REG - CYBG PLCClydesdale Bank PLC - Final Results <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 8
22/11/2016 07:08
- Part 8: For the preceding part double click ID:nRSV7721Pg
be kept under review in light of developments from the insolvent estates.
The FSCS has estimated levies due to 31 March 2017 and an accrual of £8m (2015: £9m) is held for the Group's calculated
liability to that date. The ultimate FSCS levy as a result of the failures is uncertain.
Conduct risk related matters
There continues to be significant uncertainty and thus judgement required in determining the quantum of conduct risk
related liabilities with note 27 reflecting the Group's current position in relation to redress provisions including those
for PPI and IRHPs. The final amount required to settle the Group's potential liabilities for these, and other conduct
related matters, is materially uncertain. Contingent liabilities include those matters where redress is likely to be paid
and costs incurred but the amounts cannot currently be estimated. The financial exposure to the Group related to legacy
conduct risks is mitigated by the Capped Indemnity provided by its former parent (note 27). The Group will continue to
reassess the adequacy of provisions for these matters and the assumptions underlying the calculations at each reporting
date based upon experience and other relevant factors at that time.
Legal claims
The Group is named in and is defending a number of legal claims arising in the ordinary course of business. No material
adverse impact on the financial position of the Group is expected to arise from the ultimate resolution of these legal
actions.
CYBG PLC
Notes to the consolidated financial statements (continued)
34. Notes to the statement of cash flows
2016 2015
£m £m
Adjustments included in the profit/(loss) before tax
Interest receivable (1,101) (1,110)
Interest payable 295 323
Depreciation and amortisation (note 7) 88 83
Net gain on capital and debt restructure (note 6) (1) (61)
Loss on sale of tangible fixed assets (1) - 1
Transfer from cash flow hedge reserve 1 (1)
Derivative financial instruments fair value movements (10) (2)
Impairment losses on credit exposures (note 17) 39 78
Impairment losses on software (note 7) 45 10
Fair value movement on investment properties 1 -
──────── ────────
(643) (679)
════════ ════════
Changes in operating assets
Net (increase)/decrease in:
Balances with supervisory central banks 1 (2)
Due from other banks (826) (113)
Derivative financial instruments (63) 1
Financial assets at fair value through profit or loss 346 478
Loans and advances to customers (1,758) (1,663)
Due from customers on acceptances - 1
Defined benefit pension assets - (39)
Other assets 15 (157)
──────── ────────
(2,285) (1,494)
════════ ════════
Changes in operating liabilities
Net increase/(decrease) in:
Due to other banks 960 (567)
Derivative financial instruments 60 (39)
Financial liabilities at fair value through profit or loss (19) (23)
Due to customers 672 2,380
Liabilities on acceptances - (1)
Provisions for liabilities and charges (154) 54
Defined benefit pension obligations (52) -
Other liabilities 120 179
──────── ────────
1,587 1,983
════════ ════════
(1) Tangible fixed assets include property, plant and equipment, investment properties and property inventory.
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than
three months maturity from the date of acquisition.
2016 2015
£m £m
Cash and balances with central banks (note 11) 5,912 6,387
Other assets 111 86
Due to other banks (25) (72)
Due to related entities - (33)
Other liabilities (48) (31)
──────── ────────
5,950 6,337
════════ ════════
CYBG PLC
Notes to the consolidated financial statements (continued)
35. Employees
The average number of full time equivalent employees of the Group during the year was made up as follows:
2016 2015
Number Number
Managers 2,460 2,449
Clerical staff 4,258 4,367
──────── ────────
6,718 6,816
════════ ════════
The average monthly number of employees was 7,567 (2015: 7,694).
All staff are contracted employees of the Group and its subsidiary undertakings. The average figures above do not include
contractors.
36. Equity based compensation
Share based payment charges comprise:
2016 2015
£m £m
Equity settled share based payments 5 7
════════ ════════
The 2015 and 2016 figures include awards under the Group's and NAB share plans. The charges under the NAB share plans were
classified as equity settled share based payments up to the demerger date and are included in the total above. Following
the demerger these plans no longer meet the definition of share based payments under IFRS 2: Share based payments,
accordingly, the total above excludes NAB share plan costs after 8 February 2016.
