TIDM42SW
RNS Number : 4779H
Coventry Building Society
28 July 2023
28 July 2023
A strong performance, that has supported savers and borrowers,
invested in colleagues and communities, whilst building resilience
for the future through increasing capital strength and continued
investment in the business.
Commenting on these results, Steve Hughes, Chief Executive
Coventry Building Society, said:
"Changes to the interest rate environment have created
volatility in markets and a fast-moving situation for savers and
borrowers alike. In this context we have delivered a strong but
importantly a balanced performance by concentrating on great value
products and outstanding service, and ensuring we have the right
foundations in place to support our future success. We have
proactively supported borrowers, delivered greater benefit to
savers and enhanced our financial resilience. Our growth has been
ahead of the market, creating jobs and delivering on our
sustainability goals. These are important proof points of the
mutual model."
Growing mortgages and savings
-- Mortgage balances grew by GBP0.8bn (1.7%) to GBP48.8bn. We
have grown mortgage balances in a broadly flat market by taking a
responsible approach to lending that reflects current market
conditions and the needs of our members. Gross advances of GBP4.0bn
increased by 5.2% on H1 2022.
-- Savings balances grew by GBP3.2bn (7.5%) to GBP45.5bn . We
have grown savings by offering exceptional and competitive
products, with a focus of rewarding loyalty. We have paid higher
savings rates than the market average, increasing the premium we
pay members by more than 60% from GBP99m to GBP163m.
Strong financial performance
-- Profit before tax of GBP269m (H1 2022: GBP158m). The rising
interest rate environment supported an improved income performance
with a net interest margin of 1.34% (H1 2022: 1.11%) even after
offering better rates to savers and protecting variable rate
mortgage customers from the full rises in interest rates.
-- The Society's leverage ratio increased to 5.5% (FY 2022:
5.2%). Strong profitability has strengthened our capital position
and resilience facing into a weaker economic outlook. The Common
Equity Tier 1 (CET 1) ratio has also strengthened and remains well
above statutory requirements at 30.4% (FY 2022: 27.4%).
-- Continued low arrears balances of 0.22% of mortgages more
than three months in arrears (FY 2022: 0.17%). The credit quality
of our mortgage book remains resilient and less than a third of
industry average(1) .
Delivering on our service promise whilst continuing to invest
for the future
-- Excellent customer service with Experience Net Promoter Score
of +74 (FY 2022: +75) and investment in operational capacity during
a period of exceptional demand from members, customers and
brokers.
-- Invested GBP44m in H1 2023 in technology infrastructure,
digital transformation, operational and financial resilience with
further key milestones due in H2.
Supporting colleagues and the communities we serve
-- We launched our new corporate partnership with Centrepoint to
support its national and local programmes to end youth
homelessness.
-- First building society to achieve B Corp status. We're the
first UK building society to be awarded B Corp accreditation,
global gold standard for sustainability.
-- Improved our ranking in the Great Place to Work table of
super large organisations from 17 to 13 , as well as being
recognised as one of the best places to work for women in super
large UK companies.
1. Based on UK Finance Q1 2023 published data.
Chief Executive review
Significant change in the interest rate environment
The last 18 months has seen significant change in the interest
rate environment, with the Bank of England raising the base rate to
5% in a bid to reduce inflation, which has been running at levels
not experienced for 40 years. It is now clear that, in the UK at
least, inflation is proving more difficult to bring down than
initially anticipated and that further interest rate rises are
likely during the year. There is no doubt that the speed and extent
of these changes is an increasing concern for many borrowers,
particularly those who are coming to the end of fixed rate
deals.
The impact on homeowners, landlords and tenants is significant
and the full implications of the increased borrowing costs have yet
to be seen. In this context, I expect the Society's track record of
responsible customer-focused lending to hold us in good stead, and
we will continue to support those who need our help. We have
already contacted several thousand of our mortgage borrowers who we
felt were the most affected. Our care and support has been welcomed
but thankfully only a very small number have needed any additional
help to date. This proactive approach and the extensive forbearance
arrangements already in place have been further underlined by
signing up to the Government's Mortgage Charter Initiative.
