REG - CYBG PLCClydesdale Bank PLC - Half-year Report <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 6
16/05/2017 07:06
- Part 6: For the preceding part double click ID:nRSP1995Fe
═════════ ═════════
At 31 March 2017, management has assessed the recoverability of deferred tax assets, and in accordance with IAS 12
recognised those whose recoverability is expected within the corporate planning horizon. The impact of this is to bring on
balance sheet tax losses with a value of £3m that had previously been written off. In addition to this, historic tax
losses with a tax value of £4m have been recognised as part of the prior year adjustment (note 6). There remains an
unrecognised deferred tax asset of £195m (30 September 2016: £202m) representing trading losses with a gross value of
£1,148m (30 September 2016: £1,186m). A deferred tax asset has not been recognised in respect of these losses as the
Directors have insufficient certainty over their recoverability in the foreseeable future.
The statutory rate of UK corporation tax has been 20% since 1 April 2015. A series of reductions in that rate has been
enacted by subsequent legislation, in particular to 19% from 1 April 2017 and to 17% from 1 April 2020. In accordance with
IAS 12, these rates are taken into account in assessing the value at which assets are expected to be realised and
liabilities settled.
From 1 April 2016, only 25% of a bank's profits can be relieved by brought forward losses. In addition to the Banking Loss
Restriction the Group will also be subject to the Corporation Tax Loss Restriction from 1 April 2017, however the
legislation in respect of the new restriction is not substantively enacted at the balance sheet date. Management is
currently assessing the impact of the draft legislation.
13. Due to other banks
31 Mar 2017(unaudited)£m 30 Sep 2016(audited)£m
Transaction balances with other banks 32 23
Securities sold under agreements to repurchase 1,014 1,226
Deposits from other banks 34 60
Secured loans 1,900 -
───────── ─────────
2,980 1,309
═════════ ═════════
Secured loans comprise amounts drawn under the TFS.
Notes to the interim condensed consolidated financial statements (continued)
14. Provisions for liabilities and charges
PPI redress provision
Opening balance 725 774
Charge to the income statement (note 5) 15 44
Charge covered by Conduct Indemnity 135 406
Utilised (381) (499)
───────── ─────────
Closing balance 494 725
───────── ─────────
Customer redress and other provisions
Opening balance 101 214
Charge to the income statement (note 5) 4 8
Charge reimbursed under Conduct Indemnity 36 27
Utilised (49) (148)
───────── ─────────
Closing balance 92 101
───────── ─────────
Restructuring provision (1)
Opening balance 26 18
Charge to the income statement (note 5) 48 39
Utilised (21) (31)
───────── ─────────
Closing balance 53 26
───────── ─────────
Total provisions for liabilities and charges 639 852
═════════ ═════════
═════════
═════════
(1) Restructuring provision includes surplus lease space provision.
A provision is recognised when there is a present obligation as a result of a past event, it is probable that the
obligation will be settled and it can be reliably estimated. The most significant of the provisions held at 31 March 2017
is in relation to conduct risk related liabilities. The Group's economic exposure to the impact of historic conduct
related liabilities is mitigated by the Capped Indemnity from NAB (see below).
Management has exercised significant judgement around the key assumptions that underpin the estimates and used estimation
techniques to quantify them. Ongoing regulatory review and input, as well as rulings from the Financial Ombudsman Service
("FOS") over time, and the Group's internal reviews and assessments of customer complaints, will continue to impact upon
the nature and extent of conduct related customer redress and associated costs for which the Group may ultimately become
liable in future periods. Accordingly the total cost associated with such conduct related matters remains inherently
uncertain.
PPI redress
In common with the wider UK retail banking sector, the Group continues to deal with complaints and redress issues arising
out of historic sales of PPI. In the first half of the year the Group reassessed the level of provision that was
considered appropriate to meet current and future expectations in relation to the mis-selling of PPI policies and concluded
that a further charge of £150m was required incorporating the Group's estimate of the impact of PS17/3 issued on 2 March
2017 relating to a proposed time bar for complaints in August 2019. It also incorporated a reassessment of the costs of
processing cases and the impact of experience adjustments. Only 9.7% of the charge impacts the Group's income statement
(£15m) as a result of the Capped Indemnity. The total provision raised to date in respect of PPI is £1,796m (30 September
2016: £1,646m), with £494m of this remaining (30 September 2016: £725m).
To 31 March 2017, the Group has received 317,000 complaints (30 September 2016: 282,000) and has provided for 49,000
further walk in complaints (30 September 2016: 59,000).