CYBG awards
The Group implemented a number of share plans with the following awards made during the year:
Plan Nature Awards made during 2016 Award date
Deferred Equity Plan (DEP) Conditional rights to shares 2015 Demerger LTIP award 2015 Deferred bonus awards 2015 Upfront retained bonus awards Commencement awards 11 Feb 201631 May 2016 11 Feb 2016 11 Feb 2016 4 March 2016
Long Term Incentive Plan (LTIP) Conditional rights to shares No awards made N/A
Share Incentive Plan (SIP) Non-conditional share award Demerger Freeshare award 4 March 2016
Save As You Earn Plan (SAYE) Options to purchase shares at the end of the saving period No awards made N/A
Further detail on each award is provided below:
Deferred Equity Plan (DEP)
Under the plan employees were awarded conditional rights to CYBG PLC shares. The shares are subject to forfeiture
conditions including forfeiture as a result of resignation, termination by the Group or failure to meet compliance
requirements. Awards include:
· The upfront and deferred elements of bonus awards where required to comply with the PRA Remuneration Code or the
Bank's deferral policy.
· Buyout of equity from previous employment for senior new hires.
· Demerger awards which are also subject to the achievement of performance conditions over a three year period.
Details of the performance conditions are set out in the Directors Remuneration Report.
CYBG PLC
Notes to the consolidated financial statements (continued)
36. Equity based compensation (continued)
Share Incentive Plan (SIP)
Eligible employees at the date of the award, were awarded Group shares, which are held in the Share Incentive Plan Trust
(SIP Trust). Awards are not subject to performance conditions and participants are the beneficial owners of the shares
granted to them, but not the registered owners. Voting rights over the shares are normally exercised by the registered
owner at the direction of the participants. For the demerger award made in March 2016, leavers (with the exception of
gross misconduct) retain their awards but they must withdraw their shares from the SIP Trust.
Awards /rights made during the year
Numberoutstandingon incorporation Numberawarded Number forfeited Numberreleased Numberoutstanding at 30 September 2016 Average fair value of awards at grant
Deferred Equity Plan
2015 Demerger - 2,235,204 - - 2,235,204 196.96
2015 Bonus - 1,749,431 (10,037) (250,004) 1,489,390 195.17
2015 Commencement - 111,127 - - 111,127 194.67
Share Incentive Plan
2016 Demerger Award - 1,966,592 (2,304) (1) (141,312) (2) 1,822,976 194.67
(1) Forfeited shares remain in the SIP Trust
(2) Shares withdrawn from SIP Trust on leaving the Group.
Determination of grant date fair values
Participants of the DEP and LTIP plans are not entitled to dividends until the awards vest, but the number of shares which
vest may be increased to reflect the value of dividends that would have been paid up to the end of the holding period for
the awards. Accordingly, the grant date fair value of the awards with only service conditions and/or non-market performance
conditions has been taken as the market value of the Company's ordinary shares at the grant date. Where awards are subject
to non-market performance conditions, an estimate is made of the number of awards expected to vest in order to determine
the overall share-based payment charge to be recognised over the vesting period.
The Group has not issued awards under any CYBG plan with market performance conditions.
Legacy NAB awards
Prior to the demerger, employees of the Group received awards under NAB share plans as described below. No deferred bonus,
LTIP, or freeshare awards were made under NAB plans in December 2015 due to the planned demerger.
Plan Nature Awards
National Australia Bank Staff Share Ownership Plan Conditional NAB shares which are held in trust 1. Commencement awards2. Deferred bonus awards (excluding Executive Leadership Team)3. Upfront bonus awards
National Australia Bank Performance Rights Plan Conditional NAB Performance rights 4. Deferred bonus awards to the Executive Leadership Team5. Long Term Incentive awards
NAB Share Incentive Plan Non-conditional NAB shares through SIP Trust 6. Freeshare awards
National Australia Bank Staff Share Ownership Plan
The shares are subject to forfeiture conditions including forfeiture as a result of resignation, termination by the Group
or failure to meet compliance requirements. Awards included:
· The upfront and deferred elements of bonus awards where required to comply with the PRA Remuneration Code or the Bank's
deferral policy.
· Buyout of evidenced equity from previous employment for senior new hires.