It is unsurprising given this context that the mortgage market
has been fast-moving and unpredictable during the first half of
2023. Uncertainty about costs of funds, pricing and service has led
lenders to re-price or withdraw products with little notice, which
has been challenging in turn for brokers and borrowers.
Supporting borrowers and intermediary partners
We have stayed open for business, protecting our customers and
distribution partners by our long-held commitment to provide 48
hours' notice of product withdrawal and the strength of our overall
mortgage proposition. We continue to enhance our service through
the delivery of our mortgage transformation programme where we have
already implemented digital rate switch and are soon to launch new
digital mortgage journeys.
We have grown mortgage balances by GBP0.8 billion (H1 2022:
GBPnil), taking a responsible approach to lending that reflects the
uncertain market conditions and the needs of our customers. This
growth, which includes gross advances of GBP4.0 billion, up 5% on
H1 2022, and an increase in our share of the first time buyer
market, was achieved in a broadly flat market and really
demonstrates the strength of our overall proposition.
Whilst we must be responsive to the overall market to remain
competitive, our record in increasing Standard Variable Rate by
2.75% since December 2021, the period in which the base rate has
increased by 4.9%, as well as offering some of our best rates to
existing customers when switching products, demonstrates that
loyalty is rewarded on the mortgage side as well as the savings
side of the business. And, as I've mentioned, we are proactively
contacting people we believe may need additional support.
Our customer-focused approach and quality of our underwriting
capability is clearly demonstrated in our continued low level of
arrears. At just 0.22% (FY 2022: 0.17%), these remain appreciably
lower than the market average(1) and consistent with our position
last year. The application of prudent stress testing is clearly a
factor in this, and it is encouraging that relatively few borrowers
have made use of additional help we can offer where needed.
This approach extends to our buy to let lending where we remain
one of the leading providers in the UK. There is no doubt that
regulatory requirements and rising interest rates are proving
challenging, particularly to small-scale landlords. It is our
belief that a healthy private rental sector is a critical part of
the overall housing market and attention must be given to
supporting landlords, and of course tenants, if the current housing
challenges are going to be addressed. However the resilience of our
lending to the buy to let market, both in terms of maintaining
volumes and our strong credit risk position, shows this sector
remains viable in challenging circumstances.
Overall, redemptions are still running slightly higher than in
previous years, and it is to be expected that speculation about
further base rate rises may encourage some borrowers to seek more
security over the coming months. But our growth in mortgage
balances shows we remain very much open for business and are doing
all we can to support borrowers and our intermediary partners.
Delivering value to savers
We have grown savings by offering exceptional and market-leading
products, with a particular focus of rewarding loyalty. During the
ISA season, we launched a Loyalty Fixed Rate ISA that was 0.2%
above its nearest rival. Nearly 60,000 members applied, over half
having been members of the Society for more than 10 years. At a
time when building societies are finding innovative ways to
underline the benefits of the mutual business model, our simple
strategy of providing fantastic value backed by outstanding service
to all members is making a strong contribution to the debate. Over
the last 18 months over 190,000 members have benefited from our
loyalty propositions.
During the first half of 2023 our average savings rate(2) was
2.7%, compared to 0.9% for the first half of 2022, and was around
0.8% higher than the market average. This increased the amount of
additional interest we pay to our savers from GBP99 million in the
first six months of 2022 to GBP163 million(3) in the first six
months of 2023 than if we'd simply matched the average in the
market. This 65% increase in the value we pay our members clearly
demonstrates our commitment to paying the best rates we can afford,
and our performance in passing on the benefit of the rising
interest rate environment where we can.
The result is equally clear. Great products and great value have
attracted more savers to the Society, increasing our overall
savings balances by GBP3.2 billion (7.5%) to GBP45.5 billion as a
result (H1 2022 1.0%). An important proof point of the benefits of
mutuality.
Delivering on our service promise
Value is important to our members in terms of our rates but many
stay with us because of our fantastic service. This is something we
absolutely believe in, and we work exceptionally hard to provide a
level of service which stands out in the industry.
At times, particularly when the market is changing fast and we
are offering great value products, this can be challenging. I've
already mentioned our commitment to provide 48 hours' notice before
withdrawing mortgage products and brokers regularly take to social
media or tell us directly how much they appreciate it. It doesn't
happen easily and there are times when giving 48 hours' notice puts
our service under a lot of pressure. But we believe it is the right
thing to do.
