a variable number of its own equity instruments; or
- The financial instrument is a derivative that will only be settled by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.
- Accounting Principles(Continuation)
During the year, equity instruments included treasury shares and AT1 securities (2021: and securities held by non-controlling interests). Accordingly, the coupons paid on the AT1 Securities are recognized directly in retained earnings when paid.
- derecognition
The Group derecognises financial assets when the contractual rights to the cash flows expire or the Group transfers substantially all the risks and rewards of ownership of the financial asset.
The Group offers customers refinancing options that have been assessed in accordance with the principles of IFRS9 and the relevant guidelines. The valuation concludes that the original mortgage value is derecognised at the refinancing point and a new financial asset is recognized.
The forbearance measures offered by the Group are considered a modification event as the contractual cash flows are renegotiated or otherwise modified. The Group believes that the renegotiated or modified cash flows do not represent a material change in the contractual cash flows and do not believe that forbearance actions will result in a derecognition event.
Financial liabilities are only derecognised when the obligation is discharged, canceled or has expired.
- billing
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet if and only if the Group currently has a legally enforceable right to set off the amounts and it intends either to settle on a net basis or to realize the asset and settle the obligation at the same time.
The Group's derivatives are covered by standard industry netting master agreements. Master netting agreements establish a right to set off that only becomes enforceable after a specific default event or under other circumstances that are not to be expected in the normal course of business. These agreements do not qualify for offsetting and as such the Group accounts for derivatives on a gross basis.
Collateral relating to derivatives is subject to the standard industry terms of the International Swaps and Derivatives Association (ISDA) Credit Support Annex. This means that cash received or pledged as collateral can be pledged or used during the life of the transaction but must be returned when the transaction matures. The terms also give each counterparty the right to terminate the related transactions if the counterparty fails to post collateral. Collateral provided or received cannot be offset and is reported under amounts due from banks or liabilities to banks.
- Valuation at amortized cost
The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, less any principal payments or receipts, plus or minus accumulated amortization using the EIR method of any difference between the original amount reported and the amount due less any allowance for asset impairment.
- Accounting Principles(Continuation)
- Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date on the capital market or, failing that, the cheapest market at which the Group access has this date.
Where available, the Group determines the fair value of an instrument based on the quoted price in an active market for that instrument. A market is considered active when transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Group measures its securities and perpetual subordinated debt (PSBs) at fair value using quoted market prices where available.
When there is no quoted price in an active market, the Group applies valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The Group uses SONIA curves, previously a combination of LIBOR and SONIA curves, to value its derivatives. The fair value of the Group's derivative financial instruments includes credit valuation adjustments (CVA) and debit valuation adjustments (DVA). DVA and CVA take into account the respective credit ratings of the two banking entities and the group counterparty and whether the derivative is collateralised or not. Derivatives are valued using discounted cash flow models and observable market data and are sensitive to benchmark and base yield curves.
The fair value of the securities held as fixed assets at FVTPL is determined using a discounted cash flow model.
- Identification and assessment of impairment of financial assets
The Group tests all financial assets for impairment.
Loans and advances to customers
The Group uses the three-step ECL approach of IFRS 9 to measure impairment. The three levels of impairment are as follows:
- stage 1– A 12-month ECL allowance is recognized if there is no significant increase in credit risk (SICR) since initial recognition.
- Level 2– A lifetime ECL allowance is recognized for assets for which a SICR has been identified since initial recognition. The assessment of whether the credit risk has increased significantly since initial recognition is performed for each reporting period for the term of the loan.
- level 3– requires objective evidence that an asset is credit-impaired and a lifetime ECL allowance is recognized at that point.
The Group measures impairment using individual and modeled valuations.
- Accounting Principles(Continuation)
Individual assessment
The Group's risk provisioning process requires an individual assessment for high-risk or higher-risk loans where insolvency practitioners have been appointed under the Law of Property Act (LPA), property is occupied or other events exist that indicate a high probability of a loan loss . Credits are considered at connection level, i. H. including all credits related to the customer.
The Group estimates the cash flows from these loans, including expected interest and principal payments, rental or sale proceeds, selling and other costs. The Group obtains up-to-date independent valuations for properties for sale.
For all individually assessed confirmed sale loans, if the present value of the estimated future cash flows discounted at the original EIR is less than the carrying amount of the loan, a provision is recognized for the difference and such loans are classified as impaired. However, if the present value of estimated future cash flows exceeds book value, no provision is made. For all remaining individually rated loans, the provision in the event of expected total loss is recognized at book value, with all other individually rated loans using either the modeled or individual valuation, whichever is higher.
The Group applies a modeled assessment to all loans without an individually assessed provision.
Modeled impairment according to IFRS 9
Measurement of ECL
The credit risk assessment and ECL estimate are unbiased and probability-weighted.
The ECL calculation is a product of the probability of default (PD), the risk of default (EAD) and the loss given default (LGD) of an individual loan, discounted with the EIR. The ECL drivers of PD, EAD, and LGD are modeled at the account level. The assessment of whether SICR has occurred is based on quantitative relative PD thresholds and a set of qualitative triggers.
In line with PRA's COVID-19 guidance, the Group did not automatically consider customers' use of deferred payments during the pandemic to be indicative of a SICR, and in the absence of other indicators such as past arrears, low creditworthiness or high other indebtedness, the staggering of these remains Credits in their ECL calculations unchanged.
Significant increase in credit risk (move to Stage 2)
The group's bridging criteria determine what constitutes a SICR, resulting in an exposure moving from Stage 1 to Stage 2.
A PD estimate is assigned to a loan upon initial recognition. Thereafter, an updated PD estimate is calculated for each monthly reporting date. The group's eligibility criteria analyze relative changes in PD compared to the PD assigned at the time of assignment along with qualitative triggers using both internal indicators, such as: In the event that certain early warning triggers have not yet identified a SICR, an account that is more than 30 days past due is deemed to have experienced a SICR.
A borrower will only revert to Stage 1 if the SICR definition is no longer triggered.
- Accounting Principles(Continuation)
Definition of failure (move to stage 3)
The Group uses a number of quantitative and qualitative criteria to determine whether an account meets the definition of default and therefore proceeds to Stage 3. The criteria currently include:
- When an invoice is more than 90 days overdue.
- Accounts that have been placed in an unlikely payment position, including forbearance, bankruptcy, garnishment, and interest term expiry.
A borrower exits Stage 3 when its credit risk improves to the point where it no longer meets the criteria of 90 days past due and unlikely to pay and has subsequently completed an internally approved probationary period. The borrower transitions to Tier 1 or Tier 2 depending on whether the SICR applies.
Forward-looking macroeconomic scenarios
Credit risk and ECL ratings reflect expectations of economic changes that are considered reasonably possible.
The Group performs analysis to determine the most important factors that may affect the likelihood of an exposure defaulting in the future. The macroeconomic factors relate to the HPI, Unemployment Rate (UR), Consumer Price Index (CPI), Gross Domestic Product (GDP), Commercial Property Index (CRE) and Bank of England Base Rate (BBR).
The group has developed an approach to include probability-weighted macroeconomic forecasts in ECL calculations and to adjust PD and LGD estimates. The macroeconomic scenarios feed directly into the ECL calculation as the adjusted PD, lifetime PD and LGD estimates are used in the ECL allowance calculations for individual accounts.
The Group obtains economic forecast information from a suitably qualified third party when determining scenarios. The group considers four probability-weighted scenarios: baseline, upside, downside, and severe downside.
The base case is also used as part of the Group's impairment forecasting process, which in turn feeds into the broader business planning processes. The ECL models are also used to set the Group's credit risk appetite thresholds and limits.
Period over which ECL is measured
ECL is measured from the initial recognition of the asset, ie the date the loan is originated or the loan is purchased, and at each balance sheet date thereafter. The maximum period considered in measuring ECL (either 12 months or lifetime ECL) is the maximum contractual period over which the Group is exposed to the credit risk of the asset. For modeling purposes, the Group considers the contractual life of the credit product and then considers the behavioral trends of the asset.
Purchased or Originated Credit (POCI)
Purchased loans that meet the Group's definition of default (90 days past due or unlikely payment position) at the time of purchase are treated as POCI assets. Lifetime ECL amortization is provided on these assets over the life of the loan, even if these loans no longer meet the definition of post-acquisition default. The Group does not issue credit-impaired loans.
- Accounting Principles(Continuation)
intercompany loan
Intercompany receivables in the Company's financial statements are valued for ECL based on an assessment of PD and LGD and discounted to a net present value.
Other financial assets
Other financial assets include cash balances with the Bank of England (BoE) and other credit institutions and investment grade securities. The Group considers the probability of default from these counterparties to be low and does not recognize any provisions against the book balances.
Q) Loans and advances to customers
Receivables from customers are primarily mortgage loans and receivables from customers with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell in the short term. They are initially recognized at fair value plus directly attributable transaction costs and subsequently measured at amortized cost using the EIR method less impairment. When exposures are hedged with derivatives that are designated and qualify as fair value hedges, the fair value adjustment for the hedged risk of the carrying amount of the hedged loans and receivables is reported in fair value adjustments for hedged assets.
Loans and the associated provision are written off if a shortfall remains after the sale of the underlying security. Subsequent receipts of amounts previously written off are recognized in profit or loss.
Loans and advances to customers for which the Group transfers its rights to the collateral thereon to the BoE under the Term Funding Scheme with Additional Incentives for SMEs (TFSME) and Index Long-Term Repo (ILTR) are not derecognised from the balance sheet , as the Group retains substantially all risks and rewards of ownership, including all cash flows arising from loans and receivables and credit risk. The Group classifies TFSME as amortized cost under IFRS 9 Financial Instruments.
Loans and receivables with customers comprise a small purchased portfolio of mortgages where the contractual cash flows include payments that are not SPPI and as such are valued at FVTPL.
Loans and advances to customers include the Group's asset finance lease loan. Finance leases are initially valued at an amount equal to the net investment in the lease using the interest rate implied in the finance lease. Direct costs are included in the initial measurement of the net investment in the lease and reduce the amount of income recognized over the lease term. Finance income is recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the lease.
R) Counts as a loan
Mortgage assets remain on the Company's balance sheet for securitization transactions in which the Company retains substantially all of the risks and rewards of the assets. The entity recognizes a notional loan position for consideration received or transferred. In each subsequent reporting period, the assumed credit position is updated to reflect principal payments on debt securities held by third parties, movements in liquidity and other cash reserves held by the securitization vehicle and costs incurred in connection with the securitization agreement. Expense recognized includes interest payments on debt securities held by external parties, interest payments paid/received on the swap, and third-party servicing and other costs as they are incurred.
- Accounting Principles(Continuation)
S) investment securities
Investment securities include securities held for liquidity purposes (UK Treasury Bills, UK Gilts and Residential Mortgage-Backed Securities (RMBS)). These assets are non-derivative assets, individually referred to as amortized cost, FVOCI or FVTPL.
Assets classified as amortized cost are initially recognized at fair value and subsequently measured at amortized cost using the EIR method less impairment.
Assets held at FVOCI are measured at fair value with movements recognized in OCI and accumulated in the FVOCI reserve within equity, except for impairment losses which are recognized in profit or loss. When the instrument is sold, the accumulated gain or loss in equity is reclassified to the income statement.
Assets held at FVTPL are measured at fair value with movements recognized in the statement of comprehensive income.
T) Deposits, Debentures Issued and Subordinated Debt
Deposits, issued debt and subordinated debt are the Group's sources of external financing. They comprise retail and credit institution deposits, including secured BoE loan advances under TFSME and ILTR, asset-backed notes issued through the group's securitization programs and subordinated debt. Subordinated debt includes the Sterling PSBs, the terms of which do not allow for absolute discretion over the payment of interest. These financial liabilities are initially measured at fair value less direct transaction costs and subsequently held at amortized cost using the EIR method.
Cash received under TFSME and ILTR is recorded as liabilities to banks. Interest accrues over the life of the agreements on an EIR basis.
of) Purchase and Repurchase Agreements
Retired financial assets are retained in the financial statements if they do not meet the derecognition criteria of IFRS 9 described in paragraph p(iii) above. The financial assets retained in the financial statements are included in amounts due from customers or long-term investments and the counterparty liability is included in amounts owed to banks or other customers. Financial assets acquired under resale agreements at a predetermined price where the transaction is of a financing nature (reverse repurchase agreement) are accounted for as amounts due from banks. The difference between the sale and repurchase price is treated as interest and is accrued over the life of the agreement using the EIR method.
- Accounting Principles(Continuation)
v) Derivative financial instruments
The Group uses derivative financial instruments (interest rate swaps) to manage its interest rate risk. In accordance with the Group Market and Liquidity Risk Policy, the Group does not hold or issue any financial derivative instruments for proprietary trading.
Derivative financial instruments are recognized at fair value, with changes in fair value recognized in profit or loss. The fair values are calculated by discounting the cash flows at the prevailing interest rates. All derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. When a derivative is called, it is removed from the balance sheet.
The Group also uses derivatives to hedge the interest rate risk associated with irrevocable credit offers. As a result, the Group is exposed to fluctuations in the fair value of derivatives until the loan is drawn down. The changes in fair value are recognized in profit or loss for the period.
w) Hedge-Accounting
The Group has elected to continue to apply the hedge accounting requirements of IAS 39 in place of the requirements of Chapter 6 of IFRS 9. The Group uses fair value hedge accounting for portfolio hedging of interest rate risks.
Portfolio hedge accounting enables the effectiveness of hedging transactions to be checked and accounted for across an entire portfolio of financial assets or liabilities. To qualify for hedge accounting from the outset, hedging relationships must be clearly documented and derivatives must be expected to be highly effective in offsetting the risks being hedged. In addition, effectiveness must be tested throughout the life of the hedging relationship. This applies to all derivatives, including SONIA-linked derivatives entered into to replace LIBOR-linked derivatives as a result of the IBOR reforms in 2021.
The Group applies fair value portfolio hedge accounting to its fixed income mortgage and savings account portfolio. The hedged portfolio is analyzed against expected revaluation dates using the Group Assets and Liabilities Committee (ALCO) approved prepayment curve into revaluation periods. Interest rate swaps are designated against the revaluation periods to establish the hedging relationship. Hedge effectiveness is calculated as a percentage of the change in fair value of the interest rate swap versus the change in fair value of the hedged item over the tested period.
The Group considers the following main sources of hedge ineffectiveness:
- the mismatch of the maturity date of the swap and the hedged item as fixed maturity swaps cover a portfolio of hedged items that may mature during the month;
- the actual behavior of the underlying transaction that deviates from expectations, e.g. B. Prepayments or withdrawals and arrears;
- minimal movements in the yield curve resulting in ineffectiveness when hedging relationships are sensitive to small changes in value; And
- the transition related to the LIBOR reforms during 2021, which will cause some hedged instruments and hedged items to be based on different reference rates.
- Accounting Principles(Continuation)
When there is an effective hedging relationship for fair value hedges, the Group recognizes the change in fair value of each hedged item in profit or loss, with the cumulative change in its value reported separately in the statement of financial position as an adjustment to fair value hedge assets and liabilities. The changes in fair value of both the derivative and the hedge essentially offset each other to reduce earnings volatility.
The Group discontinues hedge accounting when the derivative matures, when the derivative is terminated, or when the underlying hedged item matures, is sold, or is redeemed.
If a derivative no longer meets the criteria for hedge accounting or is terminated while still in effect, including LIBOR-linked derivatives that were terminated due to IBOR reforms in 2021, the fair value adjustment will be made in respect of the hedged Assets or liabilities within the hedging relationship before the derivative that expires or is terminated remain on the balance sheet and are amortized over the remaining life of the hedged asset or liability. The rate of depreciation over the remaining term is the expected income or cost that will be generated from the hedged asset or liability. In each reporting period, the expectation is compared to the actual value, with accelerated settlement being applied if the two differ by more than the specified parameters.
X) Debit and Credit Valuation Adjustments
The DVA and CVA are included in the fair value of derivative financial instruments. DVA is based on the expected loss to a counterparty due to the default risk of the two banking entities in the group. The CVA reflects the Group's default risk.
The methodology is based on a standard calculation considering:
- the one-year PD;
- the expected EAD;
- the expected LGD; And
- the average maturity of the swaps.
j) Provisions and contingent liabilities
A provision is recognized when there is a present obligation as a result of a past event, it is probable that the obligation will be settled and the amount can be reliably estimated.
Provisions include ECLs on undrawn Group credit commitments.
Contingent liabilities are possible obligations from past events, the existence of which will only be confirmed by uncertain future events, or current obligations from past events that are either improbable or the amount of which cannot be reliably determined. Contingent liabilities are not recognized but disclosed unless immaterial or unlikely.
- Accounting Principles(Continuation)
z) Employee benefits – defined contribution scheme
The Group contributes to defined contribution personal pension plans or defined contribution retirement plans for all eligible employees who subscribe to the terms of the plans' policies.
Obligations for contributions to defined contribution pension plans are expensed as incurred.
aa) Share-based Payments
Equity-settled share-based payments to employees who provide services are measured in accordance with IFRS 2 at the fair value of the equity instruments on the grant date. Fair value excludes the effects of non-market vesting conditions.
The cost of the awards is charged to profit or loss (with a corresponding increase in the share-based payment reserve within equity) on a straight-line basis over the vesting period in which the employee becomes unconditionally entitled to the awards. The increase within the reserve for share-based payments is reclassified to retained earnings upon exercise.
The amount recognized as an expense for off-market conditions and related service conditions is adjusted each reporting period to reflect the actual number of awards expected. The amount expensed for market-based awards is based on the portion expected to meet the condition as assessed at the grant date. The grant date fair value of each award is not adjusted.
Share-based payments that are not subject to further vesting conditions (e.g. the Deferred Share Bonus Plan (DSBP) for senior managers) are recognized as an expense in the year in which the performance is received, with a corresponding increase in equity. Awards granted to Executive Directors in March 2020 are subject to service conditions until vesting and are expensed over the vesting period. Awards granted to Executive Directors from 2021 onwards are not subject to future service conditions and are expensed in the year in which service is deemed to have been rendered.
If the eligible cost of a share-based option or award for tax purposes is greater than the cost determined in accordance with IFRS 2, the tax effect of the excess is recognized in the share-based payment reserve within equity. The tax effect is reclassified to retained earnings when it vests.
Employer social security is recognized in profit or loss at the share price at the balance sheet date under the same service or vesting plans as the underlying options and awards.
- Accounting Principles(Continuation)
bb) leases
The Group's leases relate primarily to offices and branches of Kent Reliance. The Group recognizes rights of use and lease liabilities for leases with a term of more than 12 months. Right-of-use assets and lease liabilities are initially recognized at the net present value of future lease payments discounted at the implied interest rate or, if unavailable, the Group's incremental borrowing costs. After initial recognition, the right of use is amortized on a straight-line basis over the term of the lease. Future rental payments are deducted from the lease liability, with the lease liability bearing interest at the incremental borrowing costs at the time of initial recognition. Lease liability payments are recognized in the statement of cash flows within financing activities.
The Group assesses the likely effects of early terminations when recognizing the right-of-use asset and the lease liability when there is an early termination option.
For changes that extend the duration of a rental agreement; the revised lease term is determined and the lease liability remeasured by discounting the revised lease payments at a revised discount rate as of the effective date of the lease modification; a corresponding adjustment of the right of use will be made. If modifications reduce the lease term, the lease liability and right-of-use asset are reduced in proportion to the reduction in the lease term, with any gain or loss recognized in profit or loss.
Leases with low future payments or terms of less than 12 months are deferred through profit or loss.
cc) Adoption of new standards
International Accounting Standards first issued and applied for the year ended December 31, 2022
There have been a number of minor changes to accounting standards that are effective for the current year. The adoption of these amendments and interpretations of the accounting standards did not have a material impact on the Group's financial statements.
Issued but not yet effective international accounting standards applicable to the Group
The Group has not early adopted certain changes in accounting standards and interpretations that were not effective as of December 31, 2022. The application of these amendments is not expected to have a material impact on the Group's financial statements in future periods.
2. Judgments in the application of accounting principles and critical accounting estimates
In preparing these financial statements, the Group has made judgments, estimates and assumptions that affect the amounts reported for the current and future financial years. Actual results may differ from these estimates.
In preparing the financial statements, the Group has considered the impact of climate-related risks on its financial condition and performance, including the impact on ECL and payback profiles included in EIR. While the effects of climate change are a source of uncertainty, the Group does not expect there to be a material impact on its judgments and estimates of physical or transition risks in the near term. Accordingly, there is no material risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year as a result of climate change. As set out on page 52 we have recognized a post model adjustment (PMA) within the ECL provision of £4.4m related to climate change although this is not material.
Estimates and judgments are regularly reviewed based on past experience, expectations of future events and other factors.
judgements
The Group has made the following significant judgments in applying the accounting policies:
- impairments in the loan book
Significant increase in credit risk for Tier 2 rating
The Group's SICR rules take into account changes in credit risk, internal impairment measures, changes in customer credit reporting or whether forbearance measures have been applied. Since the COVID-19 deferred payment initiative has been discontinued, newly granted defaults are considered a SICR event.
Other SICR adjustments made during the pandemic to account for high-risk accounts have since been removed, with the SICR adjustments updated as the group faced an increase in credit risk due to the cost of living burdens caused by high inflation and Borrowing costs in the UK and rate hikes.
- Classification according to IFRS 9
Applying the 'business model' requirements of IFRS 9 requires the Group to draw conclusions about the business models it operates and is a fundamental aspect in determining the classification of the Group's financial assets.
Management assesses the intention to hold financial assets and the contractual terms of those assets and concludes that the Group's business model is held-to-collect. This conclusion was reached on the basis that the Group originates and purchases loans and advances with the intention of collecting contractual cash flows over the life of the financial instrument originated or purchased.
The Group assesses whether the contractual terms of a financial asset give rise at specified dates to cash flows that are SPPI to the principal amount outstanding when applying the classification criteria of IFRS 9. The majority of the Group's assets are loans and advances to customers, which are carried at amortized cost, with the exception of an acquired mortgage book of £14.6m (2021: £17.7m) which is presented at FVTPL.
- Judgments in the application of accounting principles and critical accounting estimates(Continuation)
estimates
The Group has made the following estimates in applying accounting policies that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
- impairments in the loan book
Set out below are details of the critical accounting estimates used in the credit impairment calculations. Less significant estimates are not discussed as they do not have a significant impact. The Group has recorded impairments totaling £130.0m (2021: £101.5m) at the balance sheet date as disclosed in note 23.
Modeled impairment
Modeled reserve assessments are also subject to estimation uncertainties, which are supported by a number of management estimates used in impairment calculations. Key areas of estimation within the modeled provisioning calculations include LGD and forward-looking macroeconomic scenarios.
Loss-given standard model
The group has a number of LGD models that include estimates of propensity to own at default (PPD), forced sale discount, time to sale and cost of sale. The LGD is sensitive to the application of the HPI, with a 10% discount considered a reasonable percentage change when looking at historical and expected 12-month results. The table below shows the resulting additional provision required for a 10% house price haircut applied directly to all exposures that not only adjust the sales discount but also the propensity to PPD.
| OSB-Segment | CCFS-Segment | group | |
| December 31, 2022 | 28,0 Mio. £ | 10,7 Mio. £ | 38,7 Mio. £ |
| December 31, 2021 | 22,7 Mio. £ | 8,3 Mio. £ | 31,0 Mio. £ |
The Group's projections of the HPI movements used in the impairment models are disclosed in the Risk Profile Performance Report on page 51.
Forward-looking macroeconomic scenarios
The forward-looking macroeconomic scenarios affect all model components of the ECL, so the calculation remains sensitive to both the scenarios used and the associated probability weights.
The company has chosen an approach using four macroeconomic scenarios. These scenarios are provided by an industry-leading business consulting firm, which advises management and the board of directors on which scenarios to use and the probability weights to attach to each scenario. A base case forecast is provided along with a plausible upside scenario. Two downside scenarios are also provided (down and a severe move down). For the Group's macroeconomic scenarios, please refer to the Credit Risk section of the Risk Profile Performance Summary on page 51.
The following tables show the sensitivity analysis of the ECL scenario, weighting each scenario with a probability of 100%. The purpose of using multiple economic scenarios is to model the non-linear effects of assumptions about macroeconomic factors and calculated ECL:
- Judgments in the application of accounting principles and critical accounting estimates(Continuation)
| As of December 31, 22 | Weighted (see note 22) | 100% base case scenario | 100% upside scenario | 100% downside scenario | 100% severe downside scenario |
| Total loans before provisions, £m | 23.728,1 | 23.728,1 | 23.728,1 | 23.728,1 | 23.728,1 |
| Modeled ECL, £m | 54.4 | 41.7 | 32.8 | 79.3 | 120,0 |
| Unmodeled ECL, £m | 75.6 | 75.6 | 75.6 | 75.6 | 75.6 |
| Total ECL, £m | 130,0 | 117.3 | 108.4 | 154.9 | 195.6 |
| ECL coverage, % | 0,55 | 0,49 | 0,46 | 0,65 | 0,82 |
| Stand 31.12.21 | |||||
| Total loans before provisions, £m | 21.164.1 | 21.164.1 | 21.164.1 | 21.164.1 | 21.164.1 |
| Modeled ECL, £m | 48.3 | 26.5 | 13.1 | 74,0 | 120.3 |
| Unmodeled ECL, £m | 53.2 | 53.2 | 53.2 | 53.2 | 53.2 |
| Total ECL, £m | 101.5 | 79.7 | 66.3 | 127.2 | 173.5 |
| ECL coverage, % | 0,48 | 0,38 | 0,31 | 0,60 | 0,82 |
- Effective interest rate on loans
Estimates are used in calculating the EIR for newly originated credit claims. This includes the likely redemption profiles of customers. The mortgage products offered by the group include directly attributable net fee income and a recidivism rate period after the lock-in/discount period. Products are subject to Standard Variable Rate (SVR) or base rate plus margin for the Kent Reliance brand or a SONIA/base rate plus margin for the Precise brand. After origination, changes in actual and expected prepayment rates from customers are reflected as increases or decreases in the carrying amount of loan assets with a corresponding increase or decrease in interest income. The Group uses historical customer behavior, the expected utilization rate of retention products and macroeconomic forecasts in its estimate of expected prepayment rates. Customer prepayments in a fixed rate or incentive period may result in early redemption fee (ERC) revenue.
It will exercise its discretion in assessing whether and for how long mortgages that reach the end of the initial product term remain on recidivism rates, and the amount and timing of any prepayments that result in ERCs. The estimate of the customer-weighted average useful life determines the period over which net fee income and expected retrospective income are recognized. The estimates are regularly reviewed and as a result of the reviews adjustments were made in 2022 with an adverse impact of 31.6 million lower net interest income and loans and advances to customers.
2022 saw a series of policy rate hikes in quick succession, increasing sensitivity to changes in behavioral assumptions, as higher recidivism rates can both increase returns on loans in the delinquency period and result in higher repayment rates and therefore less time spent in reversion.
A three-month reduction in the weighted-average maturity of loans in the inversion period was considered a reasonably possible change in assumption based on observed changes in repayment rates in inversion periods over the past two years and what might happen to repayment rates in a high-yield environment and uncertain macroeconomic outlook .
- Judgments in the application of accounting principles and critical accounting estimates(Continuation)
The sensitivity was applied to both the Kent Reliance and Precise portfolios. In prior years, the precise portfolio sensitivity was split between loans originated before and after the October 4, 2019 merger with CCFS. The combined sensitivity reflects how the Group now assesses customer behavior in the portfolio.
Applying a three month cut to the expected weighted average life of the loan book in the reversal period would result in a reset loss of c. £80.8m in 2023 (2021: c. £45.9m on a 6 month basis in 2023). year 2022).
