REG - CYBG PLCClydesdale Bank PLC - Half-year Report <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 7
16/05/2017 07:06
- Part 7: For the preceding part double click ID:nRSP1995Ff
2017(unaudited)£m 30 Sep 2016(audited)£m
Government and public authorities 36 36
Agriculture, forestry, fishing and mining 1,377 1,458
Financial, investment and insurance 761 698
Property - construction 247 262
Manufacturing 528 577
Instalment loans to individuals and other personal lending
(including credit cards) 1,274 1,344
Property - mortgage 22,376 21,836
Asset and lease financing 538 515
Other commercial and industrial 3,554 3,421
───────── ─────────
30,691 30,147
═════════ ═════════
Contingent liabilities and credit related commitments - by industry concentration 31 Mar 2017(unaudited)£m 30 Sep 2016 (audited)£m
Government and public authorities 418 422
Agriculture, forestry, fishing and mining 372 382
Financial, investment and insurance 119 125
Property - construction 181 156
Manufacturing 674 658
Instalment loans to individuals and other personal lending
(including credit cards) 1,928 1,931
Property - mortgage 2,209 1,780
Asset and lease finance 122 98
Other commercial and industrial 2,435 2,261
───────── ─────────
8,458 7,813
═════════ ═════════
(1) Includes balance due from customers on acceptances and excludes accrued interest
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
Higher 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.
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
The table below presents the credit quality of SME loans and advances that are neither past due nor impaired:
31 Mar 2017(unaudited)£m 30 Sep 2016(audited)£m
Higher investment grade 841 1,077
Investment grade 1,853 1,557
Sub-investment grade 3,674 3,533
───────── ─────────
6,368 6,167
═════════ ═════════
The LTV ratio of retail mortgage lending, coupled with the relationship of the debt to customers' income, is key to the
credit quality of these loans. The table below sets out the indexed LTV analysis of the Group's Retail mortgage stock:
31 Mar 2017(unaudited)% 30 Sep 2016(audited)%
LTV ratio(1):
Less than 50% 34 34
50% to 75% 49 50
76% to 80% 7 6
81% to 85% 4 4
86% to 90% 3 2
91% to 95% 1 1
96% to 100% - -
Greater than 100% - -
Unknown 2 3
───────── ─────────
100 100
═════════ ═════════
(1) LTV of the mortgage portfolio is defined as mortgage portfolio weighted by balance and indexed using the MIAC Acadametrics indices at a given date. Unknown represents loans where data is not currently available due to front book data matching still to be completed and a de minimis amount due to weaknesses in historic data capture processes. Previously, indexation was determined using the Halifax house price index. Prior period comparatives have been restated on the new basis of indexation.
Forbearance
The tables below summarise the level of forbearance at each balance sheet date.
Retail forbearance - mortgages
As at 31 March 2017 (unaudited) Total loans and advances subject toforbearance measures Impairment allowance on loans and advances subject to forbearance measures
────────────────────────────── ────────────────────
Numberof loans Gross carryingamount % of totalportfolio Impairmentallowance Coverage
£m £m %
Formal arrangements 1,657 162 0.72 4.5 2.78
Temporary arrangements 1,491 173 0.77 3.0 1.73
Interest only conversion 183 28 0.13 0.1 0.50
Term extension 135 10 0.05 0.1 0.62
Other 26 2 0.01 - 0.44
Legal 184 18 0.08 1.0 5.88
────────────────────────────── ────────────────────
3,676 393 1.76 8.7 2.23
══════════════════════════════ ════════════════════
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
As at 30 September 2016 (audited) Total loans and advances subject toforbearance measures Impairment allowance on loansand advances subject toforbearance measures
────────────────────────────── ────────────────────
Numberof loans Gross carryingamount % of totalportfolio Impairmentallowance Coverage
£m £m %
Formal arrangements 1,843 169 0.78 5.5 3.27
Temporary arrangements 1,460 160 0.73 2.7 1.68
Interest only conversion 154 22 0.10 0.1 0.26
Term extension 123 11 0.05 0.1 0.61
Other 22 2 0.01 - 0.84
Legal 195 20 0.09 1.1 5.60
────────────────────────────── ────────────────────
3,797 384 1.76 9.5 2.48
══════════════════════════════ ════════════════════
The Group also has a number of customers with interest only mortgages past maturity, not subject to forbearance. The Group
has formal processes embedded to proactively track and facilitate pre-maturity customer engagement to bring the cases to a
formal conclusion which is generally aimed to be achieved within six months after the loan has reached maturity. Complex
cases can take longer than this to reach conclusion. At 31 March 2017, the Group had 104 (30 September 2016: 102)
customers with interest only mortgages not subject to forbearance and which were post six month maturity with a total value
of £13m (30 September 2016: £12m).