Notes to the interim condensed consolidated financial statements (continued)
14. Provisions for liabilities and charges (continued)
PPI redress (continued)
The Group implemented a comprehensive new PPI complaint handling process from August 2014 which involved making a number of
significant changes to the PPI operations which resulted in an increase in operational and administrative costs. As
reported previously, the Group is in the process of re-opening approximately 180,000 complaints and reviewing the original
decision reached in light of the new PPI complaint handling processes. Over half of these complaints have been reviewed
and concluded during this period.
In addition to the remediation activity described above, the Group has undertaken a past business review (PBR) of certain
PPI sales, which is near completion, to determine if there was actual or potential customer detriment in the sales process
leading to a risk of mis-sale and the potential for proactive redress. The review indicates a more favourable outcome than
allowed for in the assumptions underpinning the provision as at 30 September 2016.
The increase in provision has taken into account all of the above factors as well as a revision in the Group's expectation
of new customer initiated complaints in light of current experience with the overall provision based on a number of
assumptions derived from a combination of past experience, estimated future experience, industry comparison and the
exercise of judgement in the key areas identified. There remain risks and uncertainties in relation to these assumptions
and consequently in relation to the ultimate costs of redress and related costs, including: (i) the number of PPI claims
(and the extent to which this is influenced by the activity of claims management companies, the application of a time bar,
Plevin, and FCA advertising); (ii) the number of those claims that ultimately will be upheld; (iii) the amount that will be
paid in respect of those claims; (iv) any additional amounts that may need to be paid in respect to previously handled
claims; (v) the response rates to the proactive customer contact; and (vi) the costs of administering the remediation
programme.
As such, the factors discussed above mean there is a risk that existing provisions for PPI customer redress may not cover
all potential costs. In light of this, the eventual costs of PPI redress and complaint handling may therefore differ
materially from that estimated and further provision could be required. Accordingly, the final amount required to settle
the Group's potential PPI liabilities remains uncertain.
Notes to the interim condensed consolidated financial statements (continued)
14. Provisions for liabilities and charges (continued)
Customer redress and other provisions
In addition to PPI redress set out above, provision for customer redress is held in those instances where the Group expects
to make payments to customers whether on an ex-gratia or compensatory basis. Provisions can arise as a result of legal or
regulatory action and can incorporate the costs of skilled persons, independent reviewers, and where appropriate other
elements of administration. The most significant of these relates to the Group's interest rate hedging products (IRHP) and
fixed rate tailored business loans (FRTBL).
The Group has reassessed the level of provision considered necessary in light of the current and future expected claims for
all of these matters and concluded that no changes to the level of provision held are required, reflecting the continued
wind down of the formal programmes, which are expected to have completed by the end of the year, and the current level of
complaints received.
Other provisions also include amounts in respect of a number of individually less significant conduct related matters,
legal proceedings, and claims arising in the ordinary course of the Group's business. Over the course of the past six
months the Group has raised further provisions of £40m for these matters, but only 9.7% of the charge impacts the Group's
income statement (£4m) as a result of the Capped Indemnity. The ultimate cost to the Group of other customer redress
matters is driven by a number of factors relating to offers of redress, compensation, offers of alternative products,
consequential loss claims and administrative costs. The matters are at varying stages of their lifecycle and in certain
circumstances, usually early in the life of a potential issue, elements of the potential exposure are contingent. These
factors could result in the total cost of review and redress varying materially from the Group's estimate. The final
amount required to settle the Group's potential liabilities in these matters is therefore uncertain and further provision
could be required. During the period £Nil (30 September 2016: £1m) was also recognised for provisions not related to
customer redress / conduct risk.
Conduct Indemnity Deed
The Company and NAB have entered into an agreement under which NAB has provided the Company with a Capped Indemnity to meet
the costs of dealing with conduct matters related to products sold in the period prior to the date of the Group's demerger
from NAB (the Conduct Indemnity Deed). The legacy conduct matters covered by the Capped Indemnity are referred to as
Relevant Conduct Matters. The Capped Indemnity provides the Group with economic protection against certain costs and
liabilities (including financial penalties imposed by a regulator) resulting from conduct issues relating to:
a) PPI, standalone interest rate hedging products, voluntary scope tailored business loans and fixed rate tailored business loans; and
b) Other conduct matters, subject to certain limitations and minimum financial thresholds.