CYBG PLC
Notes to the consolidated financial statements (continued)
36. Equity based compensation (continued)
National Australia Bank Performance Rights Plan
Legacy NAB awards made as performance rights over NAB shares, subject to forfeiture conditions including forfeiture as a
result of resignation, termination by the Group or failure to meet compliance requirements. Awards included:
· Deferred elements of bonus awards for members of the Executive Leadership team where required to comply with the PRA
Remuneration Code or the Bank's deferral policy.
· LTIP awards were also subject to performance hurdles (both internal and external) are measured at the end of a four to
five year restriction period. During the restriction period an executive's performance rights will lapse if performance
hurdles are not met. A variety of performance measures are used for different grants of long term incentives including
Total Shareholder Return (TSR) compared against peer companies, and regional or NAB Group ROE and cash earnings. The
measures used depend on the level and impact of the participant's role, the business or region in which they work and the
relevant programme.
Each performance right is exchanged for one fully paid ordinary share in NAB Limited upon exercise, subject to standard
adjustments for capital actions. No exercise price is payable by the holder on exercise of performance rights.
NAB Freeshare awards
Eligible employees in December 2014 were awarded NAB shares, held in the NAB SIP Trust. With the exception of gross
misconduct, awards were not subject to service or performance conditions and vested on the date of award. As a result of
the demerger, all participants were treated as good leavers from the SIP and their NAB shares were withdrawn from the SIP
Trust.
NAB Performance rights related to CYBG Group employees 2016 number 2015 number
Outstanding at 1 October 281,066 259,093
Granted during the year 136,812
Forfeited during the year (21,995) (103,965)
Exercised during the year (19,471) (10,874)
Outstanding at 8 February 2016 239,600 n/a
Exercisable at 8 February 2016 - n/a
Outstanding at 30 September n/a 281,066
Exercisable at 30 September n/a 18,480
No performance rights lapsed in the period to 8 February 2016 (2015: Nil).
Of the performance rights exercised in the period to 8 February 2016, 4,233 related to long term incentive awards (2015:
Nil).
CYBG PLC
Notes to the consolidated financial statements (continued)
37. Fair value of financial instruments
(a) Fair value of financial instruments recognised on the balance sheet at amortised cost
The tables below show a comparison of the carrying amounts of financial assets and liabilities measured at amortised cost,
as reported on the balance sheet, and their fair values where these are not approximately equal.
Analysis of the fair value disclosures uses a hierarchy that reflects the significance of inputs used in measuring fair
value. The level in the fair value hierarchy within which a fair value measurement is categorised is determined on the
basis of the lowest level input that is significant to the fair value measurement in its entirety. The fair value
hierarchy is as follows:
· Level 1 fair value measurements - quoted prices (unadjusted) in active markets for an identical financial asset or
liability.
· Level 2 fair value measurements - inputs other than quoted prices within Level 1 that are observable for the
financial asset or liability, either directly (as prices) or indirectly (derived from prices).
· Level 3 fair value measurements - inputs for the financial asset or liability that are not based on observable
market data (unobservable inputs).
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. The estimated fair values are based on relevant information available
at the reporting date and involve judgement. The methodologies and assumptions used in the fair value estimates are
described in the footnotes to the tables.
There are various limitations inherent in this fair value disclosure particularly where prices may not represent the
underlying value due to dislocation in the market. Not all of the Group's financial instruments can be exchanged in an
active trading market. The Group obtains the fair values for investment securities from quoted market prices where
available. Where securities are unlisted and quoted market prices are not available, the Group obtains the fair value by
means of discounted cash flows and other valuation techniques that are commonly used by market participants. These
techniques address factors such as interest rates, credit risk and liquidity. The difference between carrying value and
fair value is relevant in a trading environment, but is not relevant to assets held to maturity and loans and advances.