It is the same with our savers. It is clear that our members are
needing more time and support to help make the right decisions and
that these decisions are increasingly important. It means they
contact us more often and conversations take longer. We have
adapted to this by recruiting more colleagues and changing the way
branches and the call centre work. A fantastic savings product,
like the Loyalty ISA in April or the more recent loyalty bonds,
will still lead to peaks of demand and longer wait times than we
aim for. Our investment in this area is working and our average
call waiting time has reduced from 207 seconds for 2022 full year,
to 155 seconds(4) in the first six months of this year. We strive
for excellence but this performance still stands comparison with
the best in the market and we can be proud of what we have
delivered during a very busy six months.
Our members tell us when they talk to our colleagues, they have
a fantastic experience. We use a Net Promoter Score (NPS)(5) to
measure satisfaction and our overall NPS remains outstanding at +74
(FY 2022: +75). At the heart of this performance is the way
colleagues consistently offer such a warm, expert and professional
service. As we digitise more of our operations, we are improving
our capability to manage the periods of peak demand, but we will
not compromise on the human touch that makes the Society so trusted
by our members.
Our investment in the business remains on track with significant
milestones to enhancing our services, our operational resilience
and the transformation of our financial systems being achieved
during the reporting period. Our digital infrastructure, mobile app
and enhancements to our mortgage servicing are progressing well
with significant deliverables expected during the latter half of
2023. Collectively these represent complex and critical programmes
that show our ability to implement and benefit from transformative
change across all parts of the organisation.
A strong and sustainable performance
As well as delivering for our current members, we need to build
upon the foundations for our future success. In this period, we
have made balanced decisions in support of our borrowers and
savers, but consciously chosen to strengthen our capital base too.
It means we have delivered a strong and sustainable performance,
that enhances the Society's resilience and supports our future
ambition.
Our profit before tax of GBP269 million for the six months to 30
June 2023 compares with GBP158 million reported in the same period
of 2022. This has enabled us to increase our UK leverage ratio to
5.5% (FY 2022: 5.2%) and our Common Equity Tier 1 ratio to 30.4%
(FY 2022: 27.4%). The ability to enhance our capital position
whilst also increasing the member value by 65% shows not simply the
strength of the business but also the balance we bring to all
decision-making. In this instance, balance is about the needs of
current and future members. The member value rewards current
members whilst our strong capital position supports investment and
growth for the years to come.
Supporting colleagues and the communities we serve
It is the essence of our mutual business model which aims to
take the long-term view and to act responsibly with all
stakeholders, including my colleagues and the communities we serve.
I was delighted in March to hear that we had not only retained but
improved our position in the UK's Great Place to Work survey, with
our overall Trust score now at +77%. In the Super Large category of
organisations that met the Great Place to Work benchmark we
improved our position by four places from 17 to 13.
This is a critical part of our success. Ensuring that nearly
3,000 colleagues are engaged, motivated and supported is the only
way we can meet the expectations of members and other stakeholders
and succeed in such a competitive industry. We have improved our
position by listening and acting on what our colleagues say and we
will continue to do so.
Central to this is our work focusing on colleague wellbeing and
building a diverse and inclusive workforce. One of our targets is
for 50% of management roles to be held by women by 2025 and this
year we have achieved this at executive level, with 45% of
management positions overall being undertaken by women. We have a
similar ambition for 25% of management roles to be held by
colleagues with a Black, Asian or Minority Ethnic background and
have received positive feedback from colleagues about the steps we
are taking to achieve this. There is more to do but we are
beginning to make a difference.
We are also making a difference in the communities we serve. In
2022, we invested over GBP3 million to our communities(6) . We will
do even more in 2023. The partnerships we have established with
schools, community groups and charities are delivering tangible
benefits and my colleagues make a fantastic contribution in
volunteering their time, energy and expertise. In March we launched
our new corporate partnership with Centrepoint to support its
national and local programmes. We are already well on the way to
delivering on this commitment in 2023.