A further forbearance reserve of £4m (30 September 2016: £4m) is presently held within the overall collective provision.
The effect of this on the above tables would be to increase the impairment allowance noted above to £13m (30 September
2016: £14m) and to increase overall coverage to 3.24% (30 September 2016: 3.52%).
When all other avenues of resolution including forbearance have been explored the Group will take steps to repossess and
sell underlying collateral. In the period to 31 March 2017, there were 29 repossessions (12 months to 30 September 2016:
78) of which 6 (12 months to 30 September 2016: 27) were voluntary.
Retail forbearance - unsecured consumer credit
The Group currently exercises limited forbearance strategies in relation to other types of consumer credit, including
current accounts, unsecured loans and credit cards. The Group has assessed the total loan balances subject to forbearance
on other types of retail lending to be £12m at 31 March 2017 (30 September 2016: £14m), representing 1.16% of the unsecured
retail portfolio (30 September 2016: 1.33%). Impairment provisions on forborne balances totalled £3.3m at 31 March 2017 (30
September 2016: £4.2m) providing overall coverage of 26.19% (30 September 2016: 29.02%).
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
SME Forbearance
The tables below summarise the total number of arrangements in place and the loan balances and impairment provisions
associated with those arrangements.
As at 31 March 2017 (unaudited) Total loans and advances subject to forbearance measures Impairment allowance onloans and advancessubject to forbearance measures
────────────────────────────── ─────7
60 to 89 DPD - 1 2 28 - 4 35
Past due 90 days and over 1 3 4 111 - 31 150
────── ───── ────── ────── ────── ────── ──────
6 12 15 285 11 144 473
══════ ═════ ══════ ══════ ══════ ══════ ══════
(1) SME lending includes business overdrafts
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
Movements in impairment provisions throughout the year are as follows:
As at 31 March 2017(unaudited) Retailoverdrafts£m Creditcards£m Other retaillending£m Mortgages£m Leasefinance£m SMElending (1)£m Total£m
Opening balance 3 6 10 39 2 155 215
Charge for the period 2 4 5 - - 15 26
Amounts written off (2) (4) (6) (2) (1) (10) (25)
Recoveries of amounts writtenoff in previous years 1 1 1 - - (1) 2
Other (2) - - - - - 5 5
────── ───── ────── ────── ────── ────── ──────
Closing balance 4 7 10 37 1 164 223
══════ ═════ ══════ ══════ ══════ ══════ ══════
Specific - - - 17 - 55 72
Collective 4 7 10 20 1 109 151
────── ───── ────── ────── ────── ────── ──────
4 7 10 37 1 164 223
══════ ═════ ══════ ══════ ══════ ══════ ══════
As at 30 September 2016(audited) Retailoverdrafts£m Creditcards£m Otherretaillending£m Mortgages£m Leasefinance£m SMElending (1)£m Total£m
Opening balance 5 7 11 39 2 166 230
Charge for the year (1) 3 5 1 1 30 39
Amounts written off (4) (9) (14) (2) - (39) (68)
Recoveries of amounts writtenoff in previous years 4 5 7 1 - 1 18
Other (2) (1) - 1 - (1) (3) (4)
────── ───── ────── ────── ────── ────── ──────
Closing balance 3 6 10 39 2 155 215
══════ ═════ ══════ ══════ ══════ ══════ ══════
Specific - - - 19 1 44 64
Collective 3 6 10 20 1 111 151
────── ───── ────── ────── ────── ────── ──────
3 6 10 39 2 155 215
══════ ═════ ══════ ══════ ══════ ══════ ══════
(1) SME lending includes business overdrafts.
(2) Other includes the recognition of certain impaired loans which were previously recorded at fair value through profit or loss, the unwind of net present value elements of specific provisions and other minor movements.
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
BALANCE SHEET AND PRUDENTIAL REGULATION RISKS
Balance sheet risks in the financial services industry are highly regulated with ongoing changes in the regulatory
environment expected to influence the risks and their management. The key risks include capital, liquidity and funding
risks, market risk which in the case of the Group is non traded market risk (incorporating interest rate and foreign
exchange risks), pension risk and non traded equity risk.
CAPITAL RISK
Capital is held by the Group to protect its depositors, to cover inherent risks in a normal and stressed operating
environment and to support the Group's strategy of sustainable growth. Capital risk is the risk that the Group has
insufficient quantity or quality of capital to support its operations.