Amounts payable under the Capped Indemnity include, subject to certain limitations, payments to customers to satisfy,
settle or discharge a Relevant Conduct Matter and the direct costs and expenses of satisfying, settling, discharging or
administering such Relevant Conduct Matter.
It has been agreed that NAB will meet 90.3% of Qualifying Conduct Costs claimed by the Company, up to the amount of the
Capped Indemnity.
Notes to the interim condensed consolidated financial statements (continued)
14. Provisions for liabilities and charges (continued)
Conduct Indemnity (continued)
Claims under the Capped Indemnity are recognised in the consolidated income statement simultaneously with the charge for
Relevant Conduct Matters. The conduct expense and associated reimbursement income are presented net within Other operating
and administrative expenses. A reimbursement receivable is recognised on the consolidated balance sheet within Due from
Other Banks; this receivable is periodically settled by NAB. The reimbursement receivable is not offset against the
provision amount on the Group's consolidated balance sheet. The provision expense and reimbursement income are disclosed
above.
No reimbursement income or receivable is recognised on the consolidated balance sheet in relation to contingent liabilities
for Relevant Conduct Matters. Any possible future reimbursement income linked to contingent liabilities in respect of
Relevant Conduct Matters is not disclosed as a contingent asset as the amounts cannot be reliably estimated and are not
virtually certain to be received.
To the extent that it is no longer probable that provisions for a Relevant Conduct Matter previously raised will be
required to settle conduct obligations and a provision for a Relevant Conduct Matter is released as unutilised, the related
Capped Indemnity amounts received will become repayable to NAB.
To the extent that tax relief is expected in relation to provisions for which reimbursement income is applicable, amounts
may become repayable to NAB. In the consolidated financial statements, deferred tax assets are only recognised in respect
of the Loss share proportion (9.7%) of unused tax losses on Relevant Conduct Matters, on the basis that the Group does not
obtain the economic benefit of the future tax relief which is repayable to NAB.
The utilisation and undrawn balance of the Capped Indemnity is set out below:
Conduct protection provided by NAB (audited) 1,700
Capital injected into CYBI prior to demerger (audited) (1) (120)
Drawn in period to 30 September 2016 (audited) (2) (898)
─────────
Undrawn Conduct Indemnity as at 30 September 2016 (audited) 682
Drawn in the period to 31 March 2017 (unaudited) (36)
Amount to be drawn relating to the period to 31 March 2017 (unaudited) (135)
─────────
Balance as at 31 March 2017 (unaudited) 511
─────────
─────────
(1) £120m of the £670m of capital injected in CYBI on 24 September 2015 was related to the Conduct Indemnity Deed.
(2) £465m of the £898m represents the Pre-Covered provision amount.
Restructuring provision
Restructuring of the business is currently ongoing and a provision is held to cover redundancy payments, property vacation
costs and associated enablement costs. In the period to 31 March 2017 £53m (year to 30 September 2016: £45m) was charged
to the income statement, of which £5m (year to 30 September 2016: £6m) was charged directly to the income statement and
£48m (year to 30 September 2016: £39m) was provided for in accordance with the requirements of IAS 37. £21m (year to 30
September 2016: £31m) of the total provision was utilised in the period.
Included within the restructuring provision is an amount for committed rental expense on surplus lease space consistent
with the expected years' exposure on individual leases where the property is unoccupied. This element of the provision
will be utilised over the remaining life of the leases or until the leases are assigned, and is measured at present values
by discounting anticipated future cash flows.
Notes to the interim condensed consolidated financial statements (continued)
15. Debt securities in issue
31 March 2017 (unaudited) Subordinateddebt Securitisation Covered bonds Total
£m £m £m £m
Carrying value 477 2,904 698 4,079
Fair value hedge adjustments - - 68 68
───────── ───────── ───────── ─────────
Total debt securities 477 2,904 766 4,147
Accrued interest payable 3 4 26 33
───────── ───────── ───────── ─────────
480 2,908 792 4,180
═════════ ═════════ ═════════ ═════════
30 September 2016 (audited) Subordinateddebt Securitisation Covered bonds Total
£m £m £m £m
Carrying value 477 3,208 698 4,383
Fair value hedge adjustments - - 99 99
───────── ───────── ───────── ─────────
Total debt securities 477 3,208 797 4,482
Accrued interest payable 3 6 10 19
───────── ───────── ───────── ─────────
480 3,214 807 4,501
═════════ ═════════ ═════════ ═════════
There were no new issuances or redemptions of covered bonds or securitised debt during the period to 31 March 2017. The
reduction in the securitisation carrying value is as a result of scheduled principal repayments.