I will finish by focusing on something that brings all of these
elements together; our performance, the way we work, our focus on
sustainability and our colleagues, as well as all aspects of our
wider stakeholder relationships. We have now been assessed for B
Corp(7) accreditation and are the first building society and one of
the first UK financial services organisations to be awarded this
accolade. B Corp is the global gold standard for sustainability
with an appropriately challenging assessment across all aspects of
our activities. This recognition absolutely underpins our ambition
and tells you a lot about the organisation we are.
Succeeding in a challenging environment
Looking ahead, it is clear that the UK economy is facing
challenges. The Bank of England is focused on delivering against
its inflation target of 2% and it is likely that interest rates
will remain elevated for the foreseeable future. There continues to
be the risk of the slowdown in the economy and house price
reduction. Many members are facing day-to-day challenges with the
cost of living, and we must do what we can to protect their
interests.
The soon to be introduced Consumer Duty regulations clearly show
the level of protection and support that financial services
organisations must provide. I believe this ethos is central to who
we are and what we do, and has been since we started in 1884.
We will continue to support our members by delivering value,
exceptional service and putting their interest at the heart of our
decision making. We will continue to invest for the future whilst
supporting members, colleagues, our business partners and the
communities we serve today. The balanced decisions we are taking
mean that the Society's financial performance has been
strengthened, achieving our strongest ever capital position, which
provides great reassurance and confidence in the face of future
economic uncertainty.
We are ambitious and will continue delivering on our
commitments. I'd like to thank my colleagues who through their hard
work make it all possible, and our members for their loyalty and
trust.
1. Based on UK Finance Q1 2023 published data.
2. Based on the average month end rate across the Society's mix
of products for savings accounts, excluding current accounts and
offset savings for the first six months of the year.
3. Based on the Society's average month end savings rate
compared to the CACI market average rate for savings accounts and
excluding current accounts, for the latest available data for the
five months ended 31 May 2023.
4. Based on average call waiting times between 1 January 2023
and 30 June 2023.
5. A measure of customer advocacy that ranges between -100 and
+100 which represents how likely a customer is to recommend our
products and services.
6. Total community investment made by the Society has been
determined in line with the Business for Societal Impact (B4SI)
framework.
7. B Corp status is the highest sustainability accolade awarded
to organisations by the Science Based Targets Initiative.
Financial Review
Income Statement
Period Period Year ended
to 30 June to 30 June 31 Dec
2023 2023 2022
Unaudited Unaudited Audited
GBPm GBPm GBPm
----------------------------- ----------- ----------- ----------
Interest receivable 1,346.4 547.5 1,421.1
----------------------------- ----------- ----------- ----------
Interest payable (942.5) (243.3) (763.8)
----------------------------- ----------- ----------- ----------
Net interest income 403.9 304.2 657.3
----------------------------- ----------- ----------- ----------
Other income (2.0) 0.4 (1.6)
----------------------------- ----------- ----------- ----------
Gains/(losses) on derivative
financial instruments 24.6 (4.9) 26.8
----------------------------- ----------- ----------- ----------
Total income 426.5 299.7 682.5
----------------------------- ----------- ----------- ----------
Management expenses (146.8) (138.8) (294.8)
----------------------------- ----------- ----------- ----------
Impairment charge (11.1) (2.3) (16.6)
----------------------------- ----------- ----------- ----------
Charitable donation to
Poppy Appeal - (0.3) (0.6)
----------------------------- ----------- ----------- ----------
Profit before tax 268.6 158.3 370.5
----------------------------- ----------- ----------- ----------
Tax (63.4) (33.1) (84.3)
----------------------------- ----------- ----------- ----------
Profit for the financial
period 205.2 125.2 286.2
----------------------------- ----------- ----------- ----------
Net interest income for the six month period to 30 June 2023 was
GBP404 million (30 June 2022: GBP304 million). The Bank of England
Base Rate has continued to rise, increasing to 5.0% from 0.25% at
the beginning of January 2022.
The overall increase in net interest income of GBP100 million
compared to the June 2022 period contributed to a Net Interest
Margin (NIM) of 1.34% (30 June 2022: 1.11%).