CET1 capital £m £m
─────────────────────────────────────────────────────────────────────────────────
Capital instruments 88 88
Retained earnings and other reserves 2,701 2,673
Regulatory adjustments and deductions:
Prudent valuation adjustment (2) (7) (7)
Intangible assets (3) (298) (256)
Deferred tax asset (DTA) relying on future profitability (4) (37) (35)
Cash flow hedge reserve (34) (66)
─────────────────────────────────────────────────────────────────────────────────
2,413 2,397
─────────────────────────────────────────────────────────────────────────────────
Tier 1 capital
─────────────────────────────────────────────────────────────────────────────────
AT1 capital instruments 450 450
─────────────────────────────────────────────────────────────────────────────────
Total Tier 1 capital 2,863 2,847
─────────────────────────────────────────────────────────────────────────────────
2,863
2,847
─────────────────────────────────────────────────────────────────────────────────
Tier 2 capital
─────────────────────────────────────────────────────────────────────────────────
Subordinated debt 474 474
Credit risk adjustments 151 151
─────────────────────────────────────────────────────────────────────────────────
625 625
─────────────────────────────────────────────────────────────────────────────────
Total capital 3,488 3,472
═════════════════════════════════════════════════════════════════════════════════
(1) This table shows the capital position on a CRD IV "fully loaded" basis.
(2) A prudent valuation adjustment is applied in respect of fair valued instruments as required under regulatory capital rules.
(3) Intangible assets do not qualify as capital for regulatory purposes.
(4) Under CRD IV, deferred tax assets that rely on future profitability are deducted from CET1 capital.
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
Reconciliation of statutory total equity to regulatory capital (unaudited) 31 Mar 2017 30 Sep 2016
£m £m
─────────────────────────────────────────────────────────────────────────────────
Statutory total equity 3,249 3,211
Deductions from capital (305) (263)
DTA relying on future profitability (37) (35)
Cash flow hedge reserve (34) (66)
Foreseeable AT1 dividends and charges (10) -
─────────────────────────────────────────────────────────────────────────────────
Regulatory Tier 1 capital 2,863 2,847
═════════════════════════════════════════════════════════════════════════════════
─────────────────────────────────────────────────────────────────────────────────
CET1 capital
CET1 capital at 1 October 2,397 2,405
Share for share exchange and nominal reduction - (135)
Share premium - (670)
Retained earnings and other reserves (including special purpose entities) 28 576
Prudent valuation adjustment - (2)
Intangible assets (42) 9
DTA relying on future profitability (2) 238
Defined benefit pension fund assets - 42
Cash flow hedge reserve 32 (66)
─────────────────────────────────────────────────────────────────────────────────
2,413 2,397
─────────────────────────────────────────────────────────────────────────────────
Tier 1 capital
Tier 1 capital at 1 October 450 450
Capital instruments repurchased: perpetual capital notes - (450)
Capital instruments issued: perpetual subordinated contingent convertible notes - 450
─────────────────────────────────────────────────────────────────────────────────
450 450
────ty 913 11,400 26,842 897 11,242 26,482
Exposures in default 57 714 569 33 408 340
Collective investments undertakings (CIU) - 2 2 - 3 3
Equity exposures 3 37 35 1 11 9
Items associated with particularly high risk 2 26 18 1 15 10
Covered bonds 3 38 380 2 19 191
Other items 44 552 1,800 42 519 1,650
───────────────────────────────────────────────────────── ───────────────────────
Total credit risk 1,393 17,408 45,409 1,352 16,906 42,473
═════════════════════════════════════════════════════════ ═══════════════════════
Operational risk 130 1,623 130 1,623
Counterparty risk 12 155 17 214
Credit valuation adjustment 16 195 23 286
───────────────────────────────────────────────── ───────────────
1,551 19,381 1,522 19,029
═════════════════════════════════════════════════ ═══════════════
The "Exposure" amounts disclosed above are post credit conversion factors and pre credit risk mitigation.
SUPPLEMENTARY RISK MANAGEMENT DISCLOSURES
Risk-weighted assets (unaudited) (1) 31 Mar 2017 30 Sep 2016
£m £m
─────────────────────────────────────────────────────────────────────────────────
Retail mortgages 8,249 7,998
SME lending 7,396 7,087
Other retail lending 907 915
Other lending 190 152
Other (2) 666 754
─────────────────────────────────────────────────────────────────────────────────
Credit risk 17,408 16,906
Credit valuation adjustment 195 286
Operational risk 1,623 1,623
Counterparty risk 155 214
─────────────────────────────────────────────────────────────────────────────────
Total risk-weighted assets 19,381 19,029
═════════════════════════════════════════════════════════════════════════════════
Capital ratios
─────────────────────────────────────────────────────────────────────────────────
CET1 ratio (3) 12.5% 12.6%
Tier 1 ratio 14.8% 15.0%
Total capital ratio 18.0% 18.2%
═════════════════════════════════════════════════════════════════════════════════
(1) Risk-weighted assets (RWAs) are calculated under the standardised approach.
(2) The items included in the "other" exposure class that attract a capital charge include items in the course of collection, cash in hand, fixed assets and other deferred tax
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