3. Interest receivable and similar income
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| At amortized cost: | ||
| On OSB mortgages | 591.6 | 541.3 |
| On CCFS mortgages | 411.2 | 342.9 |
| For finance leases | 9.4 | 6.3 |
| on investment securities | 4.7 | 2.1 |
| On other liquid funds | 39.3 | 2.7 |
| Amortization of fair value adjustments in CCFS loan book on merger | (61,5) | (66.1) |
| Amortization of fair value adjustments of hedged assets1 | (34.1) | (39.9) |
| 960.6 | 789.3 | |
| Bei FVTPL: | ||
| Net income/(expense) from financial derivative instruments – lending business | 106.6 | (42.9) |
| And FVOCI: | ||
| on investment securities | 2.1 | 0,4 |
| 1.069,3 | 746.8 |
- Depreciation relates to hedged assets where the hedges were terminated prior to maturity and were in effect at the time of termination.
4. Interest Payable and Similar Fees
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| At amortized cost: | ||
| On private deposits | 257.7 | 156.7 |
| On BoE bonds | 64.8 | 4.5 |
| On PSB's | 0,7 | 1.2 |
| On subordinated liabilities | 1.1 | 0,8 |
| On wholesale credit | 3.9 | 0,8 |
| On Debt Instruments Issued | 7.7 | 3.9 |
| On lease liabilities | 0,2 | 0,3 |
| Amortization of fair value adjustments on CCFS customer deposits on merger | (1.0) | (1.5) |
| Amortization of fair value adjustments to hedged liabilities1 | (0,8) | (1.1) |
| 334.3 | 165.6 | |
| Bei FVTPL: | ||
| Net expense/(income) from financial derivative instruments – savings activities | 25.1 | (6.4) |
| 359.4 | 159.2 |
- Amortization relates to hedged liabilities where the hedges were terminated prior to maturity and were in effect at the time of termination.
5. Fair Value Gains on Financial Instruments
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| Fair value changes of hedged assets | (620.6) | (297.8) |
| Asset Protection | 621.9 | 298.9 |
| Fair value changes of hedged liabilities | 33.0 | 27.4 |
| hedging of liabilities | (42.4) | (26.1) |
| Ineffective portion of hedges | (8.1) | 2.4 |
| Net Gains on Unmatched Swaps | 57.1 | 10.3 |
| Amortization of initial adjustments1 | 1.2 | 3.0 |
| Amortization of initial acquisition adjustments2 | 10.2 | 13.4 |
| Amortization of dedesignated hedging relationships3 | (0,1) | 0,2 |
| Fair value movements on mortgages at FVTPL | (0,9) | 1.2 |
| Debit and Credit Valuation Adjustment | (0,5) | (1.0) |
| 58.9 | 29.5 |
- The amortization of the initial adjustment relates to the amortization of the hedging adjustments that arise when hedge accounting begins, primarily for derivative instruments previously entered into against the mortgage pipeline and also for derivative instruments previously entered into against new retail deposits .
- Refers to assets and liabilities from hedge accounting that are recognized in the combination. The initial adjustments are amortized over the life of the derivative instruments acquired in the combination, which are subsequently designated in hedging relationships.
- Refers to the amortization of items for which hedge accounting has been discontinued due to ineffectiveness.
6. Profit from the sale of financial instruments
No financial instruments were sold in the year ended December 31, 2022.
On 10 February 2021, the Group sold Precise Mortgage Funding's A2 Notes 2019-1B plc for £287.0m, realizing a gain of £4.0m on the sale. Excluding the £1.7m impact of the fair value adjustment on the Combination, the underlying gain on sale was £2.3m.
7. The other operating income
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| Interest received on mortgages held at FVTPL | 0,6 | 0,5 |
| Fees and Commission Claims | 6.0 | 7.4 |
| 6.6 | 7.9 |
8. administrative expenses
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| employee costs | 109.3 | 92.5 |
| setup costs | 6.4 | 6.0 |
| Marketing costs | 4.5 | 4.0 |
| support costs | 31.2 | 25.3 |
| fees | 28.9 | 16.9 |
| Other costs | 12.8 | 7.3 |
| Depreciation (see Note 28) | 5.2 | 5.0 |
| Depreciation (see Note 29) | 8.2 | 9.5 |
| 206.5 | 166.5 |
- administrative expenses(Continuation)
The fees include the following amounts paid to the Company's auditor:
| group | group | |
| 2022 | 2021 | |
| £'000 | £'000 | |
| Fees payable to the Company's auditor for the audit of the Company's annual accounts | 669 | 608 |
| Fees payable to the Company's auditor for auditing the accounts of subsidiaries | 2.672 | 1.722 |
| Total Audit Fees | 3.341 | 2.330 |
| Audit-Related Attestation Services1 | 254 | 248 |
| Other insurance benefits2 | 70 | 121 |
| Other Non-Audit Services3 | 33 | 240 |
| Total Non-Examination Fees | 357 | 609 |
| Aggregate fees payable to the Company's auditor | 3.698 | 2.939 |
- Includes review of preliminary financial information and proof of earnings.
- The costs include assurance reviews of European Single Electronic Format (ESEF) tagging (2021: Assurance reviews of APMs, integration costs and ESEF tagging).
- The costs mainly include work related to the European Medium Term Note (EMTN) program (2021: work related to the AT1 securities offering, a gap analysis related to TCFD and the EMTN program).
Personnel costs break down as follows:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Salaries, incentives and other benefits | 87.3 | 72.9 | 53.4 | 37.5 |
| Share-based Payments | 8.1 | 6.7 | 7.3 | 5.0 |
| social security costs | 9.5 | 7.7 | 6.6 | 4.7 |
| Other pension costs | 4.4 | 5.2 | 3.0 | 3.5 |
| 109.3 | 92.5 | 70.3 | 50.7 |
The average number of people employed by the Group and the Company (including Managing Directors) during the year is analyzed below.
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| United Kingdom | 1.274 | 1.220 | 777 | 580 |
| If | 622 | 535 | - | - |
| 1.896 | 1.755 | 777 | 580 |
9. Impairment of intangible assets
Assets arising from the merger with CCFS in 2019 included a brokerage intangible asset with a fair value at the merger of £17.1m. In 2020 an impairment charge of £7.0m was recorded, resulting from changes in expected CCFS loan size over three years post merger, which is an important input to the fair value calculation and which is due to the impact have been overhauled by COVID-19. An impairment test was carried out in 2021 and as the actual volume of loans was higher than expected the group recorded a write-up of £3.1m. The remaining carrying value of the brokerage intangible asset is £2.0m at 31 December 2022 (2021: £5.0m).
10. Board remuneration and transactions
| Pursue | Pursue | |
| 2022 | 2021 | |
| £'000 | £'000 | |
| Short-Term Employee Benefits1 | 3.213 | 2.825 |
| Post-Employment Benefits | 109 | 106 |
| Share-based Payments2 | 2.291 | 1.267 |
| 5.613 | 4.198 |
- Short-term employee benefits include directors' salary costs, non-executive directors' fees and other short-term incentive payments, which are disclosed in the annual remuneration report.
- Share-based payments represent the amounts received by directors for plans that vested during the year.
In addition to the directors' total remuneration above, deferred bonuses of £642,000 (2021: £633,000) were granted to executive directors in the form of shares. DSBP awards granted from April 2021 have a holding period of three to seven years with no other conditions attached other than standard clawback situations. In March 2020 and prior years, the DSBP awards were subject to either a three or five year vesting period with associated conditions, in particular if the director resigns before the vesting period the award will be forfeited unless there is good cause for departure, such as B. Dismissal, retirement or illness.
Executive Directors received a further share award under the Performance Share Plan (PSP) with a grant date fair value of £1,516,000 (2021: £1,458,000) at a share price of £5.58 (2021: £4.94). ) (middle market listing on the day prior to the grant date). These shares will vest annually in tranches of 20 per cent beginning in the third year, subject to the performance conditions discussed in Note 11 and in the OSB GROUP PLC Annual Compensation Report.
No compensation was paid for losing office in 2022 and 2021.
As of December 31, 2022 and 2021 there were no outstanding loans granted in the ordinary course of business to directors and persons associated with them.
The highest paid director employed by the Company received entitlements of £2,991,000 (2021: £2,506,000) and personal pension plan payments of £67,000 (2021: £65,000) for the year.
OSB GROUP PLC Annual Report on Remuneration and Note 11 Share-based Compensation provide further details on Management Board compensation.
11. Share-based Payments
The OSB Group operates the following share-based programs:
Sharesave-Schema
SAYE or Sharesave Scheme is a share option scheme available to all UK resident employees. The Sharesave scheme allows employees to purchase options by saving a fixed amount of between £10 and £500 per month over a three year period, at the end of which the options are normally exercisable, subject to exit provisions. If the option is not exercised, the amount saved will be refunded to the employee. The Sharesave program has been in existence since 2014 and an invitation to participate in the program is typically renewed annually, with the option price calculated using the mid-point price of an OSBG common share over the three trading days prior to the invitation date and a discount of 20%.
Deferred Stock Incentive Plan
The DSBP applies to executive directors and certain senior managers, with 50% of their stock performance bonuses deferred for three to seven years for executive directors and one year for senior managers. There are no other performance or vesting conditions attached to deferred awards for Senior Managers, as are Executive Directors for awards granted from April 2021; the share awards are subject to clawback provisions. The DSBP premiums are recognized as an expense in the year the benefit is received, with a corresponding increase in equity. Awards granted to Executive Directors in March 2020 and earlier are subject to vesting conditions and are expensed over the vesting period.
DSBP senior manager awards are entitled to dividend equivalents, which are paid when the awards vest. DSBP awards granted to Executive Directors from April 2021 are entitled to dividend equivalents; Awards granted in previous years did not carry dividend equivalents.
Performance-Share-Plan
Executive Directors and certain senior managers are also eligible for a PSP award based on performance conditions that vest in tranches over three to seven years.
The performance conditions applicable to PSP awards beginning in 2020 are based on a combination of a 35% earnings per share (EPS) weighting, a 35% total shareholder return (TSR), a 15% risk-based rate of return and a return on equity (ROE). ) of 15%. . Prior to 2020, PSP awards were based on a combination of 40% EPS weighting, 40% TSR and 20% ROE. The PSP conditions are independently evaluated. The EPS element assesses the compound annual growth rate over the performance period, i.e. H. the annualized growth from a base year of 0 to the most recent year of 3. For example, the 2022 award measures EPS growth from January 1, 2021 to December 31, 2024. For the TSR element, the relative performance of the company's common shares versus the FTSE 250 (excluding investment trusts). The risk-based measure is assessed against risk management performance in relation to all relevant risks, including but not limited to an assessment of regulatory risk, operational risk, conduct risk, liquidity risk, funding risk, market risk and credit risk. For the ROE element, the growth rates are evaluated against the underlying Group profit after tax as a percentage of average equity.
Stock-based expense for the year includes a charge related to the Sharesave program, DSBP and PSP. All fees are included in the personnel costs in Note 8 Administration costs.
- Share-based Payments(Continuation)
The breakdown of share-based payment expenses during the year is as follows:
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| Sharesave-Schema | 0,6 | 0,7 |
| Deferred Stock Incentive Plan | 4.2 | 3.8 |
| Performance-Share-Plan | 3.3 | 2.2 |
| 8.1 | 6.7 |
The movements in the number of stock awards and their weighted average exercise prices are shown below:
| Sharesave-Schema | Deferred Stock Incentive Plan | Performance stock plan | ||||
| Number | Weighted Average Strike Price, £ | Number | Number | |||
| On January 1, 2022 | 2.421.260 | 2.65 | 797.116 | 5.225.080 | ||
| Granted | 596.692 | 4.29 | 478.901 | 1.761.174 | ||
| exercised/exercised | (624.664) | 2.67 | (511.034) | (1.181.949) | ||
| lapsed | (245.316) | 2.82 | (1.593) | (413.036) | ||
| On December 31, 2022 | 2.147.972 | 3.08 | 763.390 | 5.391.269 | ||
| Exercisable at: | ||||||
| December 31, 2022 | 35.015 | 2,85 | - | - | ||
| On January 1, 2021 | 2.745.332 | 2.53 | 1.119.757 | 4.986.527 | ||
| Granted | 339.097 | 3,96 | 363.624 | 1.477.111 | ||
| exercised/exercised | (270.709) | 3.10 | (683.456) | (513.927) | ||
| lapsed | (392.460) | 2.63 | (2.809) | (724.631) | ||
| On December 31, 2021 | 2.421.260 | 2.65 | 797.116 | 5.225.080 | ||
| Exercisable at: | ||||||
| December 31, 2021 | 8.480 | 3.37 | - | - | ||
For share-based awards granted during the year, the weighted average grant date fair value was 396p (2021: 286p).
- Share-based Payments(Continuation)
The exercise price range and the weighted average remaining contractual life of the outstanding awards are as follows:
| 2022 | 2021 | ||||
| Exercise price | Number | Weighted average remaining contract term (years) | Number | Weighted average remaining contract term (years) | |
| Sharesave-Schema | |||||
| 229 - 429 Pence (2021: 227 - 335 Pence) | 2.147.972 | 1.8 | 2.421.260 | 2.0 | |
| Deferred Stock Incentive Plan | . | ||||
| Null | 763.390 | 0,9 | 797.116 | 0,7 | |
| Performance-Share-Plan | |||||
| Null | 5.391.269 | 2.7 | 5.225.080 | 2.4 | |
| 8.302.631 | 2.3 | 8.443.456 | 2.1 | ||
Sharesave-Schema
| 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | |||||
| Contract term, years | 3 | 3 | 3 | 5 | 3 | 5 | 3 | 5 | 5 | |
| Share price at issue, £ | 4.20 | 5.13 | 2.86 | 2.86 | 3.32 | 3.32 | 4.19 | 4.19 | 3,93 | |
| Exercise price, £ | 4.29 | 3,96 | 2.29 | 2.29 | 2.65 | 2.65 | 3.35 | 3.35 | 3.15 | |
| Expected volatility, % | 31.4 | 37.9 | 57.6 | 57.6 | 31.9 | 31.9 | 16.1 | 16.5 | 17.3 | |
| Dividend Yield, % | 7.3 | 4.5 | 3.3 | 3.3 | 4.8 | 4.8 | 4.4 | 4.4 | 4.1 | |
| Fair value at grant date, £ | 0,68 | 1.46 | 1.22 | 1.34 | 0,90 | 0,91 | 0,40 | 0,43 | 0,70 | |
The ShareSave programs are not entitled to dividends between the option date and the exercise date. A Black-Scholes model is used to determine grant date fair value with two inputs:
- Expected Volatility – As of 2019, expected volatility is based on OSBG share price after launch and OSB share price before launch. Previously, the group used the volatility of the FTSE 350's diversified financials as insufficient history was available for the OSBG share price.
- Dividend – based on the average dividend yield of external analyst reports for the quarter prior to the program grant date.
Deferred Stock Incentive Plan
| 2020 | 2019 | 2018 | 2017 | |||||||
| Contract term, years | 3 | 3 | 3 | 5 | ||||||
| Median share price, £ | 2.58 | 3,96 | 3,80 | 4.04 | ||||||
| Failure rate, % | - | 8.4 | 9.7 | 11.8 | ||||||
| Dividend Yield, % | 5.6 | 4.7 | 4.6 | 4.0 | ||||||
| Fair value at grant date, £ | 2.21 | 3.47 | 3.34 | 3.37 | ||||||
- Share-based Payments(Continuation)
There are no further performance or vesting conditions attached to deferred awards for awards granted beginning in 2021, see DSBP above for further details.
For DSBP awards where conditions exist, these plans do not carry a right to dividend equivalents and a Black-Scholes model is used to determine the grant date fair value with an applied dividend yield – based on the average dividend yield of external analyst reports for the year previous quarter to the date of grant of the program.
Performance-Share-Plan
Performance awards are typically awarded annually at the discretion of the Group Remuneration and People Committee. Awards are based on a mix of internal financial performance targets, risk-based metrics and relative TSR.
The program has non-market performance conditions, specifically that a participant is employed by the Company at the time of vesting, with the exception of good graduates, and a turnover rate is used as an estimate of the actual number of awards that meet the relevant conditions at the vesting date.
The awards do not carry dividend equivalent between the grant date and vesting date, and a Black-Scholes model is used to determine fair value at grant date applying a dividend yield - based on the average dividend yield of external analyst reports for the quarter prior to the date the program grant.
The fair value of an award subject to market conditions (the relative share price element of the PSP) is determined at the grant date using a Monte Carlo model at the grant date.
The inputs to the models are as follows:
| 2022 | 2021 | 2020 | 2019 | 2018 | ||||||
| Contract term, years | 3-7 | 3-7 | 3-7 | 3 | 3 | |||||
| Median share price, £ | 5.58 | 4,94 | 2.58 | 3,96 | 4.11 | |||||
| Failure rate, % | 6.9 | 12.8 | 7.3 | 8.4 | 9.7 | |||||
| Expected volatility, % | 37.4 | 59.5 | 43.9 | 26.8 | 29.1 | |||||
| Dividend Yield, % | 4.7 | 3.8 | 5.6 | 4.7 | 4.6 | |||||
| Exercise Rate - TSR % | 32.3 | 40.8 | 27.8 | 44.9 | 54,0 | |||||
| Fair value at grant date, £ | 4.64 | 4.26 | 2.06 | 3.47 | 3.61 | |||||
12. integration costs
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| consultant fees | 4.9 | 2.2 |
| employee costs | 3.0 | 2.2 |
| impairment | - | 0,6 |
| 7.9 | 5.0 |
Consulting fees relate to advice on the future operational structure of the Group.
Personnel costs relate to personnel who are leaving or have left the Group as a result of the transition of operations to the new operating model.
The impairment relates to a property that was sold in 2021.
13. Exceptional items
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| consultant fees | - | - |
| Attorney's and Attorney's Fees | - | 0,2 |
| - | 0,2 |
Special items relate to the incorporation of OSBG as the new holding company and publicly traded company of the group.
14. taxation
The group publishes its tax strategy on its corporate website. The following table shows the components of the Group's tax charge for the year:
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| Corporate income tax - current year | 141.4 | 128.3 |
| Corporate income tax - previous year | (0,9) | - |
| Deferred taxes - current year | (1.2) | (0,2) |
| Deferred taxes - previous year | (0,3) | - |
| Release of deferred taxes on CCFS combination1 | (17.5) | (8.5) |
| total tax burden | 121.5 | 119.6 |
- The release of deferred tax on the CCFS Combination relates to the release of the deferred tax liability recognized on the acquisition date fair value adjustments to CCFS assets and liabilities (£12.8m) (2021: (14.1)m .) and the impact of reducing the bank surcharge on this deferred tax liability (£4.7m) (2021: the impact of increasing the corporation tax rate by £5.6m).
- taxation(Continuation)
The charge for taxing the Group's pre-tax profit differs from the charge based on the standard UK corporation tax rate of 19% (2021: 19%) as follows:
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| profit before taxes | 532.8 | 464.6 |
| Profit multiplied by standard UK corporation tax rate (19%) | 101.2 | 88.3 |
| bank surcharge1 | 30.2 | 27.7 |
| Taxation effects of: | ||
| Non-tax deductible expenses | 0,3 | 0,7 |
| Securitization gains not taxable | (2.2) | - |
| Impact of change in deferred tax rate2 | (5.1) | 5.2 |
| Adjustments related to previous years | (1.2) | - |
| Tax adjustments related to share-based payments | - | 1.2 |
| Coupon Tax paid on AT1 Securities | (1.7) | (2.2) |
| Time differences in capital items | - | (1.3) |
| total tax burden | 121.5 | 119.6 |
- Tax charge for the two banking entities of £34.3m (2021: £31.9m) offset by the tax impact of the run-off of CCFS combination items of £4.1m (2021: 4, £2 million).
- Due to the change in the bank surcharge rate from 8% to 3% on April 1, 2023 (2021: due to the change in the corporate tax rate from 19% to 25% on April 1, 2023).
Factors affecting the tax burden for the year
The effective tax rate for the year ended 31 December 2022 excluding the impact of adjustments relating to prior years and the change in deferred tax rate was 24.0% (2021: 24.6%).
The impact of the change in deferred tax rate of £5.1m (2021: £5.2m charge) relates mainly to the deferred tax liability on the CCFS combination (see notes 27 and 38).
A tax charge of nil (comprising a deferred tax charge of £0.9m and a current tax credit of £0.9m) (2021: credit of £1.6m) was recognized directly in equity relating to the share-based Group compensation plans.
A tax credit of £0.1m (2021: £0.5m credit) has been recognized in the OCI in respect of securities classified as FVOCI.
- taxation(Continuation)
Factors that may affect future tax charges
On May 24, 2021, the government enacted a law to increase the corporate tax rate from 19% to 25% from April 1, 2023. In addition, on February 24, 2022, the government enacted a law to reduce the bank surcharge from 8% to 3% from 1 April 2023, together with an increase in the annual surcharge allowance (the amount of taxable profits above which the surcharge is subject) from £25m to £100m.
In September 2022, the Government announced that the above changes would be repealed, but then announced in October 2022 that the changes would be implemented as enacted.
Deferred taxes, which are expected to be released after April 1, 2023, are assumed to be 28% (2021: 33%) for companies subject to the bank surcharge.
15. dividends
During the year the company paid the following dividends:
| Pursue | Pursue | |||
| 2022 | 2021 | |||
| Mio. £ | Cents per Share | Mio. £ | Cents per Share | |
| Dividends paid to fund OSBG's share buyback program | 100.0 | 22.4 | - | - |
| Interim dividend for the current year | 133.1 | 29.8 | 86.7 | 19.4 |
| 233.1 | 86.7 | |||
The Board of Directors does not recommend a final dividend (2021: Nil).
16. Cash and cash equivalents
The following table analyzes the cash and cash equivalents reported in the cash flow statement:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Cash on hand | 0,4 | 0,5 | 0,4 | 0,5 |
| Unencumbered claims on credit institutions | 2.953,7 | 2.636,2 | 1.358,7 | 1.331,8 |
| investment securities | 90,0 | 100.0 | 90,0 | - |
| 3.044,1 | 2.736,7 | 1.449,1 | 1.332,3 |
17. Receivables from credit institutions
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Unencumbered: | ||||
| BoE Talking Account | 2.806,5 | 2.496,4 | 1.328,2 | 1.313,5 |
| Call accounts | 73.2 | 43.3 | 29.5 | 18.1 |
| Cash held in special purpose vehicles (SPVs).1 | 63.8 | 89.6 | 1.0 | 0,2 |
| term deposits | 10.2 | 6.9 | - | - |
| burdened: | ||||
| BoE cash ratio deposit | 62.8 | 59.5 | 37.8 | 36.5 |
| Cash held in SPVs1 | 111.8 | 48.0 | - | - |
| given cash margin | 237.4 | 99,9 | 109.6 | 36.7 |
| 3.365,7 | 2.843,6 | 1.506,1 | 1.405,0 |
- Cash held in SPVs is earmarked for servicing the Group's securitized credit facilities under the terms of the securitization agreements. Cash held in SPVs is treated as unencumbered and included in cash and cash equivalents in proportion to the retained interest in the SPV based on the notional amount of bonds held by the Group in relation to the total bonds in the securitization. Cash retained in SPVs, referred to as cash reserve credit enhancement, is treated as encumbered relative to the outside interest in the SPV and excluded from cash and cash equivalents.
18. investment securities
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Held at amortized cost: | ||||
| UK government bonds | - | 100.0 | - | - |
| RMBS Loan Notes | 262.6 | 223.1 | 61.1 | - |
| 262.6 | 323.1 | 61.1 | - | |
| Less: Expected credit losses | - | - | - | - |
| 262.6 | 323.1 | 61.1 | - | |
| Held at FVOCI: | ||||
| UK government bonds1 | 149.8 | 152.1 | 149.8 | - |
| RMBS Loan Notes | - | 15.5 | - | 15.5 |
| 149.8 | 167.6 | 149.8 | 15.5 | |
| Held at FVTPL: | ||||
| RMBS Loan Notes | 0,5 | 0,7 | 0,5 | 0,7 |
| 0,5 | 0,7 | 0,5 | 0,7 | |
| 412.9 | 491.4 | 211.4 | 16.2 |
- Includes UK Treasury bills of £90.0m that had a maturity of less than three months from the date of acquisition (2021: Nil).
- investment securities(Continuation)
At 31 December 2022 the Group held no RMBS at FVOCI or FVTPL (2021: Nil) and £11.5m of RMBS held at amortized cost (2021: £119.5m) held under repos were sold.
The Directors believe that the primary purpose of holding investment securities is regulatory in nature. These securities are held as cash with the intention of continuing use in the Group's activities and are classified as amortized cost, FVOCI and FVTPL for each security in accordance with the Group's business model.
The credit risk of investments held at amortized cost has not increased significantly since initial recognition and is categorized as Level 1. ECLs are less than £0.1m.
Movements during the year in investment securities held by the Group and the Company are analyzed as follows:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| On 1 January | 491.4 | 471.2 | 16.2 | 15.0 |
| additions1 | 686,5 | 568.2 | 646.4 | 216.6 |
| disposals and maturities2 | (764.4) | (549.7) | (451.0) | (215.4) |
| Movement in accrued interest | (0,9) | 0,6 | (0,5) | (0,1) |
| Fair Value Changes | 0,3 | 1.1 | 0,3 | 0,1 |
| On the 31st of December | 412.9 | 491.4 | 211.4 | 16.2 |
- Additions include UK Treasury bills of £90.0m that had maturities of less than three months from the date of acquisition (2021: £100.0m).
- Disposals and Maturities include £100.0m of UK Treasury bills that had a maturity of less than three months from the date of acquisition (2021: Nil).
At 31 December 2022 securities held as fixed assets comprised investments in unconsolidated structured entities (see note 45) of £100.7m in PMF 2020-1B (2021: £100.7m in PMF 2020-1B and 21 £.0m in PMF 2017-1B). ). The investments represent the maximum risk of loss to unconsolidated structured entities.
19. Loans and advances to customers
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Held at amortized cost: | ||||
| Loans and advances (see note 20) | 23.564,9 | 21.047,9 | 10.613,5 | 9.540,2 |
| Finance leases (see Note 21) | 163.2 | 116.2 | - | - |
| 23.728,1 | 21.164.1 | 10.613,5 | 9.540,2 | |
| Less: expected credit losses (see note 22) | (130,0) | (101.5) | (81.6) | (63,8) |
| 23.598,1 | 21.062,6 | 10.531,9 | 9.476,4 | |
| Held at FVTPL: | ||||
| residential mortgages | 14.6 | 17.7 | - | - |
| 23.612,7 | 21.080,3 | 10.531,9 | 9.476,4 |
20. loans and advances
| 2022 | 2021 | |||||
| OSB | CCFS | In total | OSB | CCFS | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| gross book value | ||||||
| stage 1 | 10.188.4 | 8.375,5 | 18.563,9 | 10.393,2 | 7.685,7 | 18.078,9 |
| Level 21 | 2.508,9 | 1.907,4 | 4.416,3 | 1.142,3 | 1.269,8 | 2.412,1 |
| level 3 | 345.7 | 156,0 | 501.7 | 360.4 | 99.1 | 459.5 |
| Study 3 (POCI) | 38.5 | 44.5 | 83,0 | 45.2 | 52.2 | 97.4 |
| 13.081,5 | 10.483,4 | 23.564,9 | 11.941,1 | 9.106.8 | 21.047,9 | |
- The increase in account balance in Stage 2 is due to increased credit risk from increased cost of living and borrowing costs. See the Risk Overview section on pages 30 to 60 for more details on phased movements.
| 2022 | 2021 | |||||
| Pursue | Mio. £ | Mio. £ | ||||
| gross book value | ||||||
| stage 1 | 7.939,0 | 8.220,7 | ||||
| Level 21 | 2.353,1 | 984,5 | ||||
| level 3 | 286.9 | 294,0 | ||||
| Study 3 (POCI) | 34.5 | 41.0 | ||||
| 10.613,5 | 9.540,2 |
- The increase in account balance in Stage 2 is due to increased credit risk from increased cost of living and borrowing costs. See the Risk Overview section on pages 30 to 60 for more details on phased movements.