Interest receivable on mortgages increased by GBP158 million,
predominately as a result of the impact of base rate increases. In
addition we benefitted from a GBP180m increase related to interest
receivable on higher liquidity balances and GBP434 million on
mortgage and wholesale hedged derivatives.
Interest payable on retail savings increased by GBP383 million
following the base rate rises. Our average pass through rate on
savings for base rate increases in the six month period was 49%.
Throughout the period, the Society continued to pay above average
savings rates, returning GBP163 million (H1 2022: GBP99 million) in
member value compared to market average rates. A further GBP157m
interest payable arose from savings and wholesale hedged
derivatives.
Net interest income in the prior year included a charge of GBP17
million for the full year (H1 2022: GBP8.7 million) relating to a
change to the future assumptions on mortgage redemption behaviour
as customers spend less time on SVR.
Gains on derivative financial instruments
The Society uses derivative financial instruments to manage
interest rate and currency risks arising from its fixed mortgage
and savings activity and from non-sterling and fixed rate wholesale
issuances.
The Society applies hedge accounting where possible and its
approach continued to be effective throughout the period. The gain
in the first half of the year of GBP25 million (30 June 2022: GBP5
million loss) predominately reflects two things. Firstly, we have
updated our assumptions for mortgage prepayments. This has had the
effect of crystallising fair value gains on mortgage interest rate
swaps and resulted in a gain of GBP75 million. Secondly, with such
a significant increase in interest rates, we have seen members
choosing to pay penalty interest to exit their fixed rate ISA
products early and this has resulted in a loss of GBP48 million
arising from changes to customer behaviour assumptions.
Management expenses including depreciation and amortisation for
the period were GBP147 million (30 June 2022: GBP139 million). The
rise in costs of GBP8 million was primarily driven by an increase
in day-to-day running costs due to additional employee costs as we
seek to improve service levels and resiliency, as well as continued
inflationary impacts across all of our operations. The Society
remains focused on operating efficiency whilst navigating the
ongoing inflationary pressures and investment priorities.
Our strong financial performance has allowed the Society to
continue with its significant investment programme. The total spend
on investment, including capital expenditure, of GBP44 million (30
June 2022: GBP47 million) has been focused on activity to modernise
our services, with great progress on our digital roadmap and new
mortgage sales platform. In addition, we continue to make
improvements to operational resilience and have achieved some
significant milestones in our finance transformation programme.
The cost to income ratio has improved to 34%(1) (30 June 2022:
46%) reflecting the growth in income relative to our cost base in
the period. The cost to mean assets ratio of 0.49%(2) has also
marginally improved in the first six months of 2023 (H1 2022:
0.50%) and is expected to remain among the lowest in the building
society sector(3) .
Provision for expected credit losses
The performance of our mortgage book has remained resilient,
despite the backdrop of a worsening economic outlook with rising
interest rates, house price concerns, and stubborn levels of high
inflation presiding during the period.
The Society has updated its economic scenarios to account for
this, which has impacted its Expected Credit Losses (ECLs)
recognised in the period.
A deliberately cautious approach to estimating ECLs continues to
be applied, given the structural challenges facing our members from
both rising interest rates and the inflationary environment. As a
result of this the ECL provision has increased to GBP47 million (31
December 2022: GBP36 million) reflecting GBP3 million due to
worsening economic scenarios and a GBP8 million increase in the
cost of living post model adjustment (PMA). Overall a charge of
GBP11 million is recognised in the Income Statement (30 June 2022:
charge of GBP2 million).
Of the total expected credit loss provision, GBP28 million (31
December 2022: GBP19 million) relates to PMAs where core models do
not fully reflect the risk of expected credit loss given the market
environment. These adjustments related predominately to the cost of
living PMA noted above, alongside smaller adjustments for risks
that cannot easily be modelled, such as cladding and fraud.
The ECL provision now equates to 0.10% of the overall mortgage
book (31 December 2022: 0.07%), which is reflective of the more
challenging credit outlook.
IFRS 9 requires loans to be assessed as 'stage 2' where there
has been a significant increase in credit risk. Loans are held in
stage 2 until such a time when they are considered to have 'cured'
by performing for a sustained period of time, typically 12 months
from the stage 2 trigger event. In the first six months of 2023,
stage 2 accounts increased to 13% (31 December 2022: 9%)
principally due to more borrowers showing early signs of financial
hardship, as shown in the cost of living PMA. 86% of the mortgage
book remains in stage 1 (31 December 2022: 90%).