Notes to the interim condensed consolidated financial statements (continued)
16. Retirement benefit obligations
The Group operates both defined benefit and defined contribution arrangements. The Group is the sponsoring employer in one
funded defined benefit pension scheme, the Yorkshire and Clydesdale Bank Pension Scheme (the 'Scheme'). The Scheme was
established under trust on 30 September 2009 as the result of the merger of the Clydesdale Bank Pension Scheme and the
Yorkshire Bank Pension Fund. The assets of the Scheme are held in a trustee administered fund; the trustee is responsible
for the operation and governance of the Scheme, including making decisions regarding the Scheme's funding and investment
strategy.
The Scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December
2005. This, together with documents issued by the Pensions Regulator, sets out the framework for funding defined benefit
occupational pension plans in the UK.
The Group also provides post-retirement health care under a defined benefit scheme for pensioners and their dependent
relatives for which provision has been made. This is a closed scheme and the provision will be utilised over the life of
the remaining scheme members.
The following table provides a summary of the present value of the defined benefit obligation and fair value of plan assets
for the Scheme:
Active members' defined benefit obligation (1,228) (1,264)
Deferred members' defined benefit obligation (1,703) (1,776)
Pensioner and dependent members' defined benefit obligation (1,442) (1,497)
───────── ─────────
Total defined benefit obligation (4,373) (4,537)
Fair value of scheme assets 4,345 4,462
───────── ─────────
Net defined benefit pension liability (28) (75)
Post-retirement medical benefits obligations (3) (4)
───────── ─────────
(31) (79)
═════════ ═════════
═════════
═════════
17. Called up share capital
Allotted, called up and fully paid 31 Mar 2017(unaudited)Number ofShares 30 Sep 2016(audited)Number ofShares 31 Mar 2017(unaudited)£m 30 Sep 2016(audited)£m
Ordinary shares
Opening ordinary share capital 881,531,852 2,232,012,512 88 223
Share for share exchange - (1,352,697,256) - 876
Share capital reduction - - - (1,011)
Issued under employee share schemes 1,268,430 2,216,596 - -
────────── ────────── ───────── ─────────
Closing ordinary share capital 882,800,282 881,531,852 88 88
══════════ ══════════ ═════════ ═════════
The share for share exchange in the year to 30 September 2016 arose on the Group's demerger from NAB and listing on the
London Stock Exchange.
During the period 1,268,430 ordinary shares were issued under employee share schemes with a nominal value of £0.1m (30
September 2016: £0.2m).
Notes to the interim condensed consolidated financial statements (continued)
18. Total equity
31 Mar 2017(unaudited)£m 30 Sep 2016(audited)£m
Share capital (note 17) 88 88
Other equity instruments 450 450
Capital reorganisation reserve (839) (839)
Merger reserve 633 633
Retained earnings 2,843 2,779
Other reserves
Equity based compensation reserve 8 6
Asset revaluation reserve 1 1
Available for sale reserve 31 27
Cash flow hedge reserve 34 66
───────── ─────────
Total other reserves 74 100
───────── ─────────
Total equity 3,249 3,211
═════════ ═════════
Other equity instruments
On 8 February 2016, the Company issued Perpetual Contingent Convertible Notes (fixed 8%) with a principal amount of £450m
and an optional redemption on 8 December 2022 ('AT1 notes').
AT1 distributions of £18m were made in the current period, £15m net of tax relief (30 September 2016: £35m paid, £28m net
of tax relief).
Capital reorganisation reserve
The capital reorganisation reserve was recognised on the issuance of CYBG PLC ordinary shares in exchange for the
acquisition of the entire share capital of CYBI Limited ('CYBI'). The reserve reflects the difference between the
consideration for the issuance of CYBG PLC shares and CYBI's share capital and share premium.
Merger reserve
A merger reserve was recognised on the issuance of CYBG PLC ordinary shares in exchange for the acquisition of the entire
share capital of CYBI. The merger reserve reflects the difference between the consideration for the issuance of CYBG PLC
shares and the nominal value of the shares issued.
Equity based compensation reserve
The Group's equity based compensation reserve records the value of equity-settled share based payment benefits provided to
the Group's employees as part of their remuneration that has been charged through the income statement and adjusted for
deferred tax.
Asset revaluation reserve
The asset revaluation reserve includes the gross revaluation increments and decrements arising from the revaluation of land
and buildings.