- loans and advances(Continuation)
The mortgage credit balances pledged as collateral for liabilities are:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| BoE below TFSME and ILTR | 6.439,7 | 5.887,2 | 3.295,2 | 3.390,5 |
| securitization | 265.4 | 486.5 | 124.6 | 288.4 |
| 6.705,1 | 6.373,7 | 3.419,8 | 3.678,9 |
The Group's securitization programs and use of TFSME and ILTR result in certain assets being pledged as collateral for such financings. As of December 31, 2022, the Group's gross receivables from customers encumbered was 28% (2021: 30%).
The Company applies a net accounting approach for retained interests in securitization transactions that are consolidated in the Group and reports the net amount as deemed credit asset/(liability). The table below shows the breakdown of the company's assumed credit balance. The assumed loan balance is now an asset as a large portion of the externally held promissory notes are repaid.
| Pursue | Pursue | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| General reserve fund | 55.9 | 51.7 |
| Promissory note loans held externally | (124.1) | (260.5) |
| Amount Owed by SPVs | 99,4 | 66,0 |
| 31.2 | (142.8) |
At 31 December 2022 the Company had £1,079.6m (2021: £1,581.7m) of retained promissory notes that were sold under repos or pledged as collateral.
- loans and advances(Continuation)
The following tables show the development of loans and advances to customers according to IFRS 9 levels over the course of the year:
| stage 1 | Level 2 | level 3 | Study 3 (POCI) | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 16.060,3 | 2.689,6 | 392.6 | 114.6 | 19.257,1 |
| origins1 | 4.523,4 | - | - | - | 4.523,4 |
| acquisitions2 | 277.7 | - | - | 2.7 | 280.4 |
| disposals2 | (214.4) | - | - | - | (214.4) |
| Repayments and write-offs3 | (2.539,8) | (160.3) | (78.6) | (19.9) | (2.798,6) |
| Transfers: | |||||
| - To stage 1 | 1.401,0 | (1.370,2) | (30.8) | - | - |
| - To stage 2 | (1.339,7) | 1.384,1 | (44.4) | - | - |
| - Up to level 3 | (89,6) | (131.1) | 220.7 | - | - |
| On December 31, 2021 | 18.078,9 | 2.412,1 | 459.5 | 97.4 | 21.047,9 |
| origins1 | 5.829,6 | - | - | - | 5.829,6 |
| Repayments and write-offs3 | (2.855,3) | (353.6) | (89.3) | (14.4) | (3.312,6) |
| Transfers: | |||||
| - To stage 1 | 1.121,6 | (1.098,0) | (23.6) | - | - |
| - To stage 24 | (3.524,0) | 3.574,6 | (50.6) | - | - |
| - Up to level 3 | (86.9) | (118.8) | 205.7 | - | - |
| On December 31, 2022 | 18.563,9 | 4.416,3 | 501.7 | 83,0 | 23.564,9 |
- Originations include further advances and drawdowns on existing obligations.
- The Group acted as co-arranger on the re-securitisation of £229.6 million of third party mortgages from the Rochester Financing No.2 PLC securitization on 15 June 2021 to the new Rochester Financing No.3 PLC securitization on 15 June 2021 June 2021. None of the securitisations are affiliated with the Group. Under the terms of the mortgage sale agreements, the Group recorded the mortgages as a purchase from Rochester Financing No.2 PLC and immediately retired them as a sale to Rochester Financing No.3 PLC. OneSavings Bank plc is the master servicer of the mortgages and has withheld 5% of these mortgages as required by the withholding rules. In addition to the Group acting as co-arranger for the re-securitisation of Rochester Financing No.2 PLC, the Group acquired an outside mortgage ledger, a c. £55m portfolio of UK residential mortgages at a discount to then current balances.
- Amortization and amortization includes immaterial customer repayments and write-offs.
- The increase in account balance in Stage 2 is due to increased credit risk from increased cost of living and borrowing costs. See the Risk Overview section on pages 30 to 60 for more details on phased movements.
- loans and advances(Continuation)
| stage 1 | Level 2 | level 3 | Study 3 (POCI) | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 7.080,4 | 1.215,2 | 255.2 | 45.4 | 8.596,2 |
| origins1 | 2.104.9 | - | - | - | 2.104.9 |
| acquisitions2 | 225.7 | - | - | 0,9 | 226.6 |
| disposals2 | (214.4) | - | - | - | (214.4) |
| Repayments and write-offs3 | (1.006,2) | (125.4) | (36.2) | (5.3) | (1.173,1) |
| Transfers: | |||||
| - To stage 1 | 591.8 | (577.2) | (14.6) | - | - |
| - To stage 2 | (505.3) | 536.5 | (31.2) | - | - |
| - Up to level 3 | (56.2) | (64.6) | 120.8 | - | - |
| On December 31, 2021 | 8.220,7 | 984,5 | 294,0 | 41.0 | 9.540,2 |
| origins1 | 2.343,3 | - | - | - | 2.343,3 |
| Repayments and write-offs3 | (1.084,5) | (128.7) | (50.3) | (6.5) | (1.270,0) |
| Transfers: | |||||
| - To stage 1 | 440.4 | (422.6) | (17.8) | - | - |
| - To stage 24 | (1.930,1) | 1.969,6 | (39.5) | - | - |
| - Up to level 3 | (50.8) | (49.7) | 100,5 | - | - |
| On December 31, 2022 | 7.939,0 | 2.353,1 | 286.9 | 34.5 | 10.613,5 |
- Originations include further advances and drawdowns on existing obligations.
- The Company acted as co-arranger on the re-securitisation of £229.6 million of third party mortgages from the Rochester Financing No.2 PLC securitization on 15 June 2021 to the new Rochester Financing No.3 PLC securitization on 15 June 2021 June 2021. None of the securitisations are affiliated with the Company. Under the terms of the mortgage sale agreements, the Company recorded the mortgages as a purchase from Rochester Financing No.2 PLC and immediately closed them out as a sale to Rochester Financing No.3 PLC. The Company is the primary custodian of the mortgages and has withheld 5% of those mortgages as required by the withholding rules.
- Redemptions and depreciation include customer redemptions.
- The increase in account balance in Stage 2 is due to increased credit risk from increased cost of living and borrowing costs. See the Risk Overview section on pages 30 to 60 for more details on phased movements.
The contractual amount outstanding for loans and loans written off during the period and still subject to collection and recovery activities is £0.8m (2021: £1.5m) for the Group at 31 December 2022 and £0 £.6m for the company (2021: £1.2m).
At 31 December 2022 there are loans and advances of £110.0m (2021: £97.4m) for the Group and £65.3m for the Company (2021: £71.2m). £) in a trial period before being able to exit Stage 3. see note 1 p) for further details.
21. Finance Lease
The Group provides credit to finance assets through InterBay Asset Finance Limited.
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| Gross investment in finance leases, accounts receivable | ||
| Less than a year | 60.7 | 39.7 |
| Between one and two years | 49.5 | 27.7 |
| Between two and three years | 36.0 | 27.5 |
| Between three and four years | 23.4 | 17.2 |
| Between four and five years | 9.9 | 14.6 |
| More than five years | 1.3 | 0,9 |
| 180.8 | 127.6 | |
| Unearned Financial Income | (17.6) | (11.4) |
| Net Investment in Finance Lease | 163.2 | 116.2 |
| Net investment in finance lease, receivable | ||
| Less than a year | 52.4 | 34.7 |
| Between one and two years | 44.4 | 26.0 |
| Between two and three years | 33.2 | 25.5 |
| Between three and four years | 22.3 | 15.8 |
| Between four and five years | 9.6 | 13.3 |
| More than five years | 1.3 | 0,9 |
| 163.2 | 116.2 |
The Group has recognized ECLs from finance leases of £4.8m at 31 December 2022 (2021: £4.3m).
22. Expected credit losses
The ECL was calculated based on different scenarios as follows:
| 2022 | 2021 | |||||
| ECL determination | weighting | Weighted ECL provision | ECL determination | weighting | Weighted ECL provision | |
| group | Mio. £ | % | Mio. £ | Mio. £ | % | Mio. £ |
| scenarios | ||||||
| On the top | 32.8 | 30 | 9.8 | 13.1 | 20 | 2.6 |
| Basic case | 41.7 | 40 | 16.7 | 26.5 | 40 | 10.6 |
| negative scenario | 79.3 | 20 | 15.9 | 74,0 | 28 | 20.7 |
| Severe negative scenario | 120,0 | 10 | 12.0 | 120.3 | 12 | 14.4 |
| Total weighted provisions | 54.4 | 48.3 | ||||
| Provisions not modeled: | ||||||
| Individually assessed provisions | 45.8 | 40.4 | ||||
| Adjustments according to the model | 29.8 | 12.8 | ||||
| total supply | 130,0 | 101.5 | ||||
| 2022 | 2021 | |||||
| ECL determination | weighting | Weighted ECL provision | ECL determination | weighting | Weighted ECL provision | |
| Pursue | Mio. £ | % | Mio. £ | Mio. £ | % | Mio. £ |
| scenarios | ||||||
| On the top | 17.6 | 30 | 5.3 | 6.2 | 20 | 1.2 |
| Basic case | 22.9 | 40 | 9.2 | 15.7 | 40 | 6.3 |
| negative scenario | 45.6 | 20 | 9.1 | 47.8 | 28 | 13.4 |
| Severe negative scenario | 70.5 | 10 | 7.1 | 79.9 | 12 | 9.6 |
| Total weighted provisions | 30.7 | 30.5 | ||||
| Provisions not modeled: | ||||||
| Individually assessed provisions | 33.9 | 29.8 | ||||
| Adjustments according to the model | 17.0 | 3.5 | ||||
| total supply | 81.6 | 63.8 | ||||
The Group reflected on the continued appropriateness of the probabilities associated with the range of IFRS 9 scenarios as the macroeconomic outlook evolved over the year. The scenarios have been adjusted to symmetric probability, with upside and downside weighted equally, as separate post-model adjustments were made to ensure that the current IFRS 9 framework adequately provisioned for the underlying portfolio risk.
- Expected credit losses(Continuation)
As of December 31, 2022, the Group identified an increase in credit risk as a result of cost of living and borrowing cost burdens caused by high inflation and interest rate increases. As a result, the group held an additional £16.0m (£7.3m for living expenses and £8.7m for borrowing costs) and the company £8.2m (£3.9m for living expenses and 4 £.3m for borrowing costs), the ECL in PMA for risks under-recognized under IFRS 9 as at 31 December 2022. The approach to determining the PMA for the cost of living is an increase in the PD by analyzing the impact of increases in the cost of living, such as household bills and groceries, on affordability, which is used to increase the risk of default for all customers, with those with lower incomes being more so are affected. PMA's cost of credit specifically identified those exposed to greater risk of default due to the return to floating rates in the near term, leading to an increase in payments and greater affordability risk, leading to both the application of an additional significant increase in credit risk SICR and uses becomes level 2 criteria and sometimes a higher default risk.
The Group continued to observe an extended time to sale that was above modeled pre-pandemic expectations and observations which accounted for an additional £8.7m and the Company £6.0m as PMA as at 31 December 2022 Group expects that process delays will diminish over time, a PMA was conducted to reflect an extended time to sale, in line with recent observations for those who have defaulted.
As part of the Group's climate risk assessment and overall ESG agenda, the Group recognizes that less energy efficient properties will likely require investment to achieve minimum energy efficiency standards in the future. As a result, as at 31 December 2022 the group held £4.4m and the company £2.5m of PMA to reflect the expected transition risk and physical risks of climate change.
To address ongoing disguise concerns the group identified valuation risk on a small number of properties and as at 31 December 2022 considered a further sale discount for these properties from a PMA of £0.7m and the company of 0 £.3m.
The ECL by segment and IFRS 9 level is shown below:
| 2022 | 2021 | |||||
| OSB | CCFS | In total | OSB | CCFS | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| stage 1 | 5.9 | 1.3 | 7.2 | 9.3 | 2.8 | 12.1 |
| Level 2 | 35.3 | 15.6 | 50.9 | 14.2 | 10.8 | 25.0 |
| level 3 | 60.5 | 7.8 | 68.3 | 56.6 | 3.8 | 60.4 |
| Study 3 (POCI) | 1.5 | 2.1 | 3.6 | 2.1 | 1.9 | 4.0 |
| 103.2 | 26.8 | 130,0 | 82.2 | 19.3 | 101.5 | |
| 2022 | 2021 | |||||
| Pursue | Mio. £ | Mio. £ | ||||
| stage 1 | 1.8 | 6.1 | ||||
| Level 2 | 31.7 | 12.1 | ||||
| level 3 | 46.8 | 43.6 | ||||
| Study 3 (POCI) | 1.3 | 2.0 | ||||
| 81.6 | 63.8 |
- Expected credit losses(Continuation)
The tables below show the evolution of the ECL by IFRS 9 levels over the year. ECLs on originations and acquisitions reflect the IFRS 9 stage of loans originated or acquired during the year as of December 31, and not the loan origination date. The remeasurement of the allowance relates to existing loans that were not repaid during the year and includes the impact of loans transitioning between stages of IFRS 9.
| stage 1 | Level 2 | level 3 | Study 3 (POCI) | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 21.2 | 31.0 | 51.7 | 7.1 | 111.0 |
| origins | 5.7 | - | - | - | 5.7 |
| acquisitions | 0,1 | - | - | 0,1 | 0,2 |
| Repayments and write-offs | (2.8) | (3.3) | (7.4) | (1.1) | (14.6) |
| Revaluation of the allowance | (21.8) | (0,8) | 12.8 | (2.1) | (11.9) |
| Transfers: | |||||
| - To stage 1 | 11.3 | (10.5) | (0,8) | - | - |
| - To stage 2 | (2.3) | 5.1 | (2.8) | - | - |
| - Up to level 3 | (0,3) | (3.1) | 3.4 | - | - |
| Changes in assumptions and model parameters | 1.0 | 6.6 | 3.5 | - | 11.1 |
| On December 31, 2021 | 12.1 | 25.0 | 60.4 | 4.0 | 101.5 |
| origins | 6.9 | - | - | - | 6.9 |
| Repayments and write-offs | (1.3) | (3.0) | (6.9) | (0,3) | (11.5) |
| Revaluation of the allowance | (15.1) | 26.4 | 17.5 | (0,7) | 28.1 |
| Transfers: | |||||
| - To stage 1 | 10.0 | (9.2) | (0,8) | - | - |
| - To stage 2 | (2.0) | 3.9 | (1.9) | - | - |
| - Up to level 3 | (0,1) | (2.1) | 2.2 | - | - |
| Changes in assumptions and model parameters | (3.3) | 9.9 | (2.2) | 0,6 | 5.0 |
| On December 31, 2022 | 7.2 | 50.9 | 68.3 | 3.6 | 130,0 |
- Expected credit losses(Continuation)
| stage 1 | Level 2 | level 3 | Study 3 (POCI) | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 8.4 | 16.3 | 35.9 | 3.9 | 64.5 |
| origins | 2.6 | - | - | - | 2.6 |
| Repayments and write-offs | (0,7) | (1.6) | (3.0) | (0,2) | (5.5) |
| Revaluation of the allowance | (8.9) | 2.3 | 9.0 | (1.6) | 0,8 |
| Transfers: | |||||
| - To stage 1 | 5.5 | (5.0) | (0,5) | - | - |
| - To stage 2 | (0,7) | 2.0 | (1.3) | - | - |
| - Up to level 3 | (0,1) | (2.2) | 2.3 | - | - |
| Changes in assumptions and model parameters | - | 0,3 | 1.2 | (0,1) | 1.4 |
| On December 31, 2021 | 6.1 | 12.1 | 43.6 | 2.0 | 63.8 |
| origins | 3.8 | - | - | - | 3.8 |
| Repayments and write-offs | (0,5) | (1.5) | (3.8) | (0,1) | (5.9) |
| Revaluation of the allowance | (7.8) | 13.7 | 10.4 | (0,7) | 15.6 |
| Transfers: | |||||
| - To stage 1 | 4.4 | (3.9) | (0,5) | - | - |
| - To stage 2 | (1.4) | 2.8 | (1.4) | - | - |
| - Up to level 3 | - | (1.1) | 1.1 | - | - |
| Changes in assumptions and model parameters | (2.8) | 9.6 | (2.6) | 0,1 | 4.3 |
| On December 31, 2022 | 1.8 | 31.7 | 46.8 | 1.3 | 81.6 |
The table below shows the Level 2 ECL balances by transfer criteria:
| 2022 | 2021 | |||||
| book value | ECL | cover | book value | ECL | cover | |
| group | Mio. £ | Mio. £ | % | Mio. £ | Mio. £ | % |
| Criteria: | ||||||
| Relative PD movement | 3.090,2 | 42.9 | 1.39 | 1.251,6 | 17.1 | 1.37 |
| qualitative measures | 1.277,6 | 7.5 | 0,59 | 1.125,0 | 7.4 | 0,66 |
| 30 days overdue backstop | 49.3 | 0,5 | 1.01 | 37.0 | 0,5 | 1.35 |
| In total | 4.417,1 | 50.9 | 1.15 | 2.413,6 | 25.0 | 1.04 |
- Expected credit losses(Continuation)
| 2022 | 2021 | |||||
| book value | ECL | cover | book value | ECL | cover | |
| Pursue | Mio. £ | Mio. £ | % | Mio. £ | Mio. £ | % |
| Criteria: | ||||||
| Relative PD movement | 1.692,3 | 26.9 | 1.59 | 425.8 | 7.7 | 1.81 |
| qualitative measures | 631.2 | 4.5 | 0,71 | 543,8 | 4.1 | 0,75 |
| 30 days overdue backstop | 29.6 | 0,3 | 1.01 | 14.9 | 0,3 | 2.01 |
| In total | 2.353,1 | 31.7 | 1.35 | 984,5 | 12.1 | 1.23 |
The Group has a number of qualitative measures to determine whether a SICR has taken place. These triggers use both internal performance information to analyze if an account is in distress but not yet in arrears, and external credit bureaus to determine if the customer is experiencing financial difficulties with an external credit obligation.
23. Impairment of Financial Assets
The charge/(credit) for impairment of financial assets in the Statement of Comprehensive Income includes:
| group | group | |
| 2022 | 2021 | |
| Mio. £ | Mio. £ | |
| depreciation per year | 2.1 | 6.7 |
| Increase/(decrease) in ECL Reserve | 27.7 | (11.1) |
| 29.8 | (4.4) |
24. Taps
The following table reconciles the gross amount of derivative contracts to the book value as reported on the balance sheet:
| Gross amount of recognized financial assets / (liabilities) | Net amount of financial assets / (liabilities) recognized in the balance sheet. | Contracts that are subject to master netting agreements are not netted on the balance sheet | Paid / (received) cash collateral not offset on the balance sheet | Net amount | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On December 31, 2022 | |||||
| Derivative Assets: | |||||
| Interest rate risk hedging | 888.1 | 888.1 | (104.9) | (545.7) | 237.5 |
| Derivative liabilities: | |||||
| Interest rate risk hedging | (106.6) | (106.6) | 104.9 | 206.9 | 205.2 |
| On December 31, 2021 | |||||
| Derivative Assets: | |||||
| Interest rate risk hedging | 185.7 | 185.7 | (16.9) | (115.3) | 53.5 |
| Derivative liabilities: | |||||
| Interest rate risk hedging | (19.7) | (19.7) | 16.9 | 98.3 | 95.5 |
Derivative assets and liabilities include an initial margin deposit of £198.6m with swap counterparties.
Included in the Group's derivative assets are £203.4m (2021: £48.7m) relating to derivative contracts which are not covered by master netting agreements and for which no cash collateral has been paid.
- Taps(Continuation)
| Gross amount of recognized financial assets / (liabilities) | Net amount of financial assets / (liabilities) recognized in the balance sheet. | Contracts that are subject to master netting agreements are not netted on the balance sheet | Paid / (received) cash collateral not offset on the balance sheet | Net amount | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On December 31, 2022 | |||||
| Derivative Assets: | |||||
| Interest rate risk hedging | 234,0 | 234,0 | (63.2) | (173.4) | (2.6) |
| Derivative liabilities: | |||||
| Interest rate risk hedging | (63,8) | (63,8) | 63.2 | 79.4 | 78.8 |
| On December 31, 2021 | |||||
| Derivative Assets: | |||||
| Interest rate risk hedging | 50.5 | 50.5 | (6.2) | (42.1) | 2.2 |
| Derivative liabilities: | |||||
| Interest rate risk hedging | (8.7) | (8.7) | 6.2 | 35.1 | 32.6 |
Derivative assets and liabilities include an initial margin deposit of £79.2m with swap counterparties.
Included in the Company's derivative liabilities are nil (2021: nil) derivative contracts that are not covered by master netting agreements and for which no cash collateral has been paid.
- Taps(Continuation)
The following table shows the maturity of notional amounts for interest rate risk hedging derivatives based on contractual maturity:
| total face value | Less than 3 months | 3 - 12 Fun | 15 years | More than 5 years | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On December 31, 2022 | |||||
| Derivative Assets | 15.662,6 | 624.1 | 4.056,6 | 10.849,9 | 132,0 |
| Derivative Liabilities | 9.518,0 | 1.503,0 | 6.001,0 | 1.869,0 | 145,0 |
| 25.180.6 | 2.127.1 | 10.057,6 | 12.718,9 | 277,0 | |
| On December 31, 2021 | |||||
| Derivative Assets | 12.968,3 | 245.2 | 2.345,4 | 10.235,7 | 142,0 |
| Derivative Liabilities | 7.378,0 | 1.361,0 | 4.747,0 | 1.150,0 | 120,0 |
| 20.346,3 | 1.606,2 | 7.092,4 | 11.385,7 | 262,0 |
The Group has 916 (2021: 841) derivative contracts with an average fixed interest rate of 1.51% (2021: 0.34%).
| total face value | Less than 3 months | 3 - 12 Fun | 15 years | More than 5 years | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On December 31, 2022 | |||||
| Derivative Assets | 4.628,0 | 50,0 | 1.526,0 | 3.012,0 | 40.0 |
| Derivative Liabilities | 5.158,0 | 650,0 | 3.270,0 | 1.198,0 | 40.0 |
| 9.786,0 | 700,0 | 4.796,0 | 4.210,0 | 80.0 | |
| On December 31, 2021 | |||||
| Derivative Assets | 3.953,0 | 50,0 | 952.0 | 2.873,0 | 78,0 |
| Derivative Liabilities | 3.416,0 | 626,0 | 2.340,0 | 350,0 | 100.0 |
| 7.369,0 | 676,0 | 3.292,0 | 3.223,0 | 178,0 |
The Company has 123 (2021: 108) derivative contracts with an average fixed interest rate of 2.17% (2021: 0.34%).
25. Hedge-Accounting
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Hedged Assets | ||||
| Ongoing hedging relationships | (827.9) | (190.9) | (204.0) | (52.7) |
| Initial adjustment of swap | 44.1 | (26.2) | 17.8 | 0,9 |
| Deleted hedging relationships | (5.2) | 78.2 | (14.6) | 53.1 |
| Fair value adjustments of hedged assets | (789,0) | (138.9) | (200.8) | 1.3 |
| Secured Liabilities | ||||
| Ongoing hedging relationships | 58.0 | 19.6 | 34.8 | 8.5 |
| Initial adjustment of swap | (2.3) | 3.3 | (1.1) | 0,1 |
| Deleted hedging relationships | (0,6) | (1.4) | - | 0,2 |
| Dedesignated hedging relationships | - | (1.8) | - | - |
| Fair value adjustments of hedged liabilities | 55.1 | 19.7 | 33.7 | 8.8 |
The initial swap adjustment relates to hedge accounting adjustments that arise when hedge accounting begins, primarily for derivative instruments previously entered into against the mortgage pipeline and for derivative instruments previously entered into against new retail deposits.
Dedesignated hedging relationships refer to hedge accounting adjustments for failed hedge accounting relationships. These adjustments are amortized over the remaining life of the original underlying transactions.
Terminated hedging relationships primarily represent the unamortized fair value adjustment for interest rate risk hedges that were terminated and replaced due to securitization activity, legacy long-term fixed rate mortgages (approximately 25 years at issuance) and during the 2021 IBOR transition.
- Hedge-Accounting(Continuation)
The following tables analyze the Group's and Company's portfolio hedge accounting for fixed-interest receivables from customers:
| Group 2022 | Group 2021 | |||
| Hedged Item | hedging instrument | Hedged Item | hedging instrument | |
| Loans and advances to customers | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Carrying amount of the hedged item/notional amount of the hedging instrument | 14.493,8 | 14.667,7 | 12.364,3 | 12.550,2 |
| Accumulated fair value adjustments of the hedged item/fair value of the hedging instrument | (827.9) | 833.2 | (190.9) | 187.4 |
| Changes in the fair value adjustment of the hedged item/hedging instrument used to record hedge ineffectiveness for the period | (620.6) | 621.9 | (297.8) | 298.9 |
| Cumulative fair value on discontinued hedging relationships | (5.2) | - | 78.2 | - |
In the balance sheet hedging instruments of £854.3m (2021: £187.7m) were recorded in derivative assets and £21.1m (2021: £0.3m) in derivative liabilities.
| Company 2022 | Company 2021 | |||
| Hedged Item | hedging instrument | Hedged Item | hedging instrument | |
| Loans and advances to customers | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Carrying amount of the hedged item/notional amount of the hedging instrument | 4.114,0 | 4.006,0 | 3.211,7 | 3.233,0 |
| Accumulated fair value adjustments of the hedged item/fair value of the hedging instrument | (204.0) | 199.3 | (52.7) | 52.7 |
| Changes in the fair value adjustment of the hedged item/hedging instrument used to record hedge ineffectiveness for the period | (177,5) | 177,0 | (104.1) | 103.7 |
| Cumulative fair value on discontinued hedging relationships | (14.6) | - | 53.1 | - |
The cumulative fair value adjustments on the hedging instrument include £216.4m (2021: £52.8m) disclosed under derivative assets and £17.1m (2021: £0.1m) disclosed under derivative liabilities.
25. Hedge Accounting(Continuation)
The movement in discontinued hedging relationships is as follows:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Hedged Assets | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On 1 January | 78.2 | 84.6 | 53.1 | 42.7 |
| New Cancellations1 | (49.3) | 33.5 | (49.4) | 32.9 |
| Amortisation | (34.1) | (39.9) | (18.3) | (22.5) |
| On the 31st of December | (5.2) | 78.2 | (14.6) | 53.1 |
- Following the securitization of mortgages during the year and the transfer of LIBOR swaps to SONIA swaps through the IBOR transition in 2021, the Group terminated swaps that were in effect prior to the event, with the designated hedge being moved to terminated hedging relationships, to be amortized over the original term of the exchange.