30 September 2016 30 September 2015
───────────────────────────────────────────────────────────────────────────────────
Fair value measurementusing: Fair value measurementusing:
──────────────────── ────────────────────
Carrying Fair Carrying Fair
value value Level 1 Level 2 Level 3 value value Level 1 Level 2 Level 3
£m £m £m £m £m £m £m £m £m £m
───────────────────────────────────────────────────────────────────────────────────
Financial assets
Loans and advances to customers 29,202 29,298 - 1,076 28,222 27,482 27,537 - 1,111 26,426
Financial liabilities
Due to customers 27,090 27,114 - 27,114 - 26,407 26,423 - 26,423 -
Due to related entities - - - - - 998 1,017 - 1,017 -
Debt securities in issue 4,501 4,592 459 4,133 - 3,766 3,869 - 3,869 -
───────────────────────────────────────────────────────────────────────────────────
CYBG PLC
Notes to the consolidated financial statements (continued)
37. Fair value of financial instruments (continued)
(a) Fair value of financial instruments recognised on the balance sheet at amortised cost (continued)
The Group's fair values disclosed for financial instruments at amortised cost are based on the following methodologies and
assumptions:
(a) Loans and advances to customers - the fair value of loans and advances are determined by firstly segregating them into portfolios of similar characteristics. Contractual cash flows are then adjusted for expected credit losses and expectations of customer
behaviour based on observed historic data. The cash flows are then discounted using current market rates for instruments of similar terms and maturity to arrive at an estimate of their fair value. Certain variable rate loan portfolios are discounted
using market rates on similar loans offered by the Group at the valuation date.
(b) Due to customers - the fair value of deposits is determined from a discounted cash flow model using current market rates for instruments of similar terms and maturity.
(c) Amounts due to related entities - the fair value of subordinated debt and notes issued to related entities was determined from a discounted cash flow model using current market rates for instruments of similar terms and maturity. The comparable instruments
are presented within 'Debt securities in issue' in the current year. All other amounts due to related entities were repayable under varying maturities but were materially repriced every 3-6 months relative to market rates.
(d) Debt securities in issue - The fair value is taken directly from quoted market prices where available or determined from a discounted cash flow model using current market rates for instruments of similar terms and maturity.
(b) Fair value of financial instruments recognised on the balance sheet at fair value
The following tables provide an analysis of financial instruments that are measured subsequent to initial recognition at
fair value, using the fair value hierarchy described in note 37(a) above.
Fair value measurement as at Fair value measurement as at
30 September 2016 30 September 2015
──────────────────────────────── ───────────────────────────────
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
──────────────────────────────── ───────────────────────────────
Financial assets
Derivative financial assets - 585 - 585 - 285 - 285
AFS investments - listed 1,695 - - 1,695 1,447 - - 1,447
AFS investments - unlisted - - 29 29 - - 8 8
AFS - other - - 7 7 - - 7 7
Other financial assets at fair value - - 750 750 - - 1,097 1,097
──────────────────────────────── ───────────────────────────────
Total financial assets at fair value 1,695 585 786 3,066 1,447 285 1,112 2,844
════════════════════════════════ ═══════════════════════════════
Financial liabilities
Derivative financial liabilities - 598 - 598 - 534 - 534
Other financial liabilities at fair value - - 48 48 - - 67 67
──────────────────────────────── ───────────────────────────────
Total financial liabilities at fair value - 598 48 646 - 534 67 601
════════════════════════════════ ═══════════════════════════════
CYBG PLC
Notes to the consolidated financial statements (continued)
37. Fair value of financial instruments (continued)
(b) Fair value of financial instruments recognised on the balance sheet at fair value (continued)
The Group's fair values for financial instruments that are measured subsequent to initial recognition at fair value are
based on the following methodologies and assumptions:
(a) Derivative financial assets and liabilities - the fair values of derivatives, including foreign exchange contracts,
interest rate swaps, interest rate and currency option contracts, and currency swaps, are obtained from quoted closing
market prices as at the balance sheet date, discounted cash flow models or option pricing models as appropriate.
(b) Available for sale investments
· Listed (level 1) - the fair values of listed investments are based on quoted closing market prices.
· Unlisted (level 3) - includes the unlisted equity investment in VocaLink of £25m (2015: £5m) (see note 13). The
valuation of these shares is based on offers received for the Group's shareholding as the best indicator of the fair value
of these shares at the reporting date. Unlisted (level 3) also includes £2m for the Group's US Dollar denominated
convertible preference shares in Visa Inc. (see note 13). The fair value of the preference shares has been calculated by
taking the period end NYSE share price for Visa Inc. and discounting for illiquidity and clawback related to contingent
litigation. For other unlisted equity and debt investments, the Group's share of the net asset value or the transaction
price respectively are considered the best representation of the exit price and are the Group's best estimates of fair
value.
· Available for sale other (level 3) - the other available for sale financial asset represents deferred consideration
receivable and consists of the rights to future commissions. The valuation is determined from a discounted cash flow model
incorporating estimated attrition rates and investment growth rates appropriate to the underlying funds under management.