Charitable donation to the Poppy Appeal
At the end of 2022, the Society brought to an end its very
successful long-standing support for the Royal British Legion's
Poppy Appeal. All charitable donations are now included within
management expenses.
The Corporation tax charge represents an effective rate of tax
of 23.6% (30 June 2022: 20.9%). During the period, the standard
rate of UK corporation tax has increased from 19% to 25%, however
this has been offset by reductions to the banking surcharge.
Balance Sheet
30 June 30 June 31 Dec
2023 2022 2022
Unaudited Unaudited Audited
GBPm GBPm GBPm
-------------------------------- ---------- ---------- --------
Assets
-------------------------------- ---------- ---------- --------
Loans and advances to customers 48,849.4 46,642.7 48,014.3
-------------------------------- ---------- ---------- --------
Liquidity 11,736.3 8,543.2 10,009.8
-------------------------------- ---------- ---------- --------
Other 1,071.3 403.9 843.0
-------------------------------- ---------- ---------- --------
Total assets 61,657.0 55,589.8 58,867.1
-------------------------------- ---------- ---------- --------
Liabilities
-------------------------------- ---------- ---------- --------
Retail savings 45,460.7 40,291.6 42,288.7
-------------------------------- ---------- ---------- --------
Wholesale funding 12,380.6 12,422.3 13,207.2
-------------------------------- ---------- ---------- --------
Subordinated liabilities
and subscribed capital 57.0 56.9 57.0
-------------------------------- ---------- ---------- --------
Other 577.1 186.2 366.5
-------------------------------- ---------- ---------- --------
Total liabilities 58,475.4 52,957.0 55,919.4
-------------------------------- ---------- ---------- --------
Equity
-------------------------------- ---------- ---------- --------
General reserve 2,437.5 2,121.7 2,250.7
-------------------------------- ---------- ---------- --------
Other equity instruments 415.0 415.0 415.0
-------------------------------- ---------- ---------- --------
Other 329.1 96.1 282.0
-------------------------------- ---------- ---------- --------
Total equity 3,181.6 2,632.8 2,947.7
-------------------------------- ---------- ---------- --------
Total liabilities and
equity 61,657.0 55,589.8 58,867.1
-------------------------------- ---------- ---------- --------
Loans and advances to customers
The Society's lending strategy remains focused on high quality,
low loan to value owner-occupier and buy to let lending within the
prime residential market, distributed mainly through mortgage
intermediaries giving the Society a regionally diverse mortgage
portfolio in a cost-effective way.
The Society manages its growth according to economic conditions,
market pricing and funding conditions. The mortgage book has grown
GBP0.8 billion to GBP48.8 billion (31 December 2022: GBP48.0
billion) in the first six months of the year. During the period,
the Society advanced GBP4.0 billion of mortgages (30 June 2022:
GBP3.8 billion) offset by redemptions as customers look for rate
certainty in response to base rate rises.
The balance weighted average indexed loan to value of the
mortgage portfolio has seen a small increase to 52.5% at 30 June
2023 (31 December 2022: 51.0%) due to house price movements and new
lending.
Despite the current economic conditions, the Society continues
have very low arrears with only 0.22% of mortgages more than three
months in arrears (31 December 2022: 0.17%).
Liquidity
On-balance sheet liquid assets have increased to GBP11.7 billion
(31 December 2022: GBP10.0 billion) and the Liquidity Coverage
Ratio (LCR) at 30 June 2023 was 263% (31 December 2022: 195%),
significantly in excess of the regulatory minimum. This reflects
strong deposit inflows.
Retail savings
The Society continues to be predominantly funded by retail
savings, with balances of GBP45.5 billion at 30 June 2023 (31
December 2022: GBP42.3 billion) and growth of GBP3.2 billion in the
first six months of the year, which is reflective of our focus on
offering very competitive savings propositions which have proved
very popular with savers.