The tables below analyze the Group's and Company's portfolio hedge accounting for fixed income amounts owed to retail clients:
| Group 2022 | Group 2021 | |||
| Hedged Item | hedging instrument | Hedged Item | hedging instrument | |
| customer deposits | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Carrying amount of the hedged item/notional amount of the hedging instrument | 9.167.3 | 9.180,0 | 6.386,0 | 6.390,0 |
| Accumulated fair value adjustments of the hedged item/fair value of the hedging instrument | 58.0 | (67.9) | 19.6 | (18.5) |
| Changes in the fair value adjustment of the hedged item/hedging instrument used to record hedge ineffectiveness for the period | 33.0 | (42.4) | 27.4 | (26.1) |
In the balance sheet hedging instruments of £2.4m (2021: £0.3m) were recorded in derivative assets and £70.3m (2021: £18.8m) in derivative liabilities.
25. Hedge Accounting(Continuation)
| Company 2022 | Company 2021 | |||
| Hedged Item | hedging instrument | Hedged Item | hedging instrument | |
| customer deposits | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Carrying amount of the hedged item/notional amount of the hedging instrument | 5.199,7 | 5.200,0 | 3.087,9 | 3.090,0 |
| Accumulated fair value adjustments of the hedged item/fair value of the hedging instrument | 34.8 | (42,5) | 8.5 | (8.5) |
| Changes in the fair value adjustment of the hedged item/hedging instrument used to record hedge ineffectiveness for the period | 24.7 | (32.5) | 11.8 | (11.6) |
The cumulative fair value adjustments on the hedging instrument include £0.6m (2021: £0.2m) disclosed under derivative assets and £43.1m (2021: £8.7m) disclosed under derivative liabilities.
26. Other assets
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Due within one year: | ||||
| prepayments | 7.8 | 7.1 | 6.1 | 5.5 |
| Other assets | 1.8 | 0,9 | 2.0 | 0,9 |
| Due more than one year: | ||||
| prepayments | 5.4 | 2.2 | 5.0 | 1.9 |
| 15.0 | 10.2 | 13.1 | 8.3 |
27. Deferred tax assets
| loss carried forward | Accelerated depreciation | Share-based Payments | IFRS 9 transitional adjustments | Others1 | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 0,9 | 0,4 | 3.1 | 0,7 | (0,4) | 4.7 |
| Profit or Loss (Fee)/Credit | (0,4) | 0,1 | 1.7 | - | (1.2) | 0,2 |
| Transferred to corporate income tax liability | - | - | (1.4) | - | - | (1.4) |
| Taxes are paid directly to OCI | - | - | - | - | 0,5 | 0,5 |
| Tax offset directly against equity | - | - | 1.6 | - | - | 1.6 |
| On December 31, 2021 | 0,5 | 0,5 | 5.0 | 0,7 | (1.1) | 5.6 |
| Profit or Loss (Fee)/Credit2 | - | (0,5) | 0,5 | (0,1) | 1.6 | 1.5 |
| Transferred to corporate income tax liability | - | - | - | - | - | - |
| Taxes are paid directly to OCI | - | - | - | - | 0,1 | 0,1 |
| Tax offset directly against equity | - | - | (0,9) | - | - | (0,9) |
| On December 31, 2022 | 0,5 | - | 4.6 | 0,6 | 0,6 | 6.3 |
- “Other” includes deferred tax assets recognized for financial assets classified as FVOCI, derivatives and short-term timing differences.
- Includes £0.3m relating to prior year deferred taxes.
In 2022 the deferred tax profit or loss credit includes a £0.2m credit from the change in corporation tax rate (2021: £0.4m credit).
At 31 December 2022 the Group had losses of £3.5m (2021: £3.5m) for which no deferred tax asset was recognized as the Group does not believe that there will be sufficient future profits to be utilised of losses will be available.
At 31 December 2022 deferred tax assets of £2.3m (2021: £3.0m) are expected to be settled within 12 months and £4.0m (2021: £2.6m) after 12 months used.
- Deferred tax assets(Continuation)
| Accelerated depreciation | Share-based Payments | IFRS 9 transitional adjustments | Unpaid Bonus | Others1 | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 0,4 | 2.4 | 0,3 | - | - | 3.1 |
| Profit or Loss (Fee)/Credit | (0,1) | 1.4 | - | 0,2 | - | 1.5 |
| Transferred to corporate income tax liability | - | (1.3) | - | - | - | (1.3) |
| Tax offset directly against equity | - | 1.6 | - | - | - | 1.6 |
| On December 31, 2021 | 0,3 | 4.1 | 0,3 | 0,2 | - | 4.9 |
| Profit or Loss (Fee)/Credit | (0,4) | 0,6 | (0,1) | (0,2) | 0,1 | - |
| Taxes are paid directly to OCI | - | - | - | - | (0,1) | (0,1) |
| Tax offset directly against equity | - | (0,7) | - | - | - | (0,7) |
| On December 31, 2022 | (0,1) | 4.0 | 0,2 | - | - | 4.1 |
- “Other” includes deferred tax assets recognized for financial assets classified as FVOCI, derivatives and short-term timing differences.
At 31 December 2022 deferred tax assets of £1.9m (2021: £2.5m) are expected to be settled within 12 months and £2.2m (2021: £2.4m) after 12 months used.
28. Sachanlagen
| property and buildings | tenant fit-out | Equipment and furnishings | Rights to Use Assets | In total | ||
| leases | Other leases | |||||
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Cost | ||||||
| On January 1, 2021 | 19.2 | 3.0 | 13.8 | 13.1 | 1.3 | 50.4 |
| additions1 | - | - | 2.6 | 0,6 | 0,1 | 3.3 |
| disposals and depreciation2 | (2.8) | (0,1) | (1.3) | (0,5) | (0,2) | (4.9) |
| Currency difference | 0,1 | - | 0,1 | - | - | 0,2 |
| On December 31, 2021 | 16.5 | 2.9 | 15.2 | 13.2 | 1.2 | 49.0 |
| additions1 | 3.5 | 0,1 | 2.9 | 0,9 | 3.5 | 10.9 |
| disposals and depreciation2 | - | - | (1.7) | (0,3) | (0,1) | (2.1) |
| Currency difference | - | - | 0,1 | - | - | 0,1 |
| On December 31, 2022 | 20.0 | 3.0 | 16.5 | 13.8 | 4.6 | 57.9 |
| depreciation | ||||||
| On January 1, 2021 | 1.4 | 0,9 | 6.0 | 2.6 | 0,3 | 11.2 |
| Charged in the year3 | 0,9 | 0,2 | 2.9 | 1.5 | 0,1 | 5.6 |
| disposals and depreciation2 | (0,8) | (0,1) | (1.3) | (0,5) | (0,2) | (2.9) |
| On December 31, 2021 | 1.5 | 1.0 | 7.6 | 3.6 | 0,2 | 13.9 |
| Charged in the year | 0,2 | 0,2 | 3.0 | 1.6 | 0,2 | 5.2 |
| disposals and depreciation2 | - | - | (1.7) | (0,3) | (0,1) | (2.1) |
| On December 31, 2022 | 1.7 | 1.2 | 8.9 | 4.9 | 0,3 | 17.0 |
| net book value | ||||||
| On December 31, 2022 | 18.3 | 1.8 | 7.6 | 8.9 | 4.3 | 40.9 |
| On December 31, 2021 | 15.0 | 1.9 | 7.6 | 9.6 | 1.0 | 35.1 |
- Additions include changes in property leases of £0.5m (2021: £0.4m) of right-of-use assets.
- In 2022 the group wrote off £2.1m of fully depreciated assets. In 2021 the group sold a property for proceeds of £2.0m and wrote off fully depreciated assets of £2.9m.
- 2021 includes £0.6m impairment on properties sold during the year included in Note 12 integration costs.
- Sachanlagen(Continuation)
| property and buildings | tenant fit-out | Equipment and furnishings | Rights to Use Assets | In total | ||
| leases | Other leases | |||||
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Cost | ||||||
| On January 1, 2021 | 11.5 | 2.5 | 7.8 | 5.5 | 0,1 | 27.4 |
| additions1 | - | - | 1.4 | 0,6 | - | 2.0 |
| disposals and depreciation2 | (2.8) | (0,1) | (1.2) | (0,5) | - | (4.6) |
| On December 31, 2021 | 8.7 | 2.4 | 8.0 | 5.6 | 0,1 | 24.8 |
| additions1 | 3.5 | 0,1 | 2.2 | 0,4 | - | 6.2 |
| disposals and depreciation2 | - | - | (1.6) | (0,3) | (0,1) | (2.0) |
| On December 31, 2022 | 12.2 | 2.5 | 8.6 | 5.7 | - | 29.0 |
| depreciation | ||||||
| On January 1, 2021 | 1.1 | 0,6 | 3.7 | 1.5 | - | 6.9 |
| Charged in the year3 | 0,8 | 0,2 | 1.6 | 0,6 | - | 3.2 |
| disposals and depreciation2 | (0,8) | (0,1) | (1.2) | (0,5) | - | (2.6) |
| On December 31, 2021 | 1.1 | 0,7 | 4.1 | 1.6 | - | 7.5 |
| Charged in the year | 0,1 | 0,2 | 1.6 | 0,7 | - | 2.6 |
| disposals and depreciation | - | - | (1.6) | (0,3) | (0,1) | (2.0) |
| On December 31, 2022 | 1.2 | 0,9 | 4.1 | 2.0 | (0,1) | 8.1 |
| net book value | ||||||
| On December 31, 2022 | 11.0 | 1.6 | 4.5 | 3.7 | 0,1 | 20.9 |
| On December 31, 2021 | 7.6 | 1.7 | 3.9 | 4.0 | 0,1 | 17.3 |
- Additions include property lease modifications of nil (2021: £0.4m) of right-of-use assets.
- In 2022 the company wrote off £2.0m of fully depreciated assets. In 2021 the company sold a property for proceeds of £2.0m and wrote off fully depreciated assets of £2.6m.
- 2021 includes £0.6m of depreciation on properties sold during the year included in integration costs.
29. Intangible Assets
| Development Cost | Computer software and licenses | Assets arising from the merger2 | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Cost | ||||
| On January 1, 2021 | 2.3 | 16.7 | 23.6 | 42.6 |
| additions | 1.4 | 2.8 | - | 4.2 |
| disposals and depreciation1 | - | (3.5) | (0,2) | (3.7) |
| On December 31, 2021 | 3.7 | 16.0 | 23.4 | 43.1 |
| additions | 0,1 | 1.7 | - | 1.8 |
| disposals and depreciation1 | - | (3.6) | (1.9) | (5.5) |
| On December 31, 2022 | 3.8 | 14.1 | 21.5 | 39.4 |
| Amortisation | ||||
| On January 1, 2021 | 0,1 | 9.1 | 12.8 | 22.0 |
| Charged in the year | 0,5 | 3.2 | 5.8 | 9.5 |
| depreciation per year | - | - | (3.1) | (3.1) |
| disposals and depreciation1 | - | (3.5) | (0,2) | (3.7) |
| On December 31, 2021 | 0,6 | 8.8 | 15.3 | 24.7 |
| Charged in the year | 0,7 | 3.2 | 4.3 | 8.2 |
| disposals and depreciation1 | - | (3.6) | (1.9) | (5.5) |
| On December 31, 2022 | 1.3 | 8.4 | 17.7 | 27.4 |
| net book value | ||||
| On December 31, 2022 | 2.5 | 5.7 | 3.8 | 12.0 |
| On December 31, 2021 | 3.1 | 7.2 | 8.1 | 18.4 |
- During the year the Group wrote off fully depreciated assets.
- Assets resulting from the Combination include Broker relationships of £2.0m (2021: £5.0m), Technology of £0.4m (2021: £1.9m), Brand names in Amount of £0.3m (2021: £0.8m) and a banking license of zero (2021: £0.4m). The carrying value of intangible assets is reviewed each period, no reversal (2021: reversal of £3.1m) has been recognized in relation to brokerage relationships as the impact of the COVID-19 pandemic has been less severe than originally anticipated .
The Directors have considered the book value of the intangible assets and determined that there is no indication of impairment at the year end.
- Intangible Assets(Continuation)
| Development Cost | computer software and licenses | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ |
| Cost | |||
| On January 1, 2021 | - | 14.7 | 14.7 |
| additions | 1.4 | 2.2 | 3.6 |
| disposals and depreciation1 | - | (2.7) | (2.7) |
| On December 31, 2021 | 1.4 | 14.2 | 15.6 |
| additions | 0,1 | 1.3 | 1.4 |
| disposals and depreciation1 | - | (3.3) | (3.3) |
| On December 31, 2022 | 1.5 | 12.2 | 13.7 |
| Amortisation | |||
| On January 1, 2021 | - | 7.7 | 7.7 |
| Charged in the year | - | 2.9 | 2.9 |
| disposals and depreciation1 | - | (2.7) | (2.7) |
| On December 31, 2021 | - | 7.9 | 7.9 |
| Charged in the year | - | 2.6 | 2.6 |
| disposals and depreciation1 | - | (3.3) | (3.3) |
| On December 31, 2022 | - | 7.2 | 7.2 |
| net book value | |||
| On December 31, 2022 | 1.5 | 5.0 | 6.5 |
| On December 31, 2021 | 1.4 | 6.3 | 7.7 |
- During the year the Company wrote off fully depreciated assets.
30. Investments in subsidiaries, intercompany loans and transactions with related parties
The group
The balance between the Group and its ultimate parent as of the balance sheet date is summarized in the table below:
| Receivables from intercompany loans | Receivables from intercompany loans | ||
| 2022 | 2021 | ||
| group | Mio. £ | Mio. £ | |
| On 1 January | 0,6 | - | |
| additions | 2.1 | 0,6 | |
| repayments | (1.9) | - | |
| On the 31st of December | 0,8 | 0,6 |
Transactions with OSBG during the year include £2.1m of additions relating to share repurchase costs funded by the company. Repayments of £1.9m include cash of £1.6m received on behalf of OSBG from the issuance of shares under SAYE and £0.3m of tax losses, assigned to the Company (2021: Additions included transaction costs of £1.4m for the issue of AT1 securities funded by the Company and repayments of £0.8m included cash received on behalf of OSBG from the issue of shares within the framework of SAYE).
The company
The balances between the Company, its parent company and its subsidiaries as of the balance sheet date are summarized in the table below:
| Investments in subsidiaries | Receivables from intercompany loans | Liabilities to intercompany loans | |
| Pursue | Mio. £ | Mio. £ | Mio. £ |
| On January 1, 2021 | 708.9 | 2.428,4 | (37.9) |
| additions | - | 85.7 | (0,2) |
| repayments | - | (126.6) | 4.9 |
| On December 31, 2021 | 708.9 | 2.387,5 | (33.2) |
| additions | 3.2 | 177.3 | (2.7) |
| repayments | - | (33.1) | 2.6 |
| impairment | (1.3) | - | - |
| On December 31, 2022 | 710.8 | 2.531,7 | (33.3) |
The Group and the Company review intercompany loan receivables for impairment. The company recorded an impairment of £1.3m on investments in subsidiaries during the year (2021: Nil). The investment in Prestige Finance Limited (PFL) was written down to the share capital value of PFL following the cessation of trading in PFL. The investment in Interbay Group Holdings Limited (IGHL) has been written down to net asset value as IGHL is considered to be wound up.
Investments in subsidiaries are financial assets and intercompany loans are financial assets and liabilities, all of which are carried at amortized cost.
- Investments in subsidiaries, intercompany loans and transactions with related parties(Continuation)
A list of the Company's direct subsidiaries for 2022 is provided below:
| On December 31, 2022 | Registered seat | ||
| direct investments | activity | Property | |
| Charter Court Financial Services Group Plc | Holdinggesellschaft | charter court | 100% |
| Easioption Limited | Holdinggesellschaft | house of trust | 100% |
| Guernsey Home Loans Limited | mortgage provider | house of trust | 100% |
| Guernsey Home Loans Limited (Guernsey) | mortgage provider | Guernsey | 100% |
| Heritable Development Finance Limited | mortgage lenders and administrators | house of trust | 100% |
| Interbay Group Holdings Limited | Holdinggesellschaft | house of trust | 100% |
| Jersey Home Loans Limited | mortgage provider | house of trust | 100% |
| Jersey Home Loans Limited (Jersey) | mortgage provider | Jersey | 100% |
| OSB India Private Limited | back office processing | If | 100% |
| Prestige Finance Limited | mortgage lenders and administrators | house of trust | 100% |
| Reliance Property Loans Limited | mortgage provider | house of trust | 100% |
| Rochester Mortgages Limited | mortgage provider | house of trust | 100% |
| WSE Bourton Road Limited | Investments in land lease | OSB-Haus | 100% |
The Company holds common stock in all of its direct subsidiaries.
OSB India Private Limited is 70.28% owned by the Company, 29.72% owned by Easioption Limited and 0.001% owned by Reliance Property Loans Limited.
- Investments in subsidiaries, intercompany loans and transactions with related parties(Continuation)
A list of the Company's indirect subsidiaries for 2022 is provided below:
| On December 31, 2022 | Registered seat | ||
| Indirect Investments | activity | Property | |
| 5D Finance Limited | mortgage servicer | house of trust | 100% |
| Broadlands Finance Limited | Mortgage Administration Services | charter court | 100% |
| Canterbury Finance No.2 plc | Special Operations Vehicle | Churchill-Platz | - |
| Canterbury Finance Nr. 3 plc | Special Operations Vehicle | Churchill-Platz | - |
| Canterbury Finance No.4 plc | Special Operations Vehicle | Churchill-Platz | - |
| Canterbury Finance Nr. 5 plc | Special Operations Vehicle | Churchill-Platz | - |
| Charter Court Financial Services Limited | Mortgage Loans and Deposits | charter court | 100% |
| Charter Mortgages Limited | Mortgage administration and analytical services | charter court | 100% |
| CMF 2020-1 plc | Special Operations Vehicle | Churchill-Platz | - |
| Exact Mortgage Experts Limited | group service company | charter court | 100% |
| Inter Bay Financial I Limited | Holdinggesellschaft | house of trust | 100% |
| Inter Bay Financial II Limited | Holdinggesellschaft | house of trust | 100% |
| InterBay Asset Finance Limited | Wealth financing and mortgage providers | house of trust | 100% |
| Interbay Financing, Ltd | mortgage servicer | house of trust | 100% |
| Interbay Holdings Ltd | Holdinggesellschaft | house of trust | 100% |
| Interbay ML, Ltd | mortgage provider | house of trust | 100% |
All investments in subsidiaries consist of common shares.
Special purpose entities controlled by the Group are treated as subsidiaries for accounting purposes.
All of the companies listed above have been consolidated into the Group's consolidated financial statements.
All of the above investments are reviewed annually for impairment. Based on the assessment of the future cash flows of the individual companies, no impairment was recorded.
- Investments in subsidiaries, intercompany loans and transactions with related parties(Continuation)
A list of the Company's direct subsidiaries for 2021 is provided below:
| On December 31, 2021 | |||
| direct investments | activity | Registered seat | Property |
| Charter Court Financial Services Group Plc | Holdinggesellschaft | charter court | 100% |
| Easioption Limited | Holdinggesellschaft | house of trust | 100% |
| Guernsey Home Loans Limited | mortgage provider | house of trust | 100% |
| Guernsey Home Loans Limited (Guernsey) | mortgage provider | Guernsey | 100% |
| Heritable Development Finance Limited | mortgage lenders and administrators | house of trust | 100% |
| Interbay Group Holdings Limited | Holdinggesellschaft | house of trust | 100% |
| Jersey Home Loans Limited | mortgage provider | house of trust | 100% |
| Jersey Home Loans Limited (Jersey) | mortgage provider | Jersey | 100% |
| OSB India Private Limited | back office processing | If | 100% |
| Prestige Finance Limited | mortgage lenders and administrators | house of trust | 100% |
| Reliance Property Loans Limited | mortgage provider | house of trust | 100% |
| Rochester Mortgages Limited | mortgage provider | house of trust | 100% |
- Investments in subsidiaries, intercompany loans and transactions with related parties(Continuation)
A list of the Company's indirect subsidiaries for 2021 is provided below:
| On December 31, 2021 | |||
| Indirect Investments | activity | Registered seat | Property |
| 5D Finance Limited | mortgage servicer | house of trust | 100% |
| Broadlands Finance Limited | Mortgage Administration Services | charter court | 100% |
| Canterbury Finance No.2 plc | Special Operations Vehicle | Churchill-Platz | - |
| Canterbury Finance Nr. 3 plc | Special Operations Vehicle | Churchill-Platz | - |
| Canterbury Finance No.4 plc | Special Operations Vehicle | Churchill-Platz | - |
| Charter Court Financial Services Limited | Mortgage Loans and Deposits | charter court | 100% |
| Charter Mortgages Limited | Mortgage administration and analytical services | charter court | 100% |
| CMF 2020-1 plc | Special Operations Vehicle | Churchill-Platz | - |
| CML Warehouse Number 2 Limited | Special Operations Vehicle | Churchill-Platz | - |
| Exact Mortgage Experts Limited | group service company | charter court | 100% |
| Inter Bay Financial I Limited | Holdinggesellschaft | house of trust | 100% |
| Inter Bay Financial II Limited | Holdinggesellschaft | house of trust | 100% |
| InterBay Asset Finance Limited | Wealth financing and mortgage providers | house of trust | 100% |
| Interbay Financing, Ltd | mortgage servicer | house of trust | 100% |
| Interbay Holdings Ltd | Holdinggesellschaft | house of trust | 100% |
| Interbay ML, Ltd | mortgage provider | house of trust | 100% |
The registered offices of the subsidiaries are:
Charter Court – 2 Charter Court, Broadlands, Wolverhampton, WV10 6TD
Churchill-Platz – 5 Churchill-Platz, 10thFloor, London, E14 5HE
Guernsey – 1stFloor, Tudor House, Le Bordage, St. Peter Port, Guernsey, GY1 1DB
Great St. Helen’s, London – 35 Great St. Helen’s, London, EC3A 6AP
Indien – Salarpuria Magnifica Nr. 78, 9th& 10thFloor, Old Madras Road, Bangalore, India, 560016.
Jersey – 26 New Street, St. Helier, Jersey, JE2 3RA
OSB-Haus – Quayside, Chatham Maritime, Chatham, England, ME4 4QZ
Reliance House – Reliance House, Sun Pier, Chatham, Kent, ME4 4ET
- Investments in subsidiaries, intercompany loans and transactions with related parties(Continuation)
In 2021 the group issued £150.0m of fixed income perpetual subordinated securities with new appointments to OSBG. This included £90.0m of fixed income perpetual new listing subordinated securities issued by the Company to OSBG. See Note 40 for further details.
Transactions between the Company, its parent company and its subsidiaries are disclosed below:
| 2022 | 2021 | |||
| During the year from/(to) the company will be invoiced | Balance owed to/(by) the company | During the year from/(to) the company will be invoiced | Balance owed to/(by) the company | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| parent company | ||||
| OSB GROUP PLC | - | 0,8 | - | 0,6 |
| direct investments | ||||
| Easioption Limited | - | 0,5 | - | 0,5 |
| Guernsey Home Loans Limited | 0,1 | 6.8 | 0,1 | 7.7 |
| Guernsey Home Loans Limited (Guernsey) | 0,2 | 12.3 | 0,2 | 15.5 |
| Heritable Development Finance Limited | (1.9) | (1.2) | (1.5) | (0,7) |
| Jersey Home Loans Limited | - | 1.0 | - | 2.0 |
| Jersey Home Loans Limited (Jersey) | 1.3 | 69.4 | 1.2 | 88.6 |
| OSB India Private Limited | (13.3) | 9.1 | (9.5) | 4.6 |
| Prestige Finance Limited | - | (0,2) | (0,2) | 0,2 |
| Reliance Property Loans Limited | - | 2.4 | - | 2.8 |
| Interbay Group Holdings Limited | - | (0,9) | - | - |
| Indirect Investments | ||||
| Charter Court Financial Services Limited | 19.4 | (0,7) | 9.0 | 1.1 |
| Exact Mortgage Experts Limited | (0,4) | 2.5 | (0,5) | - |
| Charter Mortgages Limited | - | (0,4) | - | (0,1) |
| Broadlands Finance Limited | - | (0,1) | - | 0,1 |
| 5D Finance Limited | 0,6 | 39.4 | 0,4 | 46.4 |
| Canterbury Finance Nr. 1 plc | - | - | - | - |
| Inter Bay Financial I Limited | 0,3 | 20.0 | 0,2 | 19.7 |
| Inter Bay Financial II Limited | - | (5.6) | (0,1) | (5.6) |
| InterBay Asset Finance Limited | 2.8 | 169.6 | 1.2 | 133.8 |
| Interbay Financing, Ltd | (0,4) | (24.2) | (0,8) | (26.8) |
| Interbay ML, Ltd | 36.1 | 2.197,9 | 24.0 | 2.063,9 |
| 44.8 | 2.498,4 | 23.7 | 2.354,3 | |
In addition to the above subsidiaries, the Company had transactions with Kent Reliance Provident Society (KRPS), one of its founding shareholders. KRPS ran membership retention forums for the company. In return, the company provided KRPS with various services, including IT, finance and other support functions. KRPS was liquidated on July 25, 2022. During the year the Company was invoiced less than £0.1m (2021: £0.1m) for services provided by KRPS. At 31 December 2022 KRPS had no deposits with the Company (2021: £0.2m).
31. Liabilities to credit institutions
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| BoE TFSME | 4.232,0 | 4.203.1 | 2.395,0 | 2.378,6 |
| BoE ILTR | 300.9 | - | - | - |
| Commercial repo | 10.2 | 0,5 | 0,1 | - |
| Loans from credit institutions | 0,1 | 0,6 | - | - |
| 4.543,2 | 4.204.2 | 2.395,1 | 2.378,6 | |
| Cash collateral and margin received | 549.7 | 115.4 | 173.4 | 42.1 |
| 5.092,9 | 4.319,6 | 2.568,5 | 2.420,7 |
32. Amounts owed to retail clients
The following table shows the group's retail depositors by business segment, with the OSB segment also representing the company's retail depositors:
| 2022 | 2021 | |||||
| OSB | CCFS | In total | OSB | CCFS | In total | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Fixed Income Deposits | 8.085,9 | 5.899,6 | 13.985,5 | 6.221,7 | 4.703,4 | 10.925,1 |
| Floating rate deposits | 3.046,3 | 2.724,0 | 5.770,3 | 3.517,7 | 3.083,6 | 6.601.3 |
| 11.132.2 | 8.623,6 | 19.755,8 | 9.739,4 | 7.787,0 | 17.526,4 | |
33. Amounts owed to other customers
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Fixed Income Deposits | 100.9 | 50.3 | 0,5 | 5.7 |
| Floating rate deposits | 12.2 | 42.3 | - | - |
| 113.1 | 92.6 | 0,5 | 5.7 |
34. Issued Notes
| group | group | |||
| 2022 | 2021 | |||
| Mio. £ | Mio. £ | |||
| Asset-backed loan notes at amortized cost | 265.9 | 460.3 | ||
| Amount due for settlement after 12 months | 265.9 | 460.3 | ||
| 265.9 | 460.3 | |||
- Issued Notes(Continuation)
The Asset Backed Notes are secured by fixed and adjustable rate mortgages and may be partially repaid from time to time, but such repayments will be made principally out of the net amount received by borrowers in respect of the underlying mortgage assets. The funds' maturity date matches the contractual maturity date of the underlying mortgage securities. The Group anticipates that a majority of the underlying mortgage assets, and therefore these debt obligations, will be repaid within five years.
If the Group has the call rights for a transaction, it may repurchase the asset-backed notes on any Interest Payment Date on or after the Call Dates or on any Interest Payment Date if the current balance of outstanding mortgages is less than or equal to 10% of the outstanding principal amount of the promissory notes on the day of its exhibition.
Interest is payable at fixed margins through SONIA.