Available for sale reserve
The available for sale reserve records the gains and losses arising from changes in the fair value of available for sale
financial assets, adjusted for deferred tax.
Notes to the interim condensed consolidated financial statements (continued)
18. Total equity (continued)
Cash flow hedge reserve
The cash flow hedge reserve represents the cumulative post-tax gains and losses on derivatives designated as cash flow
hedging instruments that will be recycled to the income statement when the hedged items affect profit or loss.
As at 31 March 2017, the cash flow hedge reserve was a credit of £34m (30 September 2016: £66m credit). The fair value of
derivatives in cash flow hedges decreased by £40m in the period (30 September 2016: £105m increase), and a £1.4m gain (30
September 2016: £2m gain) was recycled to interest income in line with hedged item affecting profit or loss. A £0.3m loss
(30 September 2016: £1m loss) was transferred to non-interest income due to ineffectiveness arising from cash flow hedges.
These movements were offset by a deferred tax credit of £9m (30 September 2016: charge of £25m).
19. Contingent liabilities and commitments
The table below sets out the contractual amounts of contingent liabilities and commitments which are not recorded on the
balance sheet. Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of
credit, guarantees and commitments to extend credit. The amounts do not represent the amounts at risk at the balance sheet
date but the amounts that would be at risk should the contracts be fully drawn upon and the client default. Since a
significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the
contract amounts is not representative of future liquidity requirements.
31 Mar 2017(unaudited)£m 30 Sep 2016(audited)£m
Contingent liabilities
Guarantees and assets pledged as collateral security:
At call - -
Due in less than 3 months 16 19
Due between 3 months and 1 year 41 44
Due between 1 year and 3 years 8 9
Due between 3 years and 5 years 3 3
Due after 5 years 44 48
───────── ─────────
112 123
═════════ ═════════
Other commitments:
Undrawn formal standby facilities, credit lines and othercommitments to lend at call 8,346 7,690
═════════ ═════════
Other contingent liabilities
Financial Services Compensation Scheme (FSCS)
The FSCS provides compensation to depositors in the event that a financial institution is unable to repay amounts due.
Following the failure of a number of financial institutions, claims were triggered against the FSCS, initially to pay
interest on borrowings which the FSCS has raised from the UK Government to support the protected deposits. During 2015,
the FSCS levy was also invoiced to institutions for the third of three annual levies to cover capital repayments to the UK
Government. The principal of these borrowings, which remains after the three annual levies have been paid, is anticipated
to be repaid from the realisation of the assets of the defaulted institutions. The FSCS has however confirmed that the
size of the future levies will be kept under review in light of developments from the insolvent estates.
The FSCS has estimated levies due to 31 March 2017 for the interest on borrowings and an accrual of £6m (30 September 2016:
£8m) is held for the Group's calculated liability to that date. The ultimate FSCS levy as a result of the failures is
uncertain.
Notes to the interim condensed consolidated financial statements (continued)
Other contingent liabilities (continued)
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 14 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 NAB (note 14). 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.
20. Fair value of financial instruments
(a) Fair value of financial instruments carried 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 remain
unaltered from those used at 30 September 2016.
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.
31 March 2017(unaudited) 30 September 2016(audited)
─────────────── ───────────────
Carryingvalue Fairvalue Carryingvalue Fairvalue
£m £m £m £m
─────────────── ───────────────
Financial assets
Loans and advances to customers 29,914 30,621 29,202 29,298
Financial liabilities
Due to customers 26,383 26,443 27,090 27,114
Debt securities in issue 4,180 4,265 4,501 4,592
────────────── ──────────────
Notes to the interim condensed consolidated financial statements (continued)
20. Fair value of financial instruments (continued)
(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 20(a) above.
───────────────────────── ─────────────────────────
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 - 356 - 356 - 585 - 585
Available for sale investments - listed 1,994 - - 1,994 1,695 - - 1,695
Available for sale investments - unlisted - - 29 29 - - 29 29
Available for sale - other - - 6 6 - - 7 7
Other financial assets at fair value - - 570 570 - - 750 750
───────────────────────── ─────────────────────────
Total financial assets at fair value 1,994 356 605 2,955 1,695 585 786 3,066
═════════════════════════ ═════════════════════════
Financial liabilities
Derivative financial liabilities - 411 - 411 - 598 - 598
Other financial liabilities at fair value - - 32 32 - - 48 48
───────────────────────── ─────────────────────────
Total financial liabilities at fair value - 411 32 443 - 598 48 646
═════════════════════════ ═════════════════════════
═════════════════════════
═════════════════════════
There were no transfers between Level 1 and 2 in the current or prior period.