Wholesale funding
The Society uses wholesale funding(4) to provide diversification
of funding by source and term, supporting growth and lowering risk
by reducing the overall cost of funding. This benefits saving
members through better savings rates and mortgage customers by
enabling us to offer more competitive long-term rates. Wholesale
funding in the period has remained broadly stable at GBP12.4
billion (31 December 2022: GBP13.2 billion).
The Society previously accessed the Bank of England's Term
Funding Schemes with GBP5.25 billion drawn. Repayments of GBP1.35
billion have been made in the period and the outstanding drawings
at 30 June 2023 are GBP3.9 billion (31 December 2022: GBP5.25
billion).
Equity
The growth in equity of GBP234 million in the first half of the
year (30 June 2022: GBP173 million) predominately reflects retained
profit for the period of GBP205 million (30 June 2022: GBP125
million), GBP14 million distribution to Additional Tier 1 capital
holders (30 June 2022: GBP14 million) and GBP48 million (30 June
2022: GBP62 million) of positive movement in the cash flow hedge
reserve.
Capital Ratios
End-point End point End-point
30 Jun 30 Jun 31 Dec
2023 2022 2022
Unaudited GBPm GBPm GBPm
============================== =================== ========== ====================
Capital resources:
============================== =================== ========== ====================
Common Equity Tier 1 (CET
1) capital 2,357.0 2,000.5 2,169.0
============================== =================== ========== ====================
Total Tier 1 capital 2,772.0 2,415.5 2,584.0
============================== =================== ========== ====================
Total capital 2,772.0 2,415.5 2,584.0
============================== =================== ========== ====================
Risk weighted assets 7,757.2 6,680.8 7,911.7
============================== =================== ========== ====================
CRD V ratios % % %
============================== =================== ========== ====================
Common Equity Tier 1 (CET
1) ratio (%) 30.4 29.9 27.4
============================== =================== ========== ====================
Leverage ratio including
central bank reserves and
full AT1 capital amount (%) 4.7 4.4 4.5
============================== =================== ========== ====================
UK leverage ratio(5) (%) 5.5 5.0 5.2
============================== =================== ========== ====================
The table above provides a summary of the Society's capital
resources and CRD V ratios on an end-point basis (i.e. assuming all
CRD V requirements were in force in full with no transitional
provisions permitted).
Leverage
We are not currently bound by regulatory leverage ratios, which
measure Tier 1 capital against total exposures, including
off-balance sheet items. The UK leverage ratio framework will apply
to the Society at the point retail deposits exceed GBP50 billion.
The Society's UK leverage ratio increased to 5.5% due to the
increase in retained profits, and remains above the current
regulatory expectation of 3.25% minima.
Capital
The capital ratios include additional risk weighted assets
(RWAs) held for regulatory changes that are currently not reflected
in the IRB models, as previously disclosed within the 2022 Annual
Report & Accounts. The Society has submitted updated models to
the PRA but has yet to receive approval for changes to its
calculation of RWAs. When approval is granted, the final model
output may vary from those calculated, impacting the capital
ratios, effectively bringing forward some of the effect of
increasing RWAs envisaged in Basel 3.1.
The reduction in RWAs in the first half of the year is as a
result of the business as usual changes to mortgage book
composition and performance, together with a reduction in the
additional RWAs held for regulatory changes not reflected in the
current models. This latter change has been made to align the
adjustment with the new IRB models that were submitted to the
PRA.
As a result of retained profits in the period and reduced RWAs,
the CET 1 ratio has improved to 30.4% at 30 June 2023. Our CET 1
ratio remains significantly ahead of the Total Capital Requirement
for the Society which was 10.7% of risk weighted assets as at 30
June 2023.
From 2025, Basel 3.1 RWA floors are being phased in and will
reduce the Group's reported CET 1 ratio further, as they do not
give full credit for the Group's very low risk mortgage book.
Applying the Basel 3.1 RWA floors to the 30 June 2023 figures on a
full transition basis would result in a CET 1 ratio of
approximately 22%. The projected reduction in reported CET 1
measures has been included within the Society's financial plans,
ensuring we remain safe and secure.
The capital disclosures above are on a Group basis, including
all subsidiary entities. For regulatory purposes the Group also
reports on an Individual Consolidated basis