As of December 31, 2022, Notes were issued through the following financing vehicles:
| group | group | |||
| 2022 | 2021 | |||
| Mio. £ | Mio. £ | |||
| CMF 2020-1 plc | 141.8 | 199.8 | ||
| Canterbury Finance Nr. 3 plc | 21.0 | 76.9 | ||
| Canterbury Finance No.4 plc | 103.1 | 183.6 | ||
| 265.9 | 460.3 |
35. lease liabilities
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| On 1 January | 10.7 | 11.7 | 3.9 | 3.9 |
| New leases | 0,9 | 0,7 | 0,4 | 0,6 |
| termination of the tenancy | - | (0,1) | - | - |
| Lease Repayments | (1.9) | (1.9) | (0,8) | (0,7) |
| accrued interest | 0,2 | 0,3 | 0,1 | 0,1 |
| On the 31st of December | 9.9 | 10.7 | 3.6 | 3.9 |
During the year the Group incurred expenses of £0.3m (2021: £0.2m) related to short term leases
36. Other liabilities
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Due within one year: | ||||
| accruals | 28.0 | 23.1 | 18.6 | 13.1 |
| accruals | 0,6 | 0,9 | 0,6 | 0,9 |
| other believers | 10.1 | 5.5 | 4.7 | 3.3 |
| 38.7 | 29.5 | 23.9 | 17.3 |
37. Provisions and contingent liabilities
The Financial Services Compensation Scheme (FSCS) provides deposit protection for customers of licensed financial services firms in the event of a business failure. FSCS protects retail deposits up to £85,000 for single account holders and £170,000 for joint account holders. Since OSB and CCFS both hold banking licenses, full FSCS protection is available to customers of either bank.
The compensation paid to consumers will initially be funded by loans from the BoE and the UK Treasury. In order to repay the loans and cover their costs, the FSCS collects fees from companies regulated by the PRA and the Financial Conduct Authority (FCA). The group is one of these companies and pays the FSCS a levy based on its share of total UK deposits.
The Group has reviewed its current exposure to Payment Protection Insurance (PPI) claims following the FCA deadline for PPI claims on 29 August 2019 and its reserve as at 31 December 2022 at less than £0.1m (2021: £0.3m).
The group has released its £1.2m behavioral risk provision after completing an internal review.
An analysis of the FSCS and other Group and Company regulations is presented below:
| 2022 | 2021 | |||||||
| FSCS | Other Regulatory Provisions | ECL on undrawn loan facilities | In total | FSCS | Other Regulatory Provisions | ECL on undrawn loan facilities | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On 1 January | 0,1 | 1.5 | 0,4 | 2.0 | 0,1 | 1.5 | 0,2 | 1.8 |
| (Credit)/Fee | (0,1) | (1.5) | - | (1.6) | - | - | 0,2 | 0,2 |
| On the 31st of December | - | - | 0,4 | 0,4 | 0,1 | 1.5 | 0,4 | 2.0 |
- Provisions and contingent liabilities(Continuation)
| 2022 | 2021 | |||||||
| FSCS | Other Regulatory Provisions | ECL on undrawn loan facilities | In total | FSCS | Other Regulatory Provisions | ECL on undrawn loan facilities | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| On 1 January | 0,1 | 1.4 | 0,4 | 1.9 | 0,1 | 1.4 | 0,1 | 1.6 |
| (Credit)/Fee | (0,1) | (1.4) | (0,3) | (1.8) | - | - | 0,3 | 0,3 |
| On the 31st of December | - | - | 0,1 | 0,1 | 0,1 | 1.4 | 0,4 | 1.9 |
In January 2020, the group was contacted by the FCA in relation to a cross-firm thematic review of forbearance actions taken by lenders in relation to part of the mortgage market. The group has responded to requests for information from the FCA. It is not possible to reliably predict or estimate the outcome of the review and thus its potential financial impact on the Group.
38. Deferred tax liability
The deferred tax liability recognized on the combination relates to timing differences in the recognition of assets and liabilities at fair value, where the fair values will reverse in future periods according to the underlying asset or liability. The deferred tax liability was measured at the appropriate rates for the expected useful life.
| CCFS combination | |||||
| group | Mio. £ | ||||
| On January 1, 2021 | 48.3 | ||||
| Profit or Loss Credit | (8.5) | ||||
| On December 31, 2021 | 39.8 | ||||
| Profit or Loss Credit | (17.5) | ||||
| On December 31, 2022 | 22.3 |
In 2022 the profit or loss credit includes £4.7m of the impact of the change in corporation tax rate (2021: a charge of £5.6m).
At 31 December 2022 deferred tax liabilities of £5.6m (2021: £17.5m) are expected to be settled within 12 months and £16.7m (2021: £22.3m) after 12 months due.
39. Subordinated Liabilities
The outstanding subordinated liabilities of the Group and the Company are summarized below:
| group and company | group and company | |||
| 2022 | 2021 | |||
| Mio. £ | Mio. £ | |||
| Linked to LIBOR: | ||||
| Floating Rate Subordinated Loans 2022 (LIBOR +2%) | - | 0,1 | ||
| Fixed rate: | ||||
| Subordinated Debt 2024 (7.45%) | - | 10.2 | ||
| - | 10.3 | |||
The following table shows a reconciliation of the Group's subordinated liabilities during the year:
| group and company | group and company | |||
| 2022 | 2021 | |||
| Mio. £ | Mio. £ | |||
| On 1 January | 10.3 | 10.5 | ||
| debt repayment | (10.3) | (0,2) | ||
| On the 31st of December | - | 10.3 |
During the year the fixed rate subordinated debt was repaid in full with a premium of £0.7m which is reflected in interest payable and similar charges.
The LIBOR-linked subordinated debt was redeemed in September 2022.
40. Perpetual Subordinated Notes
| group and company | group and company | |||
| 2022 | 2021 | |||
| Mio. £ | Mio. £ | |||
| Sterling-PSBs (4,6007 %) | 15.2 | 15.2 |
The bonds are listed on the London Stock Exchange.
The 4.6007% Notes were issued with no interest discretion and may not be settled with the Group's equity. They are therefore classified as financial liabilities. The coupon is 4.6007% until the next reset date on August 27, 2024.
41. Reconciliation of cash flows for financing activities
The following tables provide a reconciliation of the Group's and Company's liabilities classified as financing activities in the statement of cash flows:
| Liabilities to credit institutions (see note 31) | Issued Notes (see note 34) | Subordinated Liabilities (see note 39) | PSBs (see note 40) | In total | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| (Rephrased)1 | |||||
| On January 1, 2021 | 3.570,2 | 421.9 | 10.5 | 37.6 | 4.040.2 |
| money movements: | |||||
| main deductions1 | 4.747,6 | 195.6 | - | - | 4.943,2 |
| principal repayments | (4.113,7) | (159,5) | (0,2) | (22.0) | (4.295,4) |
| interest paid | (4.4) | (1.6) | (0,8) | (1.6) | (8.4) |
| Cashless movements: | |||||
| Interest calculated | 4.5 | 3.9 | 0,8 | 1.2 | 10.4 |
| On December 31, 20211 | 4.204.2 | 460.3 | 10.3 | 15.2 | 4.690,0 |
| money movements: | |||||
| main deductions | 429.5 | - | - | - | 429.5 |
| principal repayments | (120,5) | (193.6) | (10.1) | - | (324.2) |
| interest paid | (34.8) | (8.5) | (1.3) | (0,7) | (45.3) |
| Cashless movements: | |||||
| Interest calculated | 64.8 | 7.7 | 1.1 | 0,7 | 74.3 |
| On December 31, 2022 | 4.543,2 | 265.9 | - | 15.2 | 4.824,3 |
- Adjusted figures for 2021 see Note 1 b) for further details.
- Reconciliation of cash flows for financing activities(Continuation)
| Liabilities to credit institutions (see note 31) | Prestigious Loans (see note 20) | Subordinated Liabilities (see note 39) | PSBs (see note 40) | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| (Rephrased)1 | |||||
| On January 1, 2021 | 1.900,5 | 66.2 | 10.5 | 37.6 | 2.014,8 |
| money movements: | |||||
| main deductions1 | 2.923,1 | 198.4 | - | - | 3.121,5 |
| principal repayments | (2.445,1) | (121.8) | (0,2) | (22.0) | (2.589,1) |
| interest paid | (2.2) | - | (0,8) | (1.6) | (4.6) |
| Cashless movements: | |||||
| Interest calculated | 2.3 | - | 0,8 | 1.2 | 4.3 |
| On December 31, 20211 | 2.378,6 | 142.8 | 10.3 | 15.2 | 2.546,9 |
| money movements: | |||||
| main deductions | 120,0 | - | - | - | 120,0 |
| principal repayments | (120,0) | (174,0) | (10.1) | - | (304.1) |
| interest paid | (19.4) | (4.1) | (1.3) | (0,7) | (25.5) |
| Cashless movements: | |||||
| Interest calculated | 35.9 | 4.1 | 1.1 | 0,7 | 41.8 |
| On December 31, 2022 | 2.395,1 | (31.2) | - | 15.2 | 2.379,1 |
- Adjusted figures for 2021 see Note 1 b) for further details.
42. share capital
| Ordinary shares at £0.01 each | Number of authorized and fully paid shares | face value Mio. £ | bonus Mio. £ |
| As of December 31, 2021 and 2022 | 447.304.198 | 4.5 | - |
The holders of common stock are entitled to dividends declared from time to time and are entitled to one vote per share at meetings of the company. All common shares rank pari passu with respect to the remaining assets of the company.
All ordinary shares issued in the current and previous year were fully paid up.
43. other reserves
The other reserves of the group and the company are as follows:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Distributable: | ||||
| Share-based Compensation | 13.3 | 11.7 | 10.9 | 9.4 |
| capital contribution | - | 1.7 | - | - |
| FVOCI | 0,3 | 0,6 | 0,2 | - |
| exchange year | (1.3) | (1.1) | - | - |
| AT1 Securities | 150,0 | 150,0 | 90,0 | 90,0 |
| 162.3 | 162.9 | 101.1 | 99,4 |
FVOCI-Reserve
The FVOCI Reserve represents the cumulative net change in fair value of investments that are valued at FVOCI.
Devisenreserve
The currency reserve relates to the revaluation of the Group's Indian subsidiary, OSB India Private Limited.
AT1 Securities
On 5 October 2021 OSBG issued a total of £150.0m of new AT1 securities, £90.0m issued by the Company and £60.0m issued by Charter Court Financial Services Limited were issued. AT1 Securities comprise £150.0m of fixed income perpetual subordinated contingently convertible securities qualifying as AT1 capital under CRD IV. The securities will be fully converted into OSBG common shares if the group's Common Equity Tier 1 (CET1) ratio falls below 7%. The Securities will bear interest at 6% per annum until the first reset date of 7 April 2027, the reset rate for such period being 539.3 basis points above the 5 year benchmark gilt rate. Interest is paid semi-annually in April and October. OSBG may cancel interest payments at any time in its sole discretion and is required to cancel interest payments in certain circumstances set out in the Terms of the Securities. The securities are perpetual with no fixed redemption date.
OSBG may, in its sole discretion and subject to the satisfaction of certain conditions, redeem all (but not some) of the AT1 Securities at the outstanding principal amount plus accrued but unpaid interest as of the First Reset Date and any Interest Payment Date thereafter.
44. Financial Commitments and Guarantees
- The Group had no contractual or anticipated investment commitments that were not foreseen as at 31 December 2022 (2021: Nil).
- The Group’s minimum lease obligations from operating leases that are not subject to IFRS 16 are summarized in the following table:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Land and buildings: due within: | ||||
| A year | 0,3 | - | 0,1 | - |
| Two to five years | 0,3 | - | - | - |
| 0,6 | - | 0,1 | - |
- Undrawn loan facilities:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| OSB Mortgages | 741.6 | 706.4 | 559.1 | 577,5 |
| CCFS Mortgages | 455.1 | 434,5 | - | - |
| wealth financing | 15.5 | 14.4 | - | - |
| 1.212,2 | 1.155,3 | 559.1 | 577,5 |
Undrawn credit facilities are approved credit applications that have not yet been exercised. They are due on demand and are usually drawn or expire within three months.
- The Group had no issued financial guarantees as of December 31, 2022 (2021: Nil).
45. risk management
overview
Financial instruments make up the majority of the Group's and Company's assets and liabilities. The Group manages risk on a consolidated basis and the following risk disclosures are provided on that basis.
Types of Financial Instruments
Financial instruments are a broad definition that includes financial assets, financial liabilities and equity instruments. The Group's main financial assets are loans to customers and cash and cash equivalents, which in turn consists of cash on the BoE's overnight deposits, overnight deposits at other credit institutions, RMBS and UK government bonds. These are funded through a combination of financial liabilities and equity instruments. Financing of financial liabilities is primarily through deposits and borrowings from retail customers under the BoE TFSME and ILTR, backed by debt, wholesale and other funding. Equity instruments include treasury shares and AT1 securities that meet the criteria for equity classification. The Group's main activity is mortgage lending; it raises funds or invests in certain types of financial assets to meet customer demand and manage the risks arising from its operations. The Group does not trade in financial instruments for speculative purposes.
The Group uses derivative instruments to manage its financial risks. Financial derivative instruments (derivatives) are financial instruments whose value changes in response to changes in underlying variables such as interest rates. The most common derivatives are futures, forwards and swaps. Of these, the Group exclusively uses swaps.
Derivatives are only used by the Group to reduce (hedge) the risk of loss from changes in market prices. Derivatives are not used for speculative purposes.
Types of Derivatives and Uses
The derivative instruments used by the Group to manage its risk positions are interest rate swaps. Interest rate swaps convert fixed interest rates into floating rates or vice versa. As with other derivatives, the underlying product is not sold and payments are based on notional principal amounts.
Unhedged fixed rate debt carries the risk that interest will be paid above market rate if interest rates subsequently fall. Unhedged fixed rate mortgages and cash carry the opposite risk of yielding below market interest rates when interest rates rise. While fixed income assets and liabilities naturally hedge each other to some degree, maturity mismatches and principal amounts mean that this hedge is typically never perfect.
The Group uses swaps to convert its instruments, such as mortgages, deposits and cash, from fixed or base-linked interest rates to reference-linked floating interest rates. This ensures a guaranteed margin between interest income and interest expense, regardless of changes in market interest rates.
types of risks
The main financial risks to which the Group is exposed are credit, liquidity and market risks, the latter including interest rate and exchange rate risks. In addition to financial risks, the Group is exposed to various other risks, in particular operational, conduct and compliance/regulatory risks, which are discussed in the risk report on pages 30 to 60.
- risk management(Continuation)
Credit risk
Credit risk is the risk that losses will be incurred if the Group's borrowers or market parties fail to meet their repayment obligations.
The Group has adopted the standardized approach to assessing regulatory capital requirements for credit risk. This approach takes into account risk weights in accordance with the principles of Basel II and Basel III.
The classes of financial instruments to which the Group is most exposed are claims on customers, claims on banks, balances in the BoE call money account, money market accounts and current accounts with other credit institutions and investment securities. The maximum credit risk is the total book value of the above categories plus off-balance sheet undrawn committed mortgage facilities.
The change in the fair value of investments in debt securities and loans and amounts due from customers at FVOCI and FVTPL during the period and cumulatively attributable to changes in credit risk is not material.
Credit risk–Loans and advances to customers
The credit risk associated with mortgage lending is largely determined by the housing market and the unemployment rate. A recession and/or high interest rates could put pressure on the market, leading to rising arrears and garnishments.
All loan applications are evaluated with reference to the Group's Lending Policy. Changes to policy are approved by the Group Risk Committee, which establishes mandates for approving loan applications.
The Group Credit Committee and ALCO regularly monitor lending activity and take appropriate action to re-evaluate products and adjust lending criteria to control risk and manage exposure. Where necessary and appropriate, changes to the lending policy are recommended to the Group Risk Committee.
The following tables show the Group's and Company's maximum credit exposure and the impact of collateral held as collateral, capped at Gross Exposure Amount, by impairment stage. Capped collateral excludes the impact of forced sales rebates and sales costs. Collateral value is determined by indexing against house price index data.
| 2022 | ||||||
| OSB | CCFS | In total | ||||
| gross book value | Covered collateral held | gross book value | Covered collateral held | gross book value | Covered collateral held | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| stage 1 | 10.346,8 | 10.320.4 | 8.375,5 | 8.374,4 | 18.722,3 | 18.694,8 |
| Level 21 | 2.509,7 | 2.508,5 | 1.907,4 | 1.907,1 | 4.417,1 | 4.415,6 |
| level 3 | 349.7 | 319.2 | 156,0 | 156,0 | 505.7 | 475.2 |
| Study 3 (POCI) | 38.5 | 37.5 | 44.5 | 44.4 | 83,0 | 81.9 |
| 13.244,7 | 13.185.6 | 10.483,4 | 10.481,9 | 23.728,1 | 23.667,5 | |
- The increase in account balance in Stage 2 is due to increased credit risk from increased cost of living and borrowing costs. See the Risk Overview section on pages 30 to 60 for more details on phased movements.
- risk management(Continuation)
| 2021 | ||||||
| OSB | CCFS | In total | ||||
| gross book value | Covered collateral held | gross book value | Covered collateral held | gross book value | Covered collateral held | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| stage 1 | 10.502,7 | 10.478,1 | 7.685,7 | 7.684,6 | 18.188.4 | 18.162,7 |
| Level 2 | 1.143,8 | 1.141,9 | 1.269,8 | 1.269,7 | 2.413,6 | 2.411,6 |
| level 3 | 365.6 | 337.9 | 99.1 | 99.1 | 464.7 | 437,0 |
| Study 3 (POCI) | 45.2 | 43.6 | 52.2 | 52.2 | 97.4 | 95.8 |
| 12.057,3 | 12.001,5 | 9.106.8 | 9.105.6 | 21.164.1 | 21.107.1 | |
The Group's main collateral is properties based in Great Britain and the Channel Islands.
The Group uses indexed loan-to-value (LTV) ratios to assess the quality of the unrestricted collateral held. Property values are updated to reflect changes in the HPI. A breakdown of loans and advances to customers by indexed LTV is as follows:
| 2022 | 2021 | |||||||
| OSB | CCFS | In total | OSB | CCFS | In total | |||
| group | Mio. £ | Mio. £ | Mio. £ | % | Mio. £ | Mio. £ | Mio. £ | % |
| Band | ||||||||
| 0% - 50% | 2.768,8 | 914.7 | 3.683,5 | 16 | 2.293,3 | 428.2 | 2.721,5 | 13 |
| 50% - 60% | 2.770,7 | 1.361,1 | 4.131,8 | 17 | 1.935,3 | 490.1 | 2.425,4 | 11 |
| 60% - 70% | 4.647,5 | 3.561,7 | 8.209.2 | 35 | 4.179,0 | 1.241,9 | 5.420,9 | 26 |
| 70% - 80% | 2.150,7 | 4.277,3 | 6.428,0 | 26 | 2.887,7 | 6.100,7 | 8.988,4 | 43 |
| 80% - 90% | 548.3 | 365,5 | 913.8 | 4 | 513.2 | 844.4 | 1.357,6 | 6 |
| 90 % - 100 % | 181.3 | 2.5 | 183.8 | 1 | 77.8 | 1.5 | 79.3 | - |
| >100% | 177.4 | 0,6 | 178,0 | 1 | 171,0 | - | 171,0 | 1 |
| Total loans before provisions | 13.244,7 | 10.483,4 | 23.728,1 | 100 | 12.057,3 | 9.106.8 | 21.164.1 | 100 |
- risk management(Continuation)
The table below shows the LTV banding for the two main credit streams of the OSB segments:
| 2022 | 2021 | |||||||
| BTL/KMU | residential | In total | BTL/KMU | residential | In total | |||
| OSB | Mio. £ | Mio. £ | Mio. £ | % | Mio. £ | Mio. £ | Mio. £ | % |
| Band | ||||||||
| 0% - 50% | 1.301,4 | 1.467,4 | 2.768,8 | 21 | 1.007,6 | 1.285,7 | 2.293,3 | 19 |
| 50% - 60% | 2.497,2 | 273.5 | 2.770,7 | 21 | 1.693,7 | 241.6 | 1.935,3 | 16 |
| 60% - 70% | 4.386,0 | 261.5 | 4.647,5 | 36 | 3.903,0 | 276,0 | 4.179,0 | 35 |
| 70% - 80% | 1.977,1 | 173.6 | 2.150,7 | 16 | 2.647,7 | 240,0 | 2.887,7 | 24 |
| 80% - 90% | 418.1 | 130.2 | 548.3 | 4 | 452.8 | 60.4 | 513.2 | 4 |
| 90 % - 100 % | 167.3 | 14.0 | 181.3 | 1 | 66.2 | 11.6 | 77.8 | 1 |
| >100% | 172.9 | 4.5 | 177.4 | 1 | 165.1 | 5.9 | 171,0 | 1 |
| Total loans before provisions | 10.920,0 | 2.324,7 | 13.244,7 | 100 | 9.936,1 | 2.121.2 | 12.057,3 | 100 |
The following tables show the LTV analysis of the OSB BTL/SME sub-segment:
| 2022 | |||||
| Purchase for rental | Advertising | housing estate | lines of finance | In total | |
| OSB | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Band | |||||
| 0% - 50% | 1.137,6 | 114.7 | 16.1 | 33.0 | 1.301,4 |
| 50% - 60% | 2.324,1 | 112.8 | 57.2 | 3.1 | 2.497,2 |
| 60% - 70% | 4.111.4 | 164.4 | 110.2 | - | 4.386,0 |
| 70% - 80% | 1.741,5 | 235.6 | - | - | 1.977,1 |
| 80% - 90% | 232.8 | 151.6 | - | 33.7 | 418.1 |
| 90 % - 100 % | 77.1 | 63.8 | - | 26.4 | 167.3 |
| >100% | 130.5 | 38.4 | 1.0 | 3.0 | 172.9 |
| Total loans before provisions | 9.755,0 | 881.3 | 184.5 | 99.2 | 10.920,0 |
- risk management(Continuation)
| 2021 | |||||
| Purchase for rental | Advertising | housing estate | lines of finance | In total | |
| OSB | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Band | |||||
| 0% - 50% | 804.0 | 118.9 | 19.0 | 65.7 | 1.007,6 |
| 50% - 60% | 1.532,0 | 105.1 | 40.1 | 16.5 | 1.693,7 |
| 60% - 70% | 3.708,1 | 130.1 | 61.6 | 3.2 | 3.903,0 |
| 70% - 80% | 2.423,7 | 224,0 | - | - | 2.647,7 |
| 80% - 90% | 249.5 | 165.9 | - | 37.4 | 452.8 |
| 90 % - 100 % | 46.4 | 19.8 | - | - | 66.2 |
| >100% | 104.0 | 30.6 | - | 30.5 | 165.1 |
| Total loans before provisions | 8.867,7 | 794.4 | 120.7 | 153.3 | 9.936,1 |
The following tables show the LTV analysis of the OSB Residential sub-segment:
| 2022 | 2021 | |||||||
| First load | Second load | lines of finance | In total | First load | Second load | lines of finance | In total | |
| OSB | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Band | ||||||||
| 0% - 50% | 1.357,6 | 109.8 | - | 1.467,4 | 1.173,3 | 111.8 | 0,6 | 1.285,7 |
| 50% - 60% | 238.1 | 35.4 | - | 273.5 | 189.8 | 51.8 | - | 241.6 |
| 60% - 70% | 242.9 | 18.6 | - | 261.5 | 240.2 | 35.8 | - | 276,0 |
| 70% - 80% | 168.3 | 5.3 | - | 173.6 | 221.3 | 18.7 | - | 240,0 |
| 80% - 90% | 128.8 | 1.4 | - | 130.2 | 56.5 | 3.9 | - | 60.4 |
| 90 % - 100 % | 13.4 | 0,6 | - | 14.0 | 10.3 | 1.3 | - | 11.6 |
| >100% | 3.8 | 0,7 | - | 4.5 | 4.5 | 1.4 | - | 5.9 |
| Total loans before provisions | 2.152,9 | 171.8 | - | 2.324,7 | 1.895,9 | 224.7 | 0,6 | 2.121.2 |
- risk management(Continuation)
The table below shows the LTV analysis of the four CCFS sub-segments:
| 2022 | ||||||
| Purchase for rental | residential | bridging | Second charge lending | In total | ||
| CCFS | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | % |
| Band | ||||||
| 0% - 50% | 308.6 | 498.3 | 62.9 | 44.9 | 914.7 | 9 |
| 50% - 60% | 799,5 | 501.8 | 29.9 | 29.9 | 1.361,1 | 13 |
| 60% - 70% | 2.587,6 | 924.2 | 25.6 | 24.3 | 3.561,7 | 34 |
| 70% - 80% | 3.613,8 | 622.9 | 26.9 | 13.7 | 4.277,3 | 41 |
| 80% - 90% | 215.1 | 146.8 | 2.4 | 1.2 | 365,5 | 3 |
| 90 % - 100 % | 0,2 | 0,8 | 1.5 | - | 2.5 | - |
| >100% | - | 0,1 | 0,5 | - | 0,6 | - |
| Total loans before provisions | 7.524,8 | 2.694,9 | 149.7 | 114.0 | 10.483,4 | 100 |
| 2021 | ||||||
| Purchase for rental | residential | bridging | Second charge lending | In total | ||
| CCFS | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | % |
| Band | ||||||
| 0% - 50% | 104.8 | 261.0 | 30.2 | 32.2 | 428.2 | 5 |
| 50% - 60% | 205.4 | 246.8 | 9.3 | 28.6 | 490.1 | 5 |
| 60% - 70% | 702.4 | 480.1 | 14.9 | 44.5 | 1.241,9 | 14 |
| 70% - 80% | 4.827,7 | 1.234,5 | 1.4 | 37.1 | 6.100,7 | 67 |
| 80% - 90% | 560.5 | 268.9 | 0,5 | 14.5 | 844.4 | 9 |
| 90 % - 100 % | 0,1 | 1.4 | - | - | 1.5 | - |
| Total loans before provisions | 6.400,9 | 2.492,7 | 56.3 | 156.9 | 9.106.8 | 100 |
- risk management(Continuation)
The table below shows the LTV banding for the two main credit streams of the Company's segments:
| 2022 | 2021 | |||||||
| BTL/KMU | residential | In total | BTL/KMU | residential | In total | |||
| Pursue | Mio. £ | Mio. £ | Mio. £ | % | Mio. £ | Mio. £ | Mio. £ | % |
| Band | ||||||||
| 0% - 50% | 919.9 | 1.398,4 | 2.318,3 | 22 | 708.3 | 1.213,9 | 1.922,2 | 20 |
| 50% - 60% | 1.978,5 | 267.2 | 2.245,7 | 21 | 1.244,1 | 220.6 | 1.464,7 | 15 |
| 60% - 70% | 3.695,1 | 259.7 | 3.954,8 | 37 | 3.167,5 | 273.4 | 3.440,9 | 37 |
| 70% - 80% | 1.485,8 | 172.3 | 1.658,1 | 16 | 2.083,4 | 239.2 | 2.322,6 | 25 |
| 80% - 90% | 224.9 | 130.2 | 355.1 | 3 | 249,0 | 59.8 | 308.8 | 3 |
| 90 % - 100 % | 47.4 | 13.8 | 61.2 | 1 | 24.2 | 11.3 | 35.5 | - |
| >100% | 19.3 | 1.0 | 20.3 | - | 42.5 | 3.0 | 45.5 | - |
| Total loans before provisions | 8.370,9 | 2.242,6 | 10.613,5 | 100 | 7.519,0 | 2.021.2 | 9.540,2 | 100 |
The following tables present the LTV analysis of the company's BTL/SME sub-segment:
| 2022 | |||||
| Purchase for rental | Advertising | housing estate | lines of finance | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Band | |||||
| 0% - 50% | 861.9 | 8.9 | 16.1 | 33.0 | 919.9 |
| 50% - 60% | 1.916,8 | 1.4 | 57.2 | 3.1 | 1.978,5 |
| 60% - 70% | 3.585,4 | - | 109.7 | - | 3.695,1 |
| 70% - 80% | 1.485,8 | - | - | - | 1.485,8 |
| 80% - 90% | 191.2 | - | - | 33.7 | 224.9 |
| 90 % - 100 % | 21.0 | - | - | 26.4 | 47.4 |
| >100% | 11.8 | 3.5 | 1.0 | 3.0 | 19.3 |
| Total loans before provisions | 8.073,9 | 13.8 | 184,0 | 99.2 | 8.370,9 |
- risk management(Continuation)
| 2021 | |||||
| Purchase for rental | Advertising | housing estate | lines of finance | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Band | |||||
| 0% - 50% | 616,8 | 6.8 | 19.0 | 65.7 | 708.3 |
| 50% - 60% | 1.183,6 | 3.9 | 40.1 | 16.5 | 1.244,1 |
| 60% - 70% | 3.102.7 | - | 61.6 | 3.2 | 3.167,5 |
| 70% - 80% | 2.083,4 | - | - | - | 2.083,4 |
| 80% - 90% | 211.6 | - | - | 37.4 | 249,0 |
| 90 % - 100 % | 24.2 | - | - | - | 24.2 |
| >100% | 8.5 | 3.5 | - | 30.5 | 42.5 |
| Total loans before provisions | 7.230,8 | 14.2 | 120.7 | 153.3 | 7.519,0 |
The following tables present the Company's Residential sub-segment LTV analysis:
| 2022 | 2021 | |||||||
| First load | Second load | lines of finance | In total | First load | Second load | lines of finance | In total | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Band | ||||||||
| 0% - 50% | 1.288,6 | 109.8 | - | 1.398,4 | 1.101,5 | 111.8 | 0,6 | 1.213,9 |
| 50% - 60% | 231.8 | 35.4 | - | 267.2 | 168.8 | 51.8 | - | 220.6 |
| 60% - 70% | 241.1 | 18.6 | - | 259.7 | 237.6 | 35.8 | - | 273.4 |
| 70% - 80% | 167,0 | 5.3 | - | 172.3 | 220.6 | 18.6 | - | 239.2 |
| 80% - 90% | 128.8 | 1.4 | - | 130.2 | 55.9 | 3.9 | - | 59.8 |
| 90 % - 100 % | 13.2 | 0,6 | - | 13.8 | 10.0 | 1.3 | - | 11.3 |
| >100% | 0,3 | 0,7 | - | 1.0 | 1.6 | 1.4 | - | 3.0 |
| Total loans before provisions | 2.070,8 | 171.8 | - | 2.242,6 | 1.796,0 | 224.6 | 0,6 | 2.021.2 |
- risk management(Continuation)
countermeasures taken
The Group has a number of options when borrowers encounter financial difficulties that affect their ability to service their financial obligations under the loan agreement. These options are explained in the risk overview on pages 30 to 60.
A summary of forbearance actions taken during the year (excluding COVID-19 related payment deferrals) is shown below. The balances disclosed reflect the year-end balance of accounts that were subject to a forbearance action during the year.
| group | number of accounts | On December 31, 2022 | number of accounts | On December 31, 2021 |
| forbearance type | 2022 | Mio. £ | 2021 | Mio. £ |
| Interest Only Switch | 70 | 12.2 | 159 | 18.6 |
| rate cut | 91 | 7.5 | 437 | 8.1 |
| term extension | 53 | 2.9 | 271 | 16.6 |
| deferred payment | 194 | 34.0 | 499 | 43.0 |
| Volunteered sale | 5 | 1.2 | 7 | 0,8 |
| Payment Concession (reduced monthly payments) | 55 | 12.0 | 51 | 12.1 |
| capitalization of interest | 27 | 9.0 | 65 | 1.1 |
| Full or partial debt relief | 359 | 9.6 | 1.078 | 22.6 |
| In total | 854 | 88.4 | 2.567 | 122.9 |
| type of loan | ||||
| First charge owner occupier | 217 | 27.8 | 424 | 34.8 |
| Second batch of owner occupiers1 | 460 | 8.9 | 1.931 | 38.7 |
| Purchase for rental | 107 | 37.1 | 160 | 34.6 |
| Advertising | 70 | 14.6 | 52 | 14.8 |
| In total | 854 | 88.4 | 2.567 | 122.9 |
- Through 2021 and through the first quarter of 2022, the group implemented and deployed a number of forbearance solutions and options for customers with long-term arrears in our second charge portfolio to support and resolve the arrears build-up.
- risk management(Continuation)
| Pursue | number of accounts | On December 31, 2022 | number of accounts | On December 31, 2021 |
| forbearance type | 2022 | Mio. £ | 2021 | Mio. £ |
| Interest Only Switch | 43 | 4.8 | 128 | 14.4 |
| rate cut | 83 | 6.5 | 435 | 7.6 |
| term extension | 2 | - | 76 | 8.2 |
| deferred payment | 92 | 15.5 | 346 | 18.0 |
| Volunteered sale | 5 | 1.3 | 3 | 0,4 |
| Payment Concession (reduced monthly payments) | 24 | 5.9 | 38 | 6.4 |
| capitalization | 26 | 1.3 | 65 | 1.1 |
| Full or partial debt relief | 351 | 8.6 | 1.077 | 22.6 |
| In total | 626 | 43.9 | 2.168 | 78.7 |
| type of loan | ||||
| First charge owner occupier | 110 | 13.5 | 148 | 16.5 |
| Second batch of owner occupiers1 | 452 | 8.5 | 1.892 | 38.0 |
| Purchase for rental | 64 | 21.9 | 128 | 24.2 |
| In total | 626 | 43.9 | 2.168 | 78.7 |
- Through 2021 and the first quarter of 2022, the Company conducted an exercise and provided a number of forbearance solutions and options for customers with long-term arrears in our second charge portfolio to support and resolve the arrears build-up.
- risk management(Continuation)
Geographical analysis by region
An analysis of loans, excluding asset finance leases, by region is provided below:
| group | group | |||||||
| 2022 | 2021 | |||||||
| OSB | CCFS | In total | OSB | CCFS | In total | |||
| Region | Mio. £ | Mio. £ | Mio. £ | % | Mio. £ | Mio. £ | Mio. £ | % |
| East Anglia | 453.5 | 1.136,4 | 1.589,9 | 7 | 361.8 | 967.1 | 1.328,9 | 6 |
| East Midlands | 609.9 | 691.6 | 1.301,5 | 6 | 543,8 | 555.8 | 1.099,6 | 5 |
| Großbezirk London | 5.559,3 | 3.293,0 | 8.852,3 | 38 | 4.983,7 | 3.052,6 | 8.036,3 | 39 |
| Guernsey | 21.5 | - | 21.5 | - | 26.3 | - | 26.3 | - |
| Jersey | 75.6 | - | 75.6 | - | 99.3 | - | 99.3 | - |
| northeast | 169.8 | 274.5 | 444.3 | 2 | 153.9 | 244.4 | 398.3 | 2 |
| northwest | 906.6 | 921.8 | 1.828,4 | 7 | 762.3 | 755,0 | 1.517,3 | 7 |
| Northern Ireland | 10.0 | - | 10.0 | - | 10.9 | - | 10.9 | - |
| Scotland | 36.9 | 261.3 | 298.2 | 1 | 35.2 | 226,0 | 261.2 | 1 |
| South East | 2.802,8 | 1.681,5 | 4.484,3 | 19 | 2.792,6 | 1.452,4 | 4.245,0 | 20 |
| southwest | 893.7 | 659.6 | 1.553,3 | 7 | 825.5 | 544.3 | 1.369,8 | 7 |
| Wales | 297.5 | 284.7 | 582.2 | 2 | 272.1 | 240.6 | 512.7 | 2 |
| West Midlands | 908.9 | 761.3 | 1.670,2 | 7 | 706.9 | 629,8 | 1.336,7 | 7 |
| Yorks and Humberside | 335,5 | 517.7 | 853.2 | 4 | 366,8 | 438.8 | 805.6 | 4 |
| Total loans before provisions | 13.081,5 | 10.483,4 | 23.564,9 | 100 | 11.941,1 | 9.106.8 | 21.047,9 | 100 |
- risk management(Continuation)
| Pursue | Pursue | |||||
| 2022 | 2021 | |||||
| Region | Mio. £ | % | Mio. £ | % | ||
| East Anglia | 375.6 | 4 | 301.3 | 3 | ||
| East Midlands | 501.4 | 5 | 439.4 | 5 | ||
| Großbezirk London | 4.491,2 | 42 | 3.989,0 | 43 | ||
| northeast | 137,0 | 1 | 123.9 | 1 | ||
| northwest | 702.4 | 7 | 586.4 | 6 | ||
| Northern Ireland | 10.0 | - | 10.8 | - | ||
| Scotland | 31.8 | - | 29.0 | - | ||
| South East | 2.353,2 | 22 | 2.300,4 | 24 | ||
| southwest | 740.2 | 7 | 688,5 | 7 | ||
| Wales | 237.9 | 2 | 218.8 | 2 | ||
| West Midlands | 760.4 | 7 | 570.6 | 6 | ||
| Yorks and Humberside | 272.4 | 3 | 282.1 | 3 | ||
| Total loans before provisions | 10.613,5 | 100 | 9.540,2 | 100 | ||
Approach to measuring credit quality
The Group classifies the credit quality of loans and advances to customers into internal risk classes based on the 12-month PD calculated as of the balance sheet date. The PDs comprise a combination of internal behavioral and credit reporting characteristics and are aligned with capital models to generate the risk grades, which are then further grouped into the following credit quality segments:
- Excellent quality - when there is a very high probability that the asset will be recovered in full with negligible or very low risk of default.
- Good quality - when there is a high probability of the asset being recovered in full with a low risk of default.
- Satisfactory quality - when the assets present a moderate risk of default.
- Lower quality – when the assets require closer monitoring and the risk of default is of greater concern.
The following tables show the credit risk quality ratings of loans and advances to customers according to IFRS 9 levels. The assessment of whether the credit risk has increased significantly since initial recognition is performed for each reporting period for the term of the loan. Loans and receivables to customers originally booked with very low PDs and classified as excellent quality loans may experience SICR and therefore be moved to Stage 2. Such loans can still be classified as excellent quality loans if they meet the overall criteria.
- risk management(Continuation)
In 2022, the group developed capital models under the IRB program. As a result, the disclosures below are now aligned with internal capital models and rating systems.
Group figures for 2021 have been updated to reflect the revised alignment to capital models, which compared to the disclosures in the 2021 annual report resulted in a decrease of 11% against the excellent quality of the OSB segment, a 6% increase in good and one Increase of 3% has resulted in Satisfactory and an increase of 2% in Lower. CCFS segment numbers remain largely aligned with minor movements between segments.
| stage 1 | Level 2 | level 3 | level 3 (POCI) | In total | PD in the lower area | PD in the upper area | |
| Group 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | % | % |
| OSB | |||||||
| Excellent | 4.136,6 | 470.6 | - | - | 4.607,2 | - | 0,3 |
| Gut | 5.848,5 | 1.248,4 | - | - | 7.096,9 | 0,3 | 2.0 |
| satisfactory | 331.8 | 374.2 | - | - | 706.0 | 2.0 | 7.4 |
| Lower | 29.9 | 416.5 | - | - | 446.4 | 7.4 | 100.0 |
| disabled | - | - | 349.7 | - | 349.7 | 100.0 | 100.0 |
| POCI | - | - | - | 38.5 | 38.5 | 100.0 | 100.0 |
| CCFS | |||||||
| Excellent | 5.800,2 | 910.1 | - | - | 6.710,3 | - | 0,3 |
| Gut | 2.394,2 | 668.2 | - | - | 3.062,4 | 0,3 | 2.0 |
| satisfactory | 151.4 | 143.9 | - | - | 295.3 | 2.0 | 7.4 |
| Lower | 29.7 | 185.2 | - | - | 214.9 | 7.4 | 100.0 |
| disabled | - | - | 156,0 | - | 156,0 | 100.0 | 100.0 |
| POCI | - | - | - | 44.5 | 44.5 | 100.0 | 100.0 |
| 18.722,3 | 4.417,1 | 505.7 | 83,0 | 23.728,1 |
| stage 1 | Level 2 | level 3 | level 3 (POCI) | In total | PD in the lower area | PD in the upper area | |
| Group 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | % | % |
| OSB | |||||||
| Excellent | 3.949,2 | 159.6 | - | - | 4.108.8 | - | 0,3 |
| Gut | 6.045,0 | 486,8 | - | - | 6.531,8 | 0,3 | 2.0 |
| satisfactory | 435.9 | 237.2 | - | - | 673.1 | 2.0 | 7.4 |
| Lower | 72.6 | 260.2 | - | - | 332.8 | 7.4 | 100.0 |
| disabled | - | - | 365.6 | - | 365.6 | 100.0 | 100.0 |
| POCI | - | - | - | 45.2 | 45.2 | 100.0 | 100.0 |
| CCFS | |||||||
| Excellent | 5.102.2 | 443.2 | - | - | 5.545,4 | - | 0,3 |
| Gut | 2.468,5 | 487,5 | - | - | 2.956,0 | 0,3 | 2.0 |
| satisfactory | 96.2 | 171.5 | - | - | 267.7 | 2.0 | 7.4 |
| Lower | 18.8 | 167.6 | - | - | 186.4 | 7.4 | 100.0 |
| disabled | - | - | 99.1 | - | 99.1 | 100.0 | 100.0 |
| POCI | - | - | - | 52.2 | 52.2 | 100.0 | 100.0 |
| 18.188.4 | 2.413,6 | 464.7 | 97.4 | 21.164.1 |
- risk management(Continuation)
2021 company numbers have been updated to reflect the revised alignment to capital models, which compared to the 2021 annual report disclosures resulted in a 2% increase in OSB segment quality, a 7% decrease in good quality, an increase of 3% Satisfactory and a 3% increase from Lower.
| stage 1 | Level 2 | level 3 | level 3 (POCI) | In total | PD in the lower area | PD in the upper area | |
| Company 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | % | % |
| Excellent | 3.936,9 | 470.6 | - | - | 4.407,5 | - | 0,3 |
| Gut | 3.686,0 | 1.146,2 | - | - | 4.832,2 | 0,3 | 2.0 |
| satisfactory | 287.1 | 342.8 | - | - | 629.9 | 2.0 | 7.4 |
| Lower | 29.0 | 393,5 | - | - | 422.5 | 7.4 | 100.0 |
| disabled | - | - | 286.9 | - | 286.9 | 100.0 | 100.0 |
| POCI | - | - | - | 34.5 | 34.5 | 100.0 | 100.0 |
| 7.939,0 | 2.353,1 | 286.9 | 34.5 | 10.613,5 | |||
| Company 2021 | |||||||
| Excellent | 3.777,2 | 159.6 | - | - | 3.936,8 | - | 0,3 |
| Gut | 3.985,4 | 363.7 | - | - | 4.349,1 | 0,3 | 2.0 |
| satisfactory | 387.6 | 220.2 | - | - | 607.8 | 2.0 | 7.4 |
| Lower | 70.5 | 241.0 | - | - | 311.5 | 7.4 | 100.0 |
| disabled | - | - | 294,0 | - | 294,0 | 100.0 | 100.0 |
| POCI | - | - | - | 41.0 | 41.0 | 100.0 | 100.0 |
| 8.220,7 | 984,5 | 294,0 | 41.0 | 9.540,2 |
The following tables show the Group's other financial assets and derivatives by credit rating. The credit rating is based on the external credit rating of the counterparty; AAA to AA- are rated excellent; A+ to A- are rated Good; and BBB+ to BBB- are rated as Satisfactory.
| Excellent | Gut | satisfactory | In total | |
| Group 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| investment securities | 412.9 | - | - | 412.9 |
| Receivables from credit institutions | 2.923,2 | 435.4 | 7.1 | 3.365,7 |
| Derivative Assets | 400.1 | 488,0 | - | 888.1 |
| 3.736,2 | 923.4 | 7.1 | 4.666,7 |
| Excellent | Gut | satisfactory | In total | |
| Group 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| investment securities | 491.4 | - | - | 491.4 |
| Receivables from credit institutions | 2.688,9 | 151.8 | 2.9 | 2.843,6 |
| Derivative Assets | 43.0 | 142.7 | - | 185.7 |
| 3.223,3 | 294.5 | 2.9 | 3.520,7 |
- risk management(Continuation)
| Excellent | Gut | satisfactory | In total | |
| Company 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| investment securities | 211.4 | - | - | 211.4 |
| Receivables from credit institutions | 1.409,6 | 96,5 | - | 1.506,1 |
| Derivative Assets | 114.9 | 119.1 | - | 234,0 |
| 1.735,9 | 215.6 | - | 1.951,5 |
| Excellent | Gut | satisfactory | In total | |
| Company 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| investment securities | 16.2 | - | - | 16.2 |
| Receivables from credit institutions | 1.373,6 | 31.4 | - | 1.405,0 |
| Derivative Assets | 9.7 | 40.8 | - | 50.5 |
| 1.399,5 | 72.2 | - | 1.471,7 |
Credit risk–Receivables from banks and securities classified as fixed assets
The Group holds treasury instruments to meet liquidity needs and for general business purposes. The credit risk from these investments is closely monitored and managed by the Group's treasury function. In managing these assets, Group Treasury acts within the guidelines set out in the ALCO-approved Group Market and Liquidity Risk Policy and performance is monitored and reported monthly to ALCO, including through the use of an internally developed rating model of counterparty credit default swap spreads.
The group has limited exposure to emerging markets (Indian operations) and non-investment grade debt. The ALCO is responsible for approving treasury counterparties.
During the year the average monthly balance of cash on hand, bank loans and advances and investment securities was £3,496.9m (2021: £2,926.0m).
The following tables show the categories of loans and advances to banks and securities held as fixed assets of the Group:
| group | group | Pursue | Pursue | |||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Mio. £ | % | Mio. £ | % | Mio. £ | % | Mio. £ | % | |
| BoE1 | 2.869,3 | 76 | 2.555,9 | 76 | 1.366,0 | 80 | 1.350,0 | 95 |
| other banks | 496.4 | 13 | 287.7 | 9 | 140.1 | 8 | 55,0 | 4 |
| central government | 149.8 | 4 | 252.1 | 8 | 149.8 | 8 | - | - |
| securitization | 263.1 | 7 | 239.3 | 7 | 61.6 | 4 | 16.2 | 1 |
| In total | 3.778,6 | 100 | 3.335,0 | 100 | 1.717,5 | 100 | 1.421,2 | 100 |
- Balances with the BoE include £62.8m (2021: £59.5m) of the group and £37.8m (2021: £36.5m) of the company, which are included in the cash ratio Deposit to be held.
- risk management(Continuation)
The tables below show the geographical exposure of the Group's loans and advances to banks and long-term securities:
| group | group | Pursue | Pursue | |||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Mio. £ | % | Mio. £ | % | Mio. £ | % | Mio. £ | % | |
| Great Britain | 3.765,7 | 100 | 3.328,0 | 100 | 1.717,5 | 100 | 1.421,2 | 100 |
| If | 12.9 | - | 7.0 | - | - | - | - | - |
| In total | 3.778,6 | 100 | 3.335,0 | 100 | 1.717,5 | 100 | 1.421,2 | 100 |
The group monitors risk concentrations based on a variety of criteria, including asset class, industry and geography. In order to avoid refinancing risks in connection with individual counterparties, sectors or geographic regions, the Board of Directors has set appropriate limits.
For more information on credit risk, see page 51.
liquidity risk
Liquidity risk is the risk that there will not be sufficient liquid funds to meet obligations as they come due, or that the cost of raising liquid funds will become excessive.
The Group's approach to liquidity risk management is to maintain sufficient cash and cash equivalents to cover cash flow imbalances and funding fluctuations, to maintain full public confidence in the Group's solvency and to enable the Group to meet its financial obligations as they come due. This is achieved by maintaining prudent levels of cash and controlling business growth. The group has opened overnight accounts with the BoE and has access to its conditional liquidity facilities.
The Board has delegated responsibility for liquidity management to the Chief Executive Officer, supported by the ALCO, while day-to-day operations are delegated to Treasury as outlined in the Group Market and Liquidity Risk Policy. The Management Board is responsible for setting risk appetite limits on the amount and maturity profile of funding and for monitoring the composition of the Group's financial position. The following tables analyze the Group's financial assets and liabilities based on the remaining contractual term as of the balance sheet date.
The group also monitors a set of triggers, defined in the recovery plan, which aim to anticipate liquidity constraints to allow sufficient time for management actions to take effect. These are monitored daily by the risk team, with breaches reported immediately to the Group Chief Risk Officer, Chief Executive Officer, Chief Financial Officer and Group Treasurer.
- risk management(Continuation)
The following tables show the maturity profile of the Group's financial assets and liabilities based on the contractual maturities as of the balance sheet date:
| group | book value | Upon request | Less than 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 19.755,8 | 6.770,7 | 2.632,4 | 7.807,7 | 2.545,0 | - |
| Liabilities to credit institutions | 5.092,9 | - | 191.4 | 310.3 | 4.218,9 | 372.3 |
| Amounts owed to other customers | 113.1 | - | 29.7 | 76.5 | 6.9 | - |
| Derivative Liabilities | 106.6 | - | 7.5 | 46.3 | 43.8 | 9.0 |
| Issued Notes | 265.9 | - | 0,3 | - | 265.6 | - |
| lease liabilities | 9.9 | - | 0,4 | 1.3 | 7.6 | 0,6 |
| Subordinated Liabilities | - | - | - | - | - | - |
| PSBs | 15.2 | - | - | - | 15.2 | - |
| Total Liabilities | 25.359,4 | 6.770,7 | 2.861,7 | 8.242.1 | 7.103.0 | 381.9 |
| Financial assets according to Art | ||||||
| Cash on hand | 0,4 | 0,4 | - | - | - | - |
| Receivables from credit institutions | 3.365,7 | 3.104,0 | 71.4 | - | - | 190.3 |
| investment securities | 412.9 | 0,5 | 144.8 | 22.1 | 245.5 | - |
| Loans and advances to customers | 23.612,7 | 2.3 | 223.8 | 421.8 | 1.341,6 | 21.623,2 |
| Derivative Assets | 888.1 | - | 2.7 | 55.5 | 828.2 | 1.7 |
| total assets | 28.279,8 | 3.107.2 | 442.7 | 499.4 | 2.415,3 | 21.815,2 |
| Cumulative Liquidity Gap | (3.663,5) | (6.082,5) | (13.825,2) | (18.512,9) | 2.920,4 |
- risk management(Continuation)
| group | book value | Upon request | Less than 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 17.526,4 | 5.004,6 | 2.350,3 | 7.458,5 | 2.713,0 | - |
| Liabilities to credit institutions | 4.319,6 | 42.1 | 1.0 | - | 4.203.2 | 73.3 |
| Amounts owed to other customers | 92.6 | 14.8 | 8.1 | 45.0 | 24.7 | - |
| Derivative Liabilities | 19.7 | - | 0,7 | 10.4 | 8.6 | - |
| Issued Notes | 460.3 | - | - | - | 460.3 | - |
| lease liabilities | 10.7 | - | 0,3 | 0,6 | 3.7 | 6.1 |
| Subordinated Liabilities | 10.3 | - | - | 0,1 | 10.2 | - |
| PSBs | 15.2 | - | - | - | 15.2 | - |
| Total Liabilities | 22.454,8 | 5.061,5 | 2.360,4 | 7.514,6 | 7.438,9 | 79.4 |
| Financial assets according to Art | ||||||
| Cash on hand | 0,5 | 0,5 | - | - | - | - |
| Receivables from credit institutions | 2.843,6 | 2.667,8 | 52,0 | 10.1 | - | 113.7 |
| investment securities | 491.4 | - | 172.7 | 6.1 | 312.6 | - |
| Loans and advances to customers | 21.080,3 | 3.3 | 163.8 | 383,5 | 1.327,4 | 19.202.3 |
| Derivative Assets | 185.7 | - | 0,1 | 5.4 | 179.9 | 0,3 |
| total assets | 24.601,5 | 2.671,6 | 388.6 | 405.1 | 1.819,9 | 19.316.3 |
| Cumulative Liquidity Gap | (2.389,9) | (4.361,7) | (11.471,2) | (17.090,2) | 2.146,7 |
- risk management(Continuation)
| Pursue | book value | Upon request | Less than 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 11.132.2 | 5.319.1 | 955,8 | 3.695,8 | 1.161,5 | - |
| Liabilities to credit institutions | 2.568,5 | - | 173.4 | 0,3 | 2.394,8 | - |
| Amounts owed to other customers | 0,5 | - | 0,5 | - | - | - |
| Derivative Liabilities | 63.8 | - | 4.1 | 24.0 | 29.8 | 5.9 |
| lease liabilities | 3.6 | - | 0,2 | 0,5 | 2.8 | 0,1 |
| Subordinated Liabilities | - | - | - | - | - | - |
| PSBs | 15.2 | - | - | - | 15.2 | - |
| Total Liabilities | 13.783,8 | 5.319.1 | 1.134,0 | 3.720,6 | 3.604,1 | 6.0 |
| Financial assets according to Art | ||||||
| Cash on hand | 0,4 | 0,4 | - | - | - | - |
| Receivables from credit institutions | 1.506,1 | 1.468,3 | - | - | - | 37.8 |
| investment securities | 211.4 | 0,5 | 139.9 | 9.9 | 61.1 | - |
| Loans and advances to customers | 10.531,9 | - | 98,0 | 99,9 | 362.7 | 9.971,3 |
| Derivative Assets | 234,0 | - | 0,8 | 22.5 | 210.2 | 0,5 |
| total assets | 12.483,8 | 1.469,2 | 238.7 | 132.3 | 634,0 | 10.009.6 |
| Cumulative Liquidity Gap | (3.849,9) | (4.745,2) | (8.333,5) | (11.303,6) | (1.300,0) |
- risk management(Continuation)
| Pursue | book value | Upon request | Less than 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 9.739,4 | 3.157,5 | 1.361,7 | 3.889,5 | 1.330,7 | - |
| Liabilities to credit institutions | 2.420,7 | 42.1 | - | - | 2.378,6 | - |
| Amounts owed to other customers | 5.7 | - | 0,5 | 5.2 | - | - |
| Derivative Liabilities | 8.7 | - | 0,3 | 4.6 | 3.8 | - |
| lease liabilities | 3.9 | - | - | - | 0,3 | 3.6 |
| Subordinated Liabilities | 10.3 | - | - | 0,1 | 10.2 | - |
| PSBs | 15.2 | - | - | - | 15.2 | - |
| Total Liabilities | 12.203,9 | 3.199,6 | 1.362,5 | 3.899,4 | 3.738,8 | 3.6 |
| Financial assets according to Art | ||||||
| Cash on hand | 0,5 | 0,5 | - | - | - | - |
| Receivables from credit institutions | 1.405,0 | 1.368,5 | - | - | - | 36.5 |
| investment securities | 16.2 | - | - | - | 16.2 | - |
| Loans and advances to customers | 9.476,4 | - | 40.8 | 126.8 | 337.1 | 8.971,7 |
| Derivative Assets | 50.5 | - | - | 1.9 | 48.4 | 0,2 |
| total assets | 10.948,6 | 1.369,0 | 40.8 | 128.7 | 401.7 | 9.008.4 |
| Cumulative Liquidity Gap | (1.830,6) | (3.152,3) | (6.923,0) | (10.260.1) | (1.255,3) |
- risk management(Continuation)
Liquidity risk – undiscounted contractual cash flows
The following tables provide an analysis of the Group's gross contractual undiscounted cash flows, derived using interest rates and contractual maturities at the balance sheet date, excluding the impact of prepayments or non-payments:
| group | book value | gross inflow/outflow | Up to 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 19.755,8 | 20.083,0 | 9.566,2 | 7.911,0 | 2.605,8 | - |
| Liabilities to credit institutions | 5.092,9 | 5.459,8 | 227.1 | 410.9 | 4.449,5 | 372.3 |
| Amounts owed to other customers | 113.1 | 113.1 | 29.7 | 76.5 | 6.9 | - |
| Derivative Liabilities | 106.6 | 103.9 | 16.2 | 39.1 | 46.7 | 1.9 |
| Issued Notes | 265.9 | 277.3 | 34.4 | 64.5 | 178.4 | - |
| lease liabilities | 9.9 | 11.4 | 0,5 | 1.5 | 8.8 | 0,6 |
| Subordinated Liabilities | - | - | - | - | - | - |
| PSBs | 15.2 | 16.1 | 0,3 | 0,3 | 15.5 | - |
| Total Liabilities | 25.359,4 | 26.064,6 | 9.874,4 | 8.503,8 | 7.311,6 | 374,8 |
| Off-balance sheet loan commitments | 1.212,2 | 1.212,2 | 1.212,2 | - | - | - |
| Financial assets according to Art | ||||||
| Cash on hand | 0,4 | 0,4 | 0,4 | - | - | - |
| Receivables from credit institutions | 3.365,7 | 3.365,7 | 3.175,4 | - | - | 190.3 |
| investment securities | 412.9 | 444.3 | 148.2 | 30.2 | 265.9 | - |
| Loans and advances to customers | 23.612,7 | 57.940,1 | 430.7 | 1.657,2 | 8.028,9 | 47.823,3 |
| Derivative Assets | 888.1 | 820.5 | 76.9 | 259.4 | 484.6 | (0,4) |
| total assets | 28.279,8 | 62.571,0 | 3.831,6 | 1.946,8 | 8.779,4 | 48.013.2 |
- risk management(Continuation)
| group | book value | gross inflow/outflow | Up to 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 17.526,4 | 17.554,7 | 9.305,7 | 5.883,7 | 2.365,3 | - |
| Liabilities to credit institutions | 4.319,6 | 4.359,8 | 45.2 | 5.2 | 4.236,1 | 73.3 |
| Amounts owed to other customers | 92.6 | 92.6 | 22.9 | 45.0 | 24.7 | - |
| Derivative Liabilities | 19.7 | 6.0 | (0,4) | 5.1 | 1.2 | 0,1 |
| Issued Notes | 460.3 | 473.2 | 25.1 | 75,0 | 373.1 | - |
| lease liabilities | 10.7 | 13.1 | 0,6 | 1.6 | 7.7 | 3.2 |
| Subordinated Liabilities | 10.3 | 12.2 | 0,2 | 0,7 | 11.3 | - |
| PSBs | 15.2 | 16.8 | 0,2 | 0,5 | 16.1 | - |
| Total Liabilities | 22.454,8 | 22.528,4 | 9.399,5 | 6.016,8 | 7.035,5 | 76.6 |
| Off-balance sheet loan commitments | 1.155,3 | 1.155,3 | 1.155,3 | - | - | - |
| Financial assets according to Art | ||||||
| Cash on hand | 0,5 | 0,5 | 0,5 | - | - | - |
| Receivables from credit institutions | 2.843,6 | 2.843,6 | 2.756,3 | 10.1 | - | 77.2 |
| investment securities | 491.4 | 497,0 | 172.6 | 108.8 | 215.6 | - |
| Loans and advances to customers | 21.080,3 | 41.290.2 | 374.4 | 1.331,0 | 5.711,9 | 33.872,9 |
| Derivative Assets | 185.7 | 75.8 | (1.4) | 11.2 | 66,0 | - |
| total assets | 24.601,5 | 44.707.1 | 3.302.4 | 1.461,1 | 5.993,5 | 33.950,1 |
- risk management(Continuation)
| Pursue | book value | gross inflow/outflow | Up to 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 11.132.2 | 11.326,5 | 6.431,9 | 3.712,8 | 1.181,8 | - |
| Liabilities to credit institutions | 2.568,5 | 2.751,0 | 190.4 | 50.9 | 2.509,7 | - |
| Amounts owed to other customers | 0,5 | 0,5 | 0,5 | - | - | - |
| Derivative Liabilities | 63.8 | 67.3 | 3.9 | 30.5 | 31.0 | 1.9 |
| lease liabilities | 3.6 | 3.9 | 0,2 | 0,6 | 3.0 | 0,1 |
| Subordinated Liabilities | - | - | - | - | - | - |
| PSBs | 15.2 | 16.1 | 0,3 | 0,3 | 15.5 | - |
| Total Liabilities | 13.783,8 | 14.165.3 | 6.627,2 | 3.795,1 | 3.741,0 | 2.0 |
| Off-balance sheet loan commitments | 559.1 | 559.1 | 559.1 | - | - | - |
| Financial assets according to Art | ||||||
| Cash on hand | 0,4 | 0,4 | 0,4 | - | - | - |
| Receivables from credit institutions | 1.506,1 | 1.506,1 | 1.468,3 | - | - | 37.8 |
| investment securities | 211.4 | 211.7 | 140.7 | 10.0 | 61.0 | - |
| Loans and advances to customers | 10.531,9 | 26.949,1 | 158.8 | 764.1 | 3.457,4 | 22.568,8 |
| Derivative Assets | 234,0 | 252.7 | 4.4 | 72.9 | 175.8 | (0,4) |
| total assets | 12.483,8 | 28.920,0 | 1.772,6 | 847.0 | 3.694,2 | 22.606.2 |
- risk management(Continuation)
| Pursue | book value | gross inflow/outflow | Up to 3 months | 3 - 12 Fun | 15 years | More than 5 years |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| Financial liability according to Art | ||||||
| Amounts owed to retail clients | 9.739,4 | 9.720,5 | 6.467,9 | 2.288,6 | 964,0 | - |
| Liabilities to credit institutions | 2.420,7 | 2.443,3 | 43.3 | 1.8 | 2.398,2 | - |
| Amounts owed to other customers | 5.7 | 5.7 | 0,5 | 5.2 | - | - |
| Derivative Liabilities | 8.7 | 8.2 | 0,1 | 5.0 | 3.0 | 0,1 |
| lease liabilities | 3.9 | 4.4 | 0,2 | 0,5 | 2.4 | 1.3 |
| Subordinated Liabilities | 10.3 | 10.3 | 0,2 | 0,1 | 10.0 | - |
| PSBs | 15.2 | 15.2 | 0,2 | - | 15.0 | - |
| Total Liabilities | 12.203,9 | 12.207.6 | 6.512,4 | 2.301.2 | 3.392,6 | 1.4 |
| Off-balance sheet loan commitments | 577,5 | 577,5 | 577,5 | - | - | - |
| Financial assets according to Art | ||||||
| Cash on hand | 0,5 | 0,5 | 0,5 | - | - | - |
| Receivables from credit institutions | 1.405,0 | 1.405,0 | 1.405,0 | - | - | - |
| investment securities | 16.2 | 16.3 | 0,7 | 0,1 | 15.5 | - |
| Loans and advances to customers | 9.476,4 | 19.793,6 | 129,0 | 659,0 | 2.531,0 | 16.474,6 |
| Derivative Assets | 50.5 | 50.5 | (0,6) | 3.3 | 47.8 | - |
| total assets | 10.948,6 | 21.265,9 | 1.534,6 | 662.4 | 2.594,3 | 16.474,6 |
The actual repayment profile of retail deposits may differ from the above analysis due to the possibility of early withdrawal with penalties.
Cash flows on PSBs are disclosed until the next interest rate reset date.
The actual repayment profile of loans and advances to customers may differ from the above analysis as many mortgage loans are repaid before the contractual end date.
- risk management(Continuation)
Liquidity risk – strain on assets
The extent of the asset burden is monitored by ALCO. The following tables provide an analysis of the Group's encumbered and unencumbered assets:
| group | |||||
| 2022 | |||||
| Burdened | unencumbered | ||||
| Pledged as security | Others1 | Available as a deposit | Others | In total | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Cash on hand | - | - | 0,4 | - | 0,4 |
| Receivables from credit institutions | 237.4 | 174.6 | 2.806,5 | 147.2 | 3.365,7 |
| investment securities | 46.4 | - | 366,5 | - | 412.9 |
| Loans and advances to customers2 | 6.705,1 | - | 16.424,5 | 483.1 | 23.612,7 |
| Derivative Assets | - | - | - | 888.1 | 888.1 |
| Non-Financial Assets | - | - | - | (712.3) | (712.3) |
| 6.988,9 | 174.6 | 19.597,9 | 806.1 | 27.567,5 | |
| group | |||||
| 2021 | |||||
| Burdened | unencumbered | ||||
| Pledged as security | Others1 | Available as a deposit | Others | In total | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Cash on hand | - | - | 0,5 | - | 0,5 |
| Receivables from credit institutions | 99,9 | 107.5 | 2.496,4 | 139.8 | 2.843,6 |
| investment securities | 121.8 | - | 369.6 | - | 491.4 |
| Loans and advances to customers2 | 6.373,7 | - | 2.746,3 | 11.960,3 | 21.080,3 |
| Derivative Assets | - | - | - | 185.7 | 185.7 |
| Non-Financial Assets | - | - | - | (69,0) | (69,0) |
| 6.595,4 | 107.5 | 5.612,8 | 12.216,8 | 24.532,5 | |
- Represents assets that are not pledged but which the Group believes cannot be used to secure funding for legal or other reasons.
- Unencumbered amounts due from customers classified as Other may still be used as collateral; registered outside the UK (Jersey and Guernsey), not secured by property or distressed.
- risk management(Continuation)
| Pursue | |||||
| 2022 | |||||
| Burdened | unencumbered | ||||
| Pledged as security | Others1 | Available as a deposit | Others | In total | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Cash on hand | - | - | 0,4 | - | 0,4 |
| Receivables from credit institutions | 109.6 | 37.8 | 1.328,2 | 30.5 | 1.506,1 |
| investment securities | 34.8 | - | 176.6 | - | 211.4 |
| Loans and advances to customers2 | 3.419,8 | - | 6.989,2 | 122.9 | 10.531,9 |
| Derivative Assets | - | - | - | 234,0 | 234,0 |
| Non-Financial Assets | - | - | - | 3.120.1 | 3.120.1 |
| 3.564,2 | 37.8 | 8.494,4 | 3.507,5 | 15.603,9 | |
| Pursue | |||||
| 2021 | |||||
| Burdened | unencumbered | ||||
| Pledged as security | Others1 | Available as a deposit | Others | In total | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Cash on hand | - | - | 0,5 | - | 0,5 |
| Receivables from credit institutions | 36.7 | 36.5 | 1.313,5 | 18.3 | 1.405,0 |
| investment securities | - | - | 16.2 | - | 16.2 |
| Loans and advances to customers2 | 3.678,9 | - | - | 5.797,5 | 9.476,4 |
| Derivative Assets | - | - | - | 50.5 | 50.5 |
| Non-Financial Assets | - | - | - | 3.135,9 | 3.135,9 |
| 3.715,6 | 36.5 | 1.330,2 | 9.002.2 | 14.084,5 | |
- Represents assets that are not pledged but which the Group believes cannot be used to secure funding for legal or other reasons.
- Unencumbered amounts due from customers classified as Other may still be used as collateral; are not secured by real estate or are in distress.
- risk management(Continuation)
Liquidity Risk – Liquidity Reserves
The following tables analyze the Group's cash reserves, considering book value equal to fair value:
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| Unencumbered balances with central banks | 2.806,5 | 2.496,4 | 1.328,2 | 1.313,5 |
| Unencumbered cash and balances at other banks | 147.2 | 139.8 | 30.5 | 18.3 |
| Other cash and cash equivalents | 0,4 | 0,5 | 0,4 | 0,5 |
| Unencumbered Investment Securities | 366,5 | 369.6 | 176.6 | 16.2 |
| 3.320,6 | 3.006,3 | 1.535,7 | 1.348,5 |
market risk
Market risk is the risk of an adverse change in the Group's earnings or net assets resulting from changes in interest rates, exchange rates or other market prices. Market risks exist to a certain extent in all of the Group's businesses. The Group recognizes that effective management of market risk is essential to maintaining stable revenues and maintaining shareholder value.
They are dangerous
The primary market risk to which the Group is exposed is interest rate risk. Interest rate risk is the risk of loss due to adverse movements in the overall interest rate level. It arises from mismatches in the timing of revaluation of assets and liabilities, both on and off-balance sheet. The Group does not maintain a trading book and does not take speculative interest rate positions, therefore all interest rate risk is in the banking book (interest rate risk in the banking book (IRRBB)). IRRBB is most prevalent in mortgage loans and fixed income personal deposits. Risk is continuously mitigated through the use of natural netting between mortgages and savings of similar maturities, interest rate derivatives and reserve allocations.
Currently, interest rate risk is managed separately for OSB and CCFS due to the use of different treasury management and asset and liability management (ALM) systems. However, the methodology for determining risk appetite was standardized across the Group in 2020. Both banks use an economic value-at-risk approach and an earnings-at-risk approach for interest rate risk and basis risk. Interest rate sensitivity is influenced by behavioral assumptions used by the Group; The most important of these are upfront payments and pipeline drawdowns. Expected prepayments are regularly monitored and modeled on the basis of historical analyses. The reserve allocation strategy is approved by ALCO and is determined to reflect the current balance sheet and future plans.
The Economic Value at Risk is measured using the effects of six different internally derived interest rate scenarios. The internal scenarios are defined by ALCO and are based on three "shapes" of cornering movement (shift, twist and flex). Historical data is used to match the severity of the scenarios to the Group's risk appetite. The Management Board has set interest rate risk limits of 2.25% and 1% of CET 1 capital for OSB and CCFS, respectively.
- risk management(Continuation)
The table below shows the maximum decreases in net interest income under these scenarios after accounting for the derivatives:
| 2022 | 2021 | |
| group | Mio. £ | Mio. £ |
| OSB | 13.5 | 9.9 |
| CCFS | 1.9 | 1.1 |
| 15.4 | 11.0 |
Earnings risk as at 31 December 2022 is measured as the impact of a +/-100 basis point parallel shift in interest rates on the Group's expected profitability over the next 12 months. The risk tolerance limit is 4% of net interest for full-year income. The following table shows the maximum decreases after taking the derivatives into account:
| 2022 | 2021 | |
| group | Mio. £ | Mio. £ |
| OSB1 | 7.5 | 0,5 |
| CCFS1,2 | 8.8 | (0,4) |
| 16.3 | 0,1 |
- Earnings risk as at 31 December 2021 was measured as the impact of a +/-50 basis point parallel shift in interest rates on the Group's expected profitability over the next 12 months. The risk-taking limit was 2% of net interest income for the full year.
- Increases for CCFS 2021 due to product floor yield increases in both the +50bps and -50bps scenarios.
Earnings risk, measured as the impact of a +/-100 basis point parallel shift in interest rates on the Group's expected profitability over the next 3 years. The risk tolerance limit is 4% of the full-year net interest income.
| 2022 | 20211 | |
| Mio. £ | Mio. £ | |
| OSB | 26.2 | - |
| CCFS | 24.1 | - |
| 50.3 | - |
- not measured in 2021.
The Group is also exposed to basis risk. Basis risk is the risk of loss from adverse interest rate divergence. It arises when assets and liabilities are re-evaluated by various floating rate indices. These indices may be market rates (e.g. bank base rate or SONIA) or administered (e.g. group SVR, other discretionary variable rates or received on overnight deposit accounts with other banks).
- risk management(Continuation)
The Group measures basis risk using the impact of four scenarios on net interest income over a one-year period, including movements such as diverging basis, daily and maturity SONIA rates. Historical data is used to match the severity of the scenarios to the Group's risk appetite. The Board has limited basis risk to 2.5% of net interest income for the full year. The following table shows the maximum decreases in net interest income as of December 31, 2022 and 2021:
| 2022 | 2021 | |
| group | Mio. £ | Mio. £ |
| OSB | 5.8 | 3.2 |
| CCFS | 4.5 | 3.8 |
| 10.3 | 7.0 |
exchange rate risk
The Group has limited foreign exchange risk related to its Indian operations. A 5% increase in exchange rates would have an effect of £0.7m (2021: £0.4m) on profit or loss and £0.5m (2021: £0.5m) on profit or loss lead equity.
Structured Units
The structured entities consolidated in the Group as at 31 December 2022 were Canterbury Finance No.2 plc, Canterbury Finance No.3 plc, Canterbury Finance No.4 plc, Canterbury Finance No.5 plc and CMF 2020-1 plc. These companies have a legal interest in a pool of mortgages used as collateral for issued debt. The transfer of mortgages does not meet derecognition criteria as the Group retained the issued subordinated debt and residual certificates and as such did not materially transfer the risks and rewards of ownership of the securitized mortgages. As a result, the Group is exposed to credit, interest rate and other risks arising from the securitized mortgages.
Cash flows generated by the structured entities are earmarked and used to pay interest and principal on the debt instruments issued in a waterfall order according to the seniority of the bonds. The structured entities are self-funded and the Group has no contractual or constructive obligation to provide further liquidity or financial support.
The structured entities consolidated in the Group as at 31 December 2021 were Canterbury Finance No.2 plc, Canterbury Finance No.3 plc, Canterbury Finance No.4 plc and CMF 2020-1 plc.
- risk management(Continuation)
Unconsolidated Structured Entities
Structured entities sponsored by the Group include Precise Mortgage Funding 2017-1B plc, Charter Mortgage Funding 2017-1 plc, Precise Mortgage Funding 2018-1B plc, Charter Mortgage Funding 2018-1 plc, Precise Mortgage Funding 2019- 1B plc, Canterbury Finance No.1 plc and Precise Mortgage Funding 2020-1B plc.
The Group does not consolidate these structured entities because the Group does not control the entities and is not exposed to the risks and rewards of ownership of the securitized mortgages. The Group has no contractual arrangements with the unconsolidated structured entities other than the facilities detailed in Note 18 servicing the structured entities' mortgage portfolios.
The Group has not provided, has no obligation or intends to provide any assistance to the listed unconsolidated structured entities.
In 2022 the Group received £2.6m in interest income (2021: £1.8m) and £4.3m in service income (2021: £4.4m) from unconsolidated structured entities.
46. Financial instruments and fair values
- Financial assets and financial liabilities
The following table shows the classification of financial instruments on the balance sheet:
| 2022 | ||||||
| Referred to as FVTPL | Mandatory FVTPL | FVOCI | Amortized acquisition cost | Total book value | ||
| group | note | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | - | - | - | 0,4 | 0,4 | |
| Receivables from credit institutions | 17 | - | - | - | 3.365,7 | 3.365,7 |
| investment securities | 18 | 0,5 | - | 149.8 | 262.6 | 412.9 |
| Loans and advances to customers | 19 | 14.6 | - | - | 23.598,1 | 23.612,7 |
| Derivative Assets | 24 | - | 888.1 | - | - | 888.1 |
| Other assets1 | 26 | - | - | - | 1.8 | 1.8 |
| 15.1 | 888.1 | 149.8 | 27.228.6 | 28.281,6 | ||
| liabilities | ||||||
| Amounts owed to retail clients | 32 | - | - | - | 19.755,8 | 19.755,8 |
| Liabilities to credit institutions | 31 | - | - | - | 5.092,9 | 5.092,9 |
| Amounts owed to other customers | 33 | - | - | - | 113.1 | 113.1 |
| Issued Notes | 34 | - | - | - | 265.9 | 265.9 |
| Derivative Liabilities | 24 | - | 106.6 | - | - | 106.6 |
| Other liabilities2 | 36 | - | - | - | 38.1 | 38.1 |
| Subordinated Liabilities | 39 | - | - | - | - | - |
| PSBs | 40 | - | - | - | 15.2 | 15.2 |
| - | 106.6 | - | 25.281,0 | 25.387,6 | ||
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| 2021 | ||||||
| Referred to as FVTPL | Mandatory FVTPL | FVOCI | Amortized acquisition cost | Total book value | ||
| group | note | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | - | - | - | 0,5 | 0,5 | |
| Receivables from credit institutions | 17 | - | - | - | 2.843,6 | 2.843,6 |
| investment securities | 18 | 0,7 | - | 167.6 | 323.1 | 491.4 |
| Loans and advances to customers | 19 | 17.7 | - | - | 21.062,6 | 21.080,3 |
| Derivative Assets | 24 | - | 185.7 | - | - | 185.7 |
| Other assets1 | 26 | - | - | - | 0,9 | 0,9 |
| 18.4 | 185.7 | 167.6 | 24.230,7 | 24.602.4 | ||
| liabilities | ||||||
| Amounts owed to retail clients | 32 | - | - | - | 17.526,4 | 17.526,4 |
| Liabilities to credit institutions | 31 | - | - | - | 4.319,6 | 4.319,6 |
| Amounts owed to other customers | 33 | - | - | - | 92.6 | 92.6 |
| Issued Notes | 34 | - | - | - | 460.3 | 460.3 |
| Derivative Liabilities | 24 | - | 19.7 | - | - | 19.7 |
| Other liabilities2 | 36 | - | - | - | 28.6 | 28.6 |
| Subordinated Liabilities | 39 | - | - | - | 10.3 | 10.3 |
| PSBs | 40 | - | - | - | 15.2 | 15.2 |
| - | 19.7 | - | 22.453,0 | 22.472,7 | ||
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| 2022 | ||||||
| Referred to as FVTPL | Mandatory FVTPL | FVOCI | Amortized acquisition cost | Total book value | ||
| Pursue | note | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | - | - | - | 0,4 | 0,4 | |
| Receivables from credit institutions | 17 | - | - | - | 1.506,1 | 1.506,1 |
| investment securities | 18 | 0,5 | - | 149.8 | 61.1 | 211.4 |
| Loans and advances to customers | 19 | - | - | - | 10.531,9 | 10.531,9 |
| Derivative Assets | 24 | - | 234,0 | - | - | 234,0 |
| Other assets1 | 26 | - | - | - | 2.0 | 2.0 |
| 0,5 | 234,0 | 149.8 | 12.101.5 | 12.485,8 | ||
| liabilities | ||||||
| Amounts owed to retail clients | 32 | - | - | - | 11.132.2 | 11.132.2 |
| Liabilities to credit institutions | 31 | - | - | - | 2.568,5 | 2.568,5 |
| Amounts owed to other customers | 33 | - | - | - | 0,5 | 0,5 |
| Derivative Liabilities | 24 | - | 63.8 | - | - | 63.8 |
| Other liabilities2 | 36 | - | - | - | 23.3 | 23.3 |
| Subordinated Liabilities | 39 | - | - | - | - | - |
| PSBs | 40 | - | - | - | 15.2 | 15.2 |
| - | 63.8 | - | 13.739,7 | 13.803,5 | ||
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| 2021 | ||||||
| Referred to as FVTPL | Mandatory FVTPL | FVOCI | Amortized acquisition cost | Total book value | ||
| Pursue | note | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | - | - | - | 0,5 | 0,5 | |
| Receivables from credit institutions | 17 | - | - | - | 1.405,0 | 1.405,0 |
| investment securities | 18 | 0,7 | - | 15.5 | - | 16.2 |
| Loans and advances to customers | 19 | - | - | - | 9.476,4 | 9.476,4 |
| Derivative Assets | 24 | - | 50.5 | - | - | 50.5 |
| Other assets1 | 26 | - | - | - | - | - |
| 0,7 | 50.5 | 15.5 | 10.881,9 | 10.948,6 | ||
| liabilities | ||||||
| Amounts owed to retail clients | 32 | - | - | - | 9.739,4 | 9.739,4 |
| Liabilities to credit institutions | 31 | - | - | - | 2.420,7 | 2.420,7 |
| Amounts owed to other customers | 33 | - | - | - | 5.7 | 5.7 |
| Derivative Liabilities | 24 | - | 8.7 | - | - | 8.7 |
| Other liabilities2 | 36 | - | - | - | 16.4 | 16.4 |
| Subordinated Liabilities | 39 | - | - | - | 10.3 | 10.3 |
| PSBs | 40 | - | - | - | 15.2 | 15.2 |
| - | 8.7 | - | 12.207.7 | 12.216.4 | ||
- Balance without prepayments.
- The balance excludes deferred income.
The Group has no non-derivative financial assets or financial liabilities classified as held for trading.
- Financial instruments and fair values(Continuation)
- fair values
The following tables summarize the book value and the estimated fair value of financial instruments that are not measured at fair value in the balance sheet:
| 2022 | 2021 | |||
| book value | Estimated Fair Value | book value | Estimated Fair Value | |
| group | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||
| Cash on hand | 0,4 | 0,4 | 0,5 | 0,5 |
| Receivables from credit institutions | 3.365,7 | 3.365,7 | 2.843,6 | 2.843,6 |
| investment securities | 262.6 | 260.5 | 323.1 | 323,8 |
| Loans and advances to customers | 23.598,1 | 22.746,0 | 21.062,6 | 21.079,5 |
| Other assets1 | 1.8 | 1.8 | 0,9 | 0,9 |
| 27.228.6 | 26.374,4 | 24.230,7 | 24.248.3 | |
| liabilities | ||||
| Amounts owed to retail clients | 19.755,8 | 19.693,0 | 17.526,4 | 17.524,9 |
| Liabilities to credit institutions | 5.092,9 | 5.092,9 | 4.319,6 | 4.319,6 |
| Amounts owed to other customers | 113.1 | 113.1 | 92.6 | 92.6 |
| Issued Notes | 265.9 | 265.9 | 460.3 | 460.3 |
| Other liabilities2 | 38.1 | 38.1 | 28.6 | 28.6 |
| Subordinated Liabilities | - | - | 10.3 | 10.6 |
| PSBs | 15.2 | 14.0 | 15.2 | 14.7 |
| 25.281,0 | 25.217,0 | 22.453,0 | 22.451,3 | |
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| 2022 | 2021 | |||
| book value | Estimated Fair Value | book value | Estimated Fair Value | |
| Pursue | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||
| Cash on hand | 0,4 | 0,4 | 0,5 | 0,5 |
| Receivables from credit institutions | 1.506,1 | 1.506,1 | 1.405,0 | 1.405,0 |
| Loans and advances to customers | 10.531,9 | 10.170.4 | 9.476,4 | 9.448,4 |
| Other assets1 | 2.0 | 2.0 | - | - |
| 12.040.4 | 11.678,9 | 10.881,9 | 10.853,9 | |
| liabilities | ||||
| Amounts owed to retail clients | 11.132.2 | 11.095,3 | 9.739,4 | 9.737,3 |
| Liabilities to credit institutions | 2.568,5 | 2.568,5 | 2.420,7 | 2.420,7 |
| Amounts owed to other customers | 0,5 | 0,5 | 5.7 | 5.7 |
| Other liabilities2 | 23.3 | 23.3 | 16.4 | 16.4 |
| Subordinated Liabilities | - | - | 10.3 | 10.6 |
| PSBs | 15.2 | 14.0 | 15.2 | 14.7 |
| 13.739,7 | 13.701.6 | 12.207.7 | 12.205.4 | |
- Balance without prepayments.