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: Period to 31 March 2017 (unaudited)
──────────────────────────────────────────
Financial assetsavailable for sale Other financialassets at fair value Other financialliabilities at fair value
£m £m £m
Balance at the beginning of the year 36 750 (48)
Fair value gains/(losses) recognised (1)
In profit or loss (unrealised) - (23) 1
In profit or loss (realised) - 1 -
In available for sale reserve (unrealised) - - -
Purchases - - -
Sales - - -
Settlements (1) (158) 15
──────────────────────────────────────────
Balance at the end of the year 35 570 (32)
══════════════════════════════════════════
(1) Net gains or losses were recorded in non-interest income, interest income or expense and impairment losses or within the Available for Sale Reserve as appropriate.
Notes to the interim condensed consolidated financial statements (continued)
20. Fair value of financial instruments (continued)
(b) Fair value of financial instruments recognised on the balance sheet at fair value (continued)
Level 3 movement analysis: Year to 30 September 2016 (audited)
──────────────────────────────────────────
Financial assetsavailable for sale Other financialassets at fair value Other financialliabilities 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)
══════════════════════════════════════════
(1) Net gains 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 included a realised loss of £5m 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 4).
There were no transfers into or out of Level 3 in the period ended 31 March 2017 (30 September 2016: £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.
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 31 March 2017.
Fairvalue(unaudited) Valuationtechnique Unobservableinputs Lowrange Highrange
£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 6 Discounted cash flow Customerattrition rate 10% 30%
Other financial assets at fair value 570 Discounted cash flow Portfolio lifetimeprobability of default (PD) 2.4% 11.2%
The Group has £32m (30 September 2016: £48m) 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.
The available for sale - investments - unlisted includes the fair value of the Group's investment in VocaLink, which is
based on the offer set out in the conditional agreement to acquire 92.4% of VocaLink Holdings Limited announced by
MasterCard on 21 July 2016. The transaction completed on 28 April 2017 and the consideration received was aligned to the
carrying value.
Notes to the interim condensed consolidated financial statements (continued)
20. Fair value of financial instruments (continued)
(b) Fair value of financial instruments recognised on the balance sheet at fair value (continued)
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 £4m and vice versa.
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.
21. Events after the balance sheet date
In March 2017 the Group announced to employees a two month consultation period for a proposal to close the defined benefit
scheme to future benefit accrual. The terms of the proposal under consultation would remove the volatility associated with
additional future accrual for active members, as well as reducing the existing retirement benefit obligations in the
balance sheet. The magnitude of that reduction is likely to be non-trivial but cannot be confirmed until the consultation
process has concluded and the basis on which the closure will be implemented has been determined. Based on our current
timetable, the outcome will be known in late July and the financial impact will be assessed in the second half of the
year.
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
CREDIT RISK
Credit risk is the risk of loss of principal or interest stemming from a borrower's failure to meet contracted obligations
to the Group in accordance with the terms agreed. Credit risk is evident at both a portfolio and transactional level.
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 by credit quality
As at 31 March 2017(unaudited) Retailoverdrafts£m Creditcards£m Otherretail lending£m Mortgages£m Leasefinance£m SMElending (1)£m Total£m
Gross loans and advances to customers:
Neither past due nor impaired 54 382 604 22,034 517 5,851 29,442
Past due but not impaired 6 11 17 283 20 142 479
Impaired - - - 59 1 139 199
────── ────── ────── ────── ────── ────── ──────
60 393 621 22,376 538 6,132 30,120
══════ ══════ ══════ ══════ ══════ ══════ ══════
As at 30 September 2016(audited) Retailoverdrafts£m Creditcards£m Otherretaillending£m Mortgages£m Leasefinance£m SMElending (1)£m Total£m
Gross loans and advances to customers:
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
══════ ══════ ══════ ══════ ══════ ══════ ══════
(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
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
Gross loans and advances to customers including loansdesignated at fair value through profit or loss - by industry concentration (1) 31 Mar
- More to follow, for following part double click ID:nRSP1995FgRecent news on Aucyber
See all newsREG - CYBG PLC Clydesdale Bank PLC - Director/PDMR Shareholding <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Total Voting Rights <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Director/PDMR Shareholding <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Director/PDMR Shareholding <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Pillar 3 Disclosures <Origin Href="QuoteRef">CYBGC.L</Origin>
Announcement