(c) Other financial assets and liabilities at fair value - fair values are derived from data or valuation techniques
based upon observable market data and non-observable inputs as appropriate to the nature and type of the underlying
instrument
There were no transfers between Level 1 and 2 in the year.
CYBG PLC
Notes to the consolidated financial statements (continued)
37. Fair value of financial instruments (continued)
Assets and liabilities measured at fair value based on valuation techniques for which any significant input is not based on
observable market data (Level 3):
Level 3 movement analysis: 2016
─────────────────────────────────────────────────────
Financial assets Other financial Other financial
available for sale assets at fair value liabilities at fair value
£m £m £m
Balance at the beginning of the year 15 1,097 (67)
Fair value gains/(losses) recognised(1)
In profit or loss (unrealised) - 10 2
In profit or loss (realised) 8 - -
In available for sale reserve (unrealised) 21 - -
Purchases 2 - -
Sales (8) - -
Settlements (2) (2) (357) 17
─────────────────────────────────────────────────────
Balance at the end of the year 36 750 (48)
═════════════════════════════════════════════════════
Level 3 movement analysis: 2015
─────────────────────────────────────────────────────
Financial assets Other financial Other financial
available for sale assets at fair value liabilities at fair value
£m £m £m
Balance at the beginning of the year 7 1,583 (91)
Unrealised gains (1) in profit or loss - 2 2
Purchases 8 - -
Settlements (2) - (488) 22
─────────────────────────────────────────────────────
Balance at the end of the year 15 1,097 (67)
═════════════════════════════════════════════════════
(1) Net gain or losses were recorded in non-interest income, interest income or expense and impairment losses or within the Available for Sale Reserve as appropriate.
(2) Settlements for the year ended 30 September 2016 include a realised loss of £5m (2015: loss of £33m) relating to financial assets that are measured at fair value at the end of each reporting period. Such fair value gains or losses are included in non-interest income (note 6).
There were no transfers into or out of Level 3 in the year ended 30 September 2016 (2015: £Nil).
For the purpose of reporting movements between levels of the fair value hierarchy, transfers are recognised at the
beginning of the reporting period in which they occur.
CYBG PLC
Notes to the consolidated financial statements (continued)
37. Fair value of financial instruments (continued)
Quantitative information about significant unobservable inputs in Level 3 valuations
The table below lists key unobservable inputs to Level 3 financial instruments, and provides the range of those inputs as
at 30 September 2016.
Fair Valuation Unobservable Low High
value technique inputs range range
£m
Financial assets
Available for sale - investments - unlisted 27 Recent market value Offers received n/a n/a
Available for sale - investments - unlisted 2 Discounted cash flow Contingent litigation risk 0% 100%
Available for sale - other 7 Discounted cash flow Customerattrition rate 10% 30%
Other financial assets at fair value 750 Discounted cash flow Portfolio lifetimePD 3.3% 11.4%
The Group has £48m (2015: £67m) of financial liabilities at fair value classed as Level 3 which represent a portfolio of
term deposits that are directly linked to the customer loans, which are also held at fair value and classed as Level 3.
Their relationship to the fair value assets is such that should the liability be settled, the amount payable would be net
of the fair value asset.
Sensitivity of Level 3 fair value measurements to reasonably possible alternative assumptions
Where valuation techniques use non-observable inputs that are significant to a fair value measurement in its entirety,
changing these inputs will change the resultant fair value measurement.
The most significant exposure to Level 3 fair value measurements is in respect of the Group's fair value loan portfolio and
the most significant inputs impacting the carrying value of the loans other than interest rates are future expectations of
credit losses. If lifetime expected losses were 20% greater than predicted, the carrying value of the loans would decrease
by £5m and vice versa.
As disclosed above, the fair value of the Group's investment in VocaLink is based on the offer set out in the definitive
agreement to acquire 92.4% of VocaLink Holdings Limited announced by MasterCard on 21 July 2016. Whilst this transaction is
subject to regulatory approval and other customary closing conditions, the Group expects that the sale will be completed
under these terms. The sensitivity of fair value to possible changes in the cash offer or the associated future earn-out
entitlements (which have a limited range of potential variation) has not therefore been modelled.