- The balance excludes deferred income.
The fair values in these tables are estimated using the valuation methods below. The estimated fair value is stated as of December 31 and may differ materially from the amounts actually paid at the maturity or settlement date of each financial instrument.
Cash on hand
This represents physical cash across the Group's branch network where fair value is considered equal to book value.
Receivables from credit institutions
This mainly represents the Group's working capital checking accounts and money market accounts with central governments and other banks with an original maturity of less than three months. The fair value does not differ significantly from the book value.
investment securities
The fair values of securities in the investment are provided by a third party and are based on the market values of similar financial instruments. The fair value of the securities held as fixed assets at FVTPL is determined using a discounted cash flow model.
Loans and advances to customers
These are essentially secured mortgage loans to customers. The fair value of fixed rate mortgages has been estimated by discounting future cash flows at current market interest rates. Future cash flows include the impact of ECL. The interest rate for adjustable rate mortgages is considered to be equal to current market product rates and therefore fair value is estimated at book value.
- Financial instruments and fair values(Continuation)
Other assets
Other assets shown in the table above exclude prepayments and fair value is considered equal to book value.
Amounts owed to retail clients
The fair value of fixed rate retail deposits has been estimated by discounting future cash flows at current market interest rates. Floating rate retail deposits and overnight deposits are considered to be valued at current market interest rates and therefore fair value is estimated at book value.
Liabilities to credit institutions
This mainly represents amounts drawn under the BoE TFSME and commercial repos. The fair value is considered equal to the book value.
Amounts owed to other customers
This represents savings products for businesses and municipalities. The fair value of fixed income deposits is estimated by discounting future cash flows at current market interest rates. Floating rate deposits are considered to be at current market interest rates and the fair value is estimated at book value.
Issued Notes
Although the Group's issued debt securities are listed, due to the specialization of the market for such instruments and the limited number of participating investors, the quoted prices for an individual debt security may not be indicative of the fair value of the issue as a whole. The fair value does not differ significantly from the book value.
Other liabilities
Other liabilities shown in the table above exclude deferred income and fair value is considered equal to book value.
Subordinated Debt and PSB
The fair value of subordinated liabilities is estimated using quoted market prices for similar instruments at the balance sheet date. The PSBs are listed on the London Stock Exchange with fair value being the quoted market price at the balance sheet date.
- Financial instruments and fair values(Continuation)
- Fair Value Classification
The following tables provide an analysis of the financial assets and financial liabilities measured at fair value in the statement of financial position, grouped into levels 1 through 3, based on the degree to which fair value is observable:
| group | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| investment securities | 150.3 | 150,5 | 149.8 | - | 0,5 | 150.3 |
| Loans and advances to customers | 14.6 | 17.7 | - | - | 14.6 | 14.6 |
| Derivative Assets | 888.1 | 15.662,6 | - | 888.1 | - | 888.1 |
| 1.053,0 | 15.830,8 | 149.8 | 888.1 | 15.1 | 1.053,0 | |
| Financial Liabilities | ||||||
| Derivative Liabilities | 106.6 | 9.518,0 | - | 106.6 | - | 106.6 |
| group | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| investment securities | 168.3 | 166.2 | 152.1 | 15.5 | 0,7 | 168.3 |
| Loans and advances to customers | 17.7 | 19.7 | - | - | 17.7 | 17.7 |
| Derivative Assets | 185.7 | 12.968,3 | - | 185.7 | - | 185.7 |
| 371.7 | 13.154.2 | 152.1 | 201.2 | 18.4 | 371.7 | |
| Financial Liabilities | ||||||
| Derivative Liabilities | 19.7 | 7.378,0 | - | 19.7 | - | 19.7 |
| Pursue | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| investment securities | 150.3 | 150,5 | 149.8 | - | 0,5 | 150.3 |
| Derivative Assets | 234,0 | 4.628,0 | - | 234,0 | - | 234,0 |
| 384.3 | 4.778,5 | 149.8 | 234,0 | 0,5 | 384.3 | |
| Derivative Liabilities | 63.8 | 5.158,0 | - | 63.8 | - | 63.8 |
46. Financial instruments and fair values(Continuation)
| Pursue | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| investment securities | 16.2 | 16.2 | - | 15.5 | 0,7 | 16.2 |
| Derivative Assets | 50.5 | 3.953,0 | - | 50.5 | - | 50.5 |
| 66.7 | 3.969,2 | - | 66,0 | 0,7 | 66.7 | |
| Financial Liabilities | ||||||
| Derivative Liabilities | 8.7 | 3.416,0 | - | 8.7 | - | 8.7 |
Level 1:Fair values based entirely on quoted market prices (unadjusted) in an actively traded market for identical assets and liabilities that the Group can access. Valuation adjustments and tiered discounts are not applied to Level 1 instruments. Because valuations are based on readily available, observable market prices, they are the most reliable, reduce the need for management judgment and estimates, and also reduce the uncertainty associated with determining fair value.
Level 2:Fair values based on one or more quoted prices in markets that are not active, or for which all significant inputs come from directly or indirectly observable market data. These include valuation models used to calculate the present value of expected future cash flows, which can be used either when there is no active market or when quoted prices for similar instruments in active markets are not available.
Level 3:Fair values for which one or more significant inputs are not based on observable market data and the unobservable inputs have a significant impact on the fair value of the instrument. Valuation models that use significant unobservable inputs require a greater degree of management judgment and estimation in determining fair value. Discretionary decisions and management estimates are generally required for the selection of the appropriate valuation model, the determination of the expected future cash flows from the financial instruments to be measured, the determination of the probability of counterparty default and prepayments, the determination of the expected volatilities and correlations and the selection appropriate discount rates.
46. Financial instruments and fair values(Continuation)
The following tables provide an analysis of financial assets and financial liabilities not measured at fair value in the statement of financial position, grouped into levels 1 through 3 based on the degree to which fair value is observable:
| Estimated Fair Value | ||||||
| group | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | 0,4 | 0,4 | - | 0,4 | - | 0,4 |
| Receivables from credit institutions | 3.365,7 | 3.360,9 | - | 3.365,7 | - | 3.365,7 |
| investment securities | 262.6 | 262.1 | - | 260.5 | - | 260.5 |
| Loans and advances to customers | 23.598,1 | 23.646,2 | - | 2.515,0 | 20.231,0 | 22.746,0 |
| Other assets1 | 1.8 | 1.8 | - | 1.8 | - | 1.8 |
| 27.228.6 | 27.271,4 | - | 6.143,4 | 20.231,0 | 26.374,4 | |
| Financial Liabilities | ||||||
| Amounts owed to retail clients | 19.755,8 | 19.620,8 | - | 5.770,3 | 13.922,7 | 19.693,0 |
| Liabilities to credit institutions | 5.092,9 | 5.057,8 | - | 5.092,9 | - | 5.092,9 |
| Amounts owed to other customers | 113.1 | 112.1 | - | - | 113.1 | 113.1 |
| Issued Notes | 265.9 | 265.4 | - | 265.9 | - | 265.9 |
| Other liabilities2 | 38.1 | 38.1 | - | 38.1 | - | 38.1 |
| Subordinated Liabilities | - | - | - | - | ||
| PSBs | 15.2 | 15.0 | 14.0 | - | - | 14.0 |
| 25.281,0 | 25.109.2 | 14.0 | 11.167.2 | 14.035,8 | 25.217,0 | |
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| Estimated Fair Value | ||||||
| group | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | 0,5 | 0,5 | - | 0,5 | - | 0,5 |
| Receivables from credit institutions | 2.843,6 | 2.843,6 | - | 2.843,6 | - | 2.843,6 |
| investment securities | 323.1 | 322.9 | - | 323,8 | - | 323,8 |
| Loans and advances to customers | 21.062,6 | 21.076,7 | - | 3.323,0 | 17.756,5 | 21.079,5 |
| Other assets1 | 0,9 | 0,9 | - | 0,9 | - | 0,9 |
| 24.230,7 | 24.244.6 | - | 6.491,8 | 17.756,5 | 24.248.3 | |
| Financial Liabilities | ||||||
| Amounts owed to retail clients | 17.526,4 | 17.469,0 | - | 6.601.3 | 10.923,6 | 17.524,9 |
| Liabilities to credit institutions | 4.319,6 | 4.318,5 | - | 4.319,6 | - | 4.319,6 |
| Amounts owed to other customers | 92.6 | 92.5 | - | - | 92.6 | 92.6 |
| Issued Notes | 460.3 | 460.2 | - | 460.3 | - | 460.3 |
| Other liabilities2 | 28.6 | 28.6 | - | 28.6 | - | 28.6 |
| Subordinated Liabilities | 10.3 | 10.1 | - | - | 10.6 | 10.6 |
| PSBs | 15.2 | 15.0 | 14.7 | - | - | 14.7 |
| 22.453,0 | 22.393,9 | 14.7 | 11.409,8 | 11.026,8 | 22.451,3 | |
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| Estimated Fair Value | ||||||
| Pursue | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | 0,4 | 0,4 | - | 0,4 | - | 0,4 |
| Receivables from credit institutions | 1.506,1 | 1.504,0 | - | 1.506,1 | - | 1.506,1 |
| Loans and advances to customers | 10.531,9 | 10.668,1 | - | 1.740,9 | 8.429,5 | 10.170.4 |
| Other assets1 | 2.0 | 2.0 | - | 2.0 | - | 2.0 |
| 12.040.4 | 12.174,5 | - | 3.249,4 | 8.429,5 | 11.678,9 | |
| Financial Liabilities | ||||||
| Amounts owed to retail clients | 11.132.2 | 11.052,0 | - | 3.046,3 | 8.049,0 | 11.095,3 |
| Liabilities to credit institutions | 2.568,5 | 2.551,4 | - | 2.568,5 | - | 2.568,5 |
| Amounts owed to other customers | 0,5 | 0,5 | - | - | 0,5 | 0,5 |
| Other liabilities2 | 23.3 | 23.3 | - | 23.3 | - | 23.3 |
| Subordinated Liabilities | - | - | - | - | - | - |
| PSBs | 15.2 | 15.0 | 14.0 | - | - | 14.0 |
| 13.739,7 | 13.642,2 | 14.0 | 5.638,1 | 8.049,5 | 13.701.6 | |
- Balance without prepayments.
- The balance excludes deferred income.
- Financial instruments and fair values(Continuation)
| Estimated Fair Value | ||||||
| Pursue | book value | nominal amount | Level 1 | Level 2 | level 3 | In total |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| financial assets | ||||||
| Cash on hand | 0,5 | 0,5 | - | 0,5 | - | 0,5 |
| Receivables from credit institutions | 1.405,0 | 1.405,0 | - | 1.405,0 | - | 1.405,0 |
| Loans and advances to customers | 9.476,4 | 9.611,8 | - | 2.402,8 | 7.045,6 | 9.448,4 |
| Other assets1 | - | - | - | - | - | - |
| 10.881,9 | 11.017.3 | - | 3.808,3 | 7.045,6 | 10.853,9 | |
| Financial Liabilities | ||||||
| Amounts owed to retail clients | 9.739,4 | 9.704,9 | - | 3.517,7 | 6.219.6 | 9.737,3 |
| Liabilities to credit institutions | 2.420,7 | 2.420,1 | - | 2.420,7 | - | 2.420,7 |
| Amounts owed to other customers | 5.7 | 5.7 | - | - | 5.7 | 5.7 |
| Other liabilities2 | 16.4 | 16.4 | - | 16.4 | - | 16.4 |
| Subordinated Liabilities | 10.3 | 10.1 | - | - | 10.6 | 10.6 |
| PSBs | 15.2 | 15.0 | 14.7 | - | - | 14.7 |
| 12.207.7 | 12.172.2 | 14.7 | 5.954,8 | 6.235,9 | 12.205.4 | |
- Balance without prepayments.
- The balance excludes deferred income.
47. retirement provision
Contributory system
The amount recognized in profit or loss in respect of contributions to the Group's defined contribution pension plans and shareholder pension arrangements is the contribution payable for the period. Total pension costs for the year were £4.4m (2021: £5.2m).
48. business segments
The Group segments its lending business and operates in two segments in accordance with internal reporting to the Board of Directors:
- OSB
- CCFS
The Group separately discloses the effects of accounting for mergers, but does not consider this a business segment.
The net assets, financial position and results of operations of the above segments are summarized below:
| OSB | CCFS | combination | In total | |
| 2022 | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| balances as of the balance sheet date | ||||
| Gross Receivables from Customers | 13.244,7 | 10.416,3 | 81.7 | 23.742,7 |
| Expected credit losses | (103.2) | (28.0) | 1.2 | (130,0) |
| Loans and advances to customers | 13.141,5 | 10.388,3 | 82.9 | 23.612,7 |
| investments | 7.6 | 0,7 | - | 8.3 |
| depreciation and amortization | 6.2 | 3.4 | 3.8 | 13.4 |
| profit or loss for the year | ||||
| Net Interest Income/(Expense) | 460.7 | 308.4 | (59.2) | 709.9 |
| other income | 8.9 | 46.2 | 10.4 | 65.5 |
| Total Income/(Expenses) | 469.6 | 354.6 | (48.8) | 775.4 |
| Impairment of Financial Assets | (22.3) | (8.4) | 0,9 | (29.8) |
| contribution to profit | 447.3 | 346.2 | (47.9) | 745.6 |
| administrative expenses | (129.6) | (73.1) | (3.8) | (206.5) |
| provisions | 1.6 | - | - | 1.6 |
| integration costs | (6.8) | (1.1) | - | (7.9) |
| Profit/(Loss) Before Tax | 312.5 | 272.0 | (51.7) | 532.8 |
| taxation1 | (70.1) | (70.2) | 18.8 | (121.5) |
| Profit/(Loss) for the year | 242.4 | 201.8 | (32.9) | 411.3 |
- The taxation of the combination asset includes the release of deferred tax on the CCFS combination in connection with the release of the deferred tax liability applicable to the purchase date fair value adjustments to CCFS assets and liabilities of £17.5m and the release of other deferred Tax claims have been recognized on combination adjustments of £1.3m.
- business segments(Continuation)
| OSB | CCFS | combination | In total | |
| 2021 | Mio. £ | Mio. £ | Mio. £ | Mio. £ |
| balances as of the balance sheet date | ||||
| Gross Receivables from Customers | 12.057,3 | 8.981,4 | 143.1 | 21.181,8 |
| Expected credit losses | (82.2) | (19.6) | 0,3 | (101.5) |
| Loans and advances to customers | 11.975,1 | 8.961,8 | 143.4 | 21.080,3 |
| investments | 5.0 | 1.8 | - | 6.8 |
| depreciation and amortization | 6.5 | 3.2 | 4.8 | 14.5 |
| profit or loss for the year | ||||
| Net Interest Income/(Expense) | 414.8 | 235.7 | (62.9) | 587.6 |
| other income | 8.7 | 20.0 | 12.7 | 41.4 |
| Total Income/(Expenses) | 423,5 | 255.7 | (50.2) | 629,0 |
| Impairment of Financial Assets | (3.5) | 8.4 | (0,5) | 4.4 |
| contribution to profit | 420,0 | 264.1 | (50.7) | 633.4 |
| administrative expenses | (97,9) | (63,8) | (4.8) | (166,5) |
| provisions | (0,3) | 0,1 | - | (0,2) |
| Impairment of intangible assets | - | - | 3.1 | 3.1 |
| integration costs | (4.0) | (1.0) | - | (5.0) |
| Exceptional items | (0,2) | - | - | (0,2) |
| Profit/(Loss) Before Tax | 317.6 | 199.4 | (52.4) | 464.6 |
| taxation1 | (76.3) | (51.8) | 8.5 | (119.6) |
| Profit/(Loss) for the year | 241.3 | 147.6 | (43.9) | 345,0 |
- The tax on combination credits includes a credit of £14.1m relating to the release of the deferred tax liability recorded on the acquisition date fair value adjustments to CCFS assets and liabilities, offset by a deferred tax charge of £5.6m. £ due to the 6% increase in the main rate of corporation tax liability from 1 April 2023.
49. Adjustments for non-cash items and changes in operating assets and liabilities
| group | group | Pursue | Pursue | |
| 2022 | 2021 | 2022 | 2021 | |
| Mio. £ | Mio. £ | Mio. £ | Mio. £ | |
| (Rephrased)1 | (Rephrased)1 | |||
| Adjustments for non-cash items: | ||||
| depreciation and amortization | 13.4 | 14.5 | 5.2 | 5.5 |
| Interest on securities held as fixed assets | (6.8) | (2.5) | (2.5) | (0,1) |
| integration costs | - | 0,6 | - | 0,6 |
| Interest on Subordinated Debt | 1.1 | 0,8 | 1.1 | 0,8 |
| Interesse an PSBs | 0,7 | 1.2 | 0,7 | 1.2 |
| Interest on Securitized Debt | 7.7 | 3.9 | 4.1 | - |
| Interest on financing debt | 68.7 | 5.3 | 38.4 | 3.3 |
| Allowance/(Credit) on Loans | 29.8 | (4.4) | 19.1 | 0,2 |
| Impairment credit for intangible assets acquired in the merger | - | (3.1) | - | - |
| Impairment of investments in subsidiaries | - | - | 1.3 | - |
| Profit from the sale of financial instruments | - | (4.0) | - | (0,3) |
| provisions | (1.6) | 0,2 | (1.8) | 0,3 |
| Interest on lease liabilities | 0,2 | 0,3 | 0,1 | 0,1 |
| Fair Value Gains on Financial Instruments | (58.9) | (29.5) | (4.4) | (4.4) |
| Share-based Payments | 8.1 | 6.7 | 7.3 | 5.0 |
| Total adjustments for non-cash items | 62.4 | (10.0) | 68.6 | 12.2 |
| Development of business assets and liabilities: | ||||
| (Increase)/decrease in loans and advances to credit institutions | (204.6) | 98.7 | (74.2) | 67.8 |
| Increase in claims on customers | (2.563,1) | (1.844,0) | (1.074,6) | (944,9) |
| (Increase)/decrease in intercompany balances | (0,2) | (0,6) | (146,0) | 36.2 |
| Increase in amounts owed to retail clients | 2.229,4 | 923.3 | 1.392,8 | 34.1 |
| Increase in cash collateral and margin received1 | 434.3 | 115.4 | 131.3 | 42.1 |
| Net increase in other assets | (4.7) | (1.1) | (4.8) | (2.6) |
| Net increase/(decrease) in derivatives and hedged positions | 59.1 | 3.6 | 53.2 | (12.3) |
| Net increase/(decrease) in amounts owed to other customers | 16.6 | 18.9 | (7.7) | 0,9 |
| Net increase in other liabilities | 9.0 | 1.5 | 6.6 | 3.4 |
| Exchange differences on working capital | (0,3) | (0,1) | - | - |
| Total change in operating assets and liabilities1 | (24.5) | (684.4) | 276.6 | (775.3) |
- Adjusted figures for 2021 see Note 1 b) for further details.
50. Events after the Balance Sheet Date
Directors have proposed an interim dividend of £93.7m in respect of profit for the year ended 31 December 2022 and a special dividend of £50.3m to contribute to the proposed OSBG dividends. No final dividend is proposed.
51. Controlling Party
OSB GROUP PLC is the ultimate parent company and controlling party which prepares the consolidated financial statements as the largest group of which Company is a part. Copies of OSBG's financial statements are available from the Company Secretary at its registered office: OSB House, Quayside, Chatham Maritime, Chatham, Kent, ME4 4QZ.
52. Transactions with key employees
All transactions with related parties have been effected on terms which are similar to those prevailing in arm's length transactions. There were no related party transactions between key management personnel and the Company during the year other than those described below.
The Directors and the Group Executive Team are considered key management personnel.
Directors' remuneration is disclosed in Note 10 and in the OSB GROUP PLC Annual Report on Remuneration. The following table shows the total compensation of the executive team:
| group | group | |
| 2022 | 2021 | |
| £'000 | £'000 | |
| Short-Term Employee Benefits | 4.000 | 5.144 |
| Post-Employment Benefits | 62 | 44 |
| Share-based Payments | 2.667 | 2.414 |
| 6.729 | 7.602 |
Key employees and associated persons held deposits with the group of £2.1m (2021: £0.9m).
53. capital management
The Company's capital management approach is to provide an adequate capital base to cover business risks and support future business development. Throughout the year, the company met its capital requirements as set by the PRA, the group's primary regulator.
The Company manages and reports on a single consolidation basis (OSB Solo) which includes the Company and subsidiaries excluding offshore services company OSBI, securitization related SPVs and CCFS companies acquired in October 2019.
The capital management position is based on the three "pillars" of Basel II.
Under Pillar 1, minimum capital requirements are based on 8% of risk-weighted assets.
Under Pillar 2, regulated entities conduct an annual risk self-assessment, known as ICAAP. The PRA applies additional requirements to this assessment amount to cover Pillar 2 risks to generate an overall capital requirement. In addition, the PRA establishes capital buffers and regulated entities are seeking the imposition of requirements and amendments to regulations that include capital buffers and Pillar 2 under the Financial Services and Markets Act 2000.
Pillar 3 requires firms to make a series of disclosures that allow market participants to evaluate information about the firm's capital, exposures and risk assessment process. The company's Pillar 3 disclosures can be found on the company's website.
Basel III came into force through CRD IV. Basel III supplements and extends Basel I and II with additional security measures. Basel III changed the definitions of regulatory capital, introduced new capital buffers, a non-risk-adjusted leverage ratio, liquidity metrics and modified the way regulatory capital is calculated.
The PRA published on 30thNovember 2022, a consultation paper on the implementation of Basel 3.1 in the UK. The company has taken this into account when planning future capital requirements.
The ultimate responsibility for capital adequacy lies with the Board of Directors. The ALCO is responsible for managing the capital process within the risk appetite defined by the Board, including approving policies, monitoring internal controls and setting internal limits on capital ratios.
Regulated entities actively manage their capital position and report regularly to the board and senior management through the ALCO and other governance committees. Capital requirements are included in budgets, forecasts, and strategic plans, with initiatives executed against that plan.
- capital management(Continuation)
The OSB solo capital information for Pillar 1 is shown below:
| (unaudited) 2022 | (unaudited) 2021 | |
| Mio. £ | Mio. £ | |
| CET1 Capital | ||
| Claimed share capital | 4.5 | 4.5 |
| Share premium, capital contribution and share-based compensation reserve | 12.2 | 10.6 |
| retained earnings | 1.826,0 | 1.739,5 |
| other reserves | (1.1) | (0,9) |
| Equity attributable to common shareholders | 1.841,6 | 1.753,7 |
| Foreseeable Dividends1 | (79.1) | (73.1) |
| IFRS 9 transition adjustment2 | 0,7 | 1.4 |
| COVID-19 ECL Transition Adjustment3 | 18.9 | 12.1 |
| Solo consolidation adjustments | (13.6) | (6.8) |
| Deductions from CET1 capital | ||
| Investment in subsidiary | (533,0) | (538,5) |
| Cautious impairment4 | (0,3) | - |
| Intangible Assets | (6.6) | (7.9) |
| Deferred tax assets | (0,6) | (0,5) |
| CET1 Capital | 1.228,0 | 1.140,4 |
| AT1 Capital | ||
| AT1 Securities | 90,0 | 90,0 |
| All Tier 1 capital | 1.318,0 | 1.230,4 |
| Tier 2 capital | ||
| Subordinated Debt and PSBs | 15.0 | 25.1 |
| Deductions from Tier 2 Capital | - | (4.6) |
| All Tier 2 capital | 15.0 | 20.5 |
| Total regulatory capital | 1.333,0 | 1.250,9 |
| Risk assets (unaudited) | 6.660,5 | 5.863,4 |
- 2022 includes a special dividend of £30.3m (to support the £50.0m announced by the OSBG board, rounded up to pence per share to £50.3m).
- Regulatory equity includes a repayment of £0.7m under the transitional provisions of IFRS 9, representing 25.0% of the remaining IFRS 9 transitional adjustment.
- The COVID-19 ECL Transition Adjustment relates to 75% of the increase in OSB solo in Stage 1 and 2 ECLs following the impact of COVID-19 and for which transition rules will be adopted for regulatory capital purposes.
- OSB solo applied the simplified approach according to the rules of prudence and recognized a deduction equal to the sum of the absolute value up to 0.1% of the assets and liabilities measured at fair value excluding assets and liabilities measured at fair value.
- capital management(Continuation)
Movement in CET1 during the year was as follows:
| (unaudited) 2022 | (unaudited) 2021 | |
| Mio. £ | Mio. £ | |
| On 1 January | 1.140,4 | 966,9 |
| Movement in retained earnings | 86.5 | 171.5 |
| Movement in other reserves | 1.4 | 2.8 |
| Movement in the investment in the subsidiary | 5.5 | 41.6 |
| Movement in predictable dividends | (6.0) | (34.1) |
| Movement in solo consolidation adjustment | (6.8) | 1.0 |
| IFRS 9 transition adjustment | (0,7) | (0,6) |
| COVID-19 ECL Transition Adjustment | 6.8 | (8.6) |
| Movement on cautious valuation adjustment | (0,3) | 0,1 |
| Net decrease/(increase) in intangible assets | 1.3 | (0,6) |
| Movement of deferred tax assets for losses carried forward | (0,1) | 0,4 |
| On the 31st of December | 1.228,0 | 1.140,4 |
| general assembly | Annual general meeting | IRB | Internal ratings based approach to credit risk |
| ALCO | Group Asset and Liabilities Committee | IS A | Individual Savings Account |
| BoE | Bank of England | KRFI | Kent Reliance for intermediaries |
| CCFS | Financial Services of the Charter Court | KRPS | Kent Reliance Provident Society Limited |
| CEO | Managing Director | LCR | Liquidity Coverage Ratio |
| CET1 | Common Equity Tier 1 capital | LGD | loss in case of failure |
| CFO | CFO | LIBOR | London Interbank Offered Rate |
| CRDIV | Capital Requirements Directive and Regulation | LTIP | Long-term incentive plan |
| CRO | Chief Risk Officer | LTV | loan value |
| DSBP | Deferred Stock Incentive Plan | NIM | Net interest spread |
| EAD | commitment in case of failure | NPS | Net Promoter Score |
| ECL | Expected Credit Loss | OSB | OneSavings Bank plc |
| EIR | Effective Interest Rate | OSBG | OSB GROUP PLC |
| ENV | earnings per share | PD | probability of failure |
| EU | European Union | PPD | Tendency to possess the ball by default |
| FCA | Financial Regulator | PRA | Regulatory Authority |
| FRC | Accounting Council | PSBs | Perpetual Subordinated Notes |
| FSCS | Compensation system for financial services | PSP | Performance-Share-Plan |
| FSD | Forced sales discount | RMBS | Mortgage-backed securities for residential real estate |
| FTSE | Financial Times Stock Exchange | Rogen | return on equity |
| HMRC | Her Majesty's Finances and Customs | RWA | Risk-weighted assets |
| HPI | house price index | SAG | Save As You Earn oder Sharesave |
| IAS | international accounting standards | SDLT | stamp duty property tax |
| IBOR | Interbank Offered Rate | SECURE | Significant increase in credit risk |
| ICAAP | Internal capital adequacy assessment process | SID | Senior Independent Director |
| IKR | Zinsdeckungsgrad | SMEs | Small and medium-sized businesses |
| IFRS | International Financial Reporting Standards | SONIA | Sterling Overnight Index Average |
| ILAAP | Internal liquidity adequacy assessment process | SRMF | Strategic framework for risk management |
| ILTR | Index Long-Term Repo | TFS | Term Funding Program |
| initial public offering | initial public offering | TFSME | Term financing program with additional incentives |
| for SMEs |