The most significant input impacting the carrying value of the available for sale - other asset is the Funds Under
Management Attrition rate. If this rate was 30% the carrying value would reduce by £3m; if it was 10% the carrying value
would increase by £2m. The Group currently assumes a 15% attrition rate.
Other than these significant Level 3 measurements, the Group has a limited remaining exposure to Level 3 fair value
measurements, and changing one or more of the inputs for fair value measurements in Level 3 to reasonable alternative
assumptions would not change the fair value significantly with respect to profit or loss, total assets, total liabilities
or equity on these remaining Level 3 measurements.
CYBG PLC
Notes to the consolidated financial statements (continued)
38. Pillar 3 disclosures
Basel III Capital Requirements Directive IV
Pillar 3 disclosure requirements are set out in Part Eight of the Capital Requirements Regulation (CRR). The consolidated
disclosures of the Group, for the 2016 financial year, will be issued concurrently with the Annual Report and Accounts and
will be found at www.cybg.com/investor-centre/financial-results/.
39. Events after the balance sheet date
On 25 October 2016 the Group announced that it has engaged in discussions with The Royal Bank of Scotland Group plc (RBS)
and has made a preliminary non-binding proposal to RBS in relation to its Williams and Glyn operations. This engagement is
ongoing and there can be no certainty that any transaction will occur, nor as to the terms on which any transaction might
be concluded.
CYBG PLC
Country by country reporting
The Capital Requirements (Country-by-Country Reporting) Regulations 2013 came into effect on 1 January 2014 and place
certain reporting obligations on financial institutions that are within the scope of the European Union's Capital
Requirements Directive (CRD IV). The purpose of the Regulations is to provide clarity on the source of the Group's income
and the locations of its operations.
The vast majority of entities that are consolidated within the Group's financial statements are UK registered entities. The
activities of the Group are described in the Strategic Report.
The total operating income and the average number of full time equivalent employees during the year to 30 September 2016
were:
2016 UK
Average full time equivalent employees (number) 6,718
Total operating income (£m) 997
Profit before tax (£m) 77
Corporation tax paid/(recovered) (£m) (4)
Public subsidies received (£m) Nil
The only non UK registered entities of the Group are two Trustee companies that are part of the Group's securitisation
vehicles (Lanark and Lannraig). Both of these entities (Lanark Trustees Limited and Lannraig Trustees Limited) are
registered in Jersey. These entities play a part in the overall securitisation process by having the beneficial interest
in certain mortgage assets assigned to them. Both entities have no assets or liabilities recognised in their financial
statements with the securitisation activity taking place in other UK registered entities of the structures. These entities
do not undertake any external economic activity and have no employees. The results of these entities as well as those of
the entire Lanark and Lannraig securitisation structures are consolidated in the financial statements of the Group.
Other information
The financial information included in this preliminary results announcement does not constitute statutory accounts within
the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2016 were approved
by the directors on 21 November 2016 and will be delivered to the Registrar of Companies following publication in December
2016. The auditors' report on those accounts was unqualified and did not include a statement under sections 498(2)
(accounting records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain
necessary information and explanations) of the Companies Act 2006.
SUPPLEMENTARY CREDIT RISK MANAGEMENT DISCLOSURES
Credit Risk is the risk that a borrower or counterparty fails to pay the interest or capital due on a loan or other
financial instrument.
Credit risk manifests itself in the financial instruments and/or products that the Group offers, and those in which the
Group invests (including, among others, loans, guarantees, credit-related commitments, letters of credit, acceptances,
inter-bank transactions, foreign exchange transactions, swaps and bonds). Credit risk can be found both on and off balance
sheet. The disclosures in this section address credit risk on the Group's loans and advances to customers and loans held
as financial assets at fair value.
Distribution of loans and advances to customers by credit quality
As at 30 September 2016:
Retail overdrafts£m Credit cards£m Other retail lending£m Mortgages £m Lease finance £m SME lending(1) £m Total£m
Gross loans and advances:
Neither past due nor impaired 57 388 612 21,485 502 5,665 28,709
Past due but not impaired 6 12 15 285 11 144 473
Impaired - - - 66 2 146 214
63 400 627 21,836 515 5,955 29,396
As at 30 September 2015:
Retail overdrafts£m Credit cards£m Other retail lending£m Mortgages £m Lease finance £m SME lending(1) £m Total£m
Gross loans and advances:
Neither past due nor impaired 70 363 668 20,170 418 5,277 26,966
Past due but not impaired 9 13 15 268 6 172 483
Impaired - - - 66 2 170 238
79 376 683 20,504 426 5,619 27,687
(1)SME lending includes business overdrafts.
Credit risk categorisation Description
Neither past due nor impaired Loans that are not in arrears and where there is no objective evidence of impairment
Past due not impaired Loans that are in arrears but have not been individually assessed as impaired
Impaired Loans which have been individually assessed for impairment as there is objective evidence of impairment including changes in customer circumstances
Concentrations
Retail secured credit by loan size concentration 2016£m % 2015£m %
£0 - £100k 4,456 20.4% 4,673 22.8%
£100k - £250k 6,807 31.2% 6,930 33.8%
£250k - £500k 6,153 28.2% 5,257 25.6%
£500k - £1m 3,572 16.3% 2,962 14.5%
£1m - £2.5m 806 3.7% 640 3.1%
> £2.5m 42 0.2% 42 0.2%
21,836 100% 20,504 100%
2016
Retail secured credit average LTVs by loan size (1) Residential BTL Total
£0 - £100k 46.6% 53.6% 47.8%
£100k - £250k 57.3% 56.2% 56.9%
£250k - £500k 56.3% 56.5% 56.4%
£500k - £1m 54.5% 54.4% 54.5%
£1m - £2.5m 53.1% 46.6% 52.0%
> £2.5m 57.1% 32.1% 55.3%
53.7% 55.5% 54.3%
2015
Retail secured credit average LTVs by loan size (1) Residential BTL Total
£0 - £100k 47.6% 55.0% 48.9%
£100k - £250k 58.0% 58.3% 58.1%
£250k - £500k 57.1% 57.7% 57.3%
£500k - £1m 55.6% 56.0% 55.8%
£1m - £2.5m 54.2% 51.8% 53.8%
> £2.5m 52.3% 36.6% 51.2%
54.5% 57.2% 55.3%
(1) LTV of the mortgage portfolio is defined as mortgage portfolio weighted by balance and indexed using the Halifax house
price index at a given date
Gross loans and advances to customers including loans designated at fair value through profit or loss - by industry concentration (1) 2016£m 2015£m
Government and public authorities 36 27
Agriculture, forestry, fishing and mining 1,458 1,515
Financial, investment and insurance 698 659
Property - construction 262 260
Manufacturing 577 576
Instalment loans to individuals and other personal lending (including credit cards) 1,344 1,477
Property - mortgage 21,836 20,504
Asset and lease financing 515 426
Other commercial and industrial 3,421 3,340
30,147 28,784
Contingent liabilities and credit related commitments - by industry concentration 2016£m 2015(2)£m
Government and public authorities 422 469
Agriculture, forestry, fishing and mining 382 380
Financial, investment and insurance 125 117
Property - construction 156 172
Manufacturing 658 656
Instalment loans to individuals and other personal lending (including credit cards) 1,931 1,955
Property - mortgage 1,780 1,818
Asset and lease financing 98 102
Other commercial and industrial 2,261 2,241
7,813 7,910
(1) Includes balances due from customers on acceptances and excludes accrued interest.
(2) The comparatives have been restated to conform with current year industry categorisation.
Mitigation and Management of Credit Risk
Credit quality of loans and advances
For SME lending, the Group has an internally developed credit rating system, as defined under the Group's credit risk
management policy, that uses data drawn from a number of sources to assess the potential risk in lending to the Group's
Customers. This system assigns an indication of the PD for each Customer and can be broadly mapped to external agencies
rating scales. Impaired assets consist of SME lending and secured Retail lending where current circumstances indicate that
losses of loan principal and / or interest may be incurred.
Description eCRS PD
Senior investment grade 1 to 5 0 < 0.11
Investment grade 6 to 11 0.11 < 0.55
Sub-investment grade 12 to 23 0.55 < 99.99
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by
reference to the Group's standard credit rating system. The credit rating system is supported by a variety of financial
analytics, combined with processed market information to provide the main inputs for the measurement of counterparty risk.
All internal risk ratings are tailored to the various categories and are derived in accordance with the Group's ratings
policy.
The table below represents the credit quality of SME loans of advances that are neither past due nor impaired:
2016£m 2015£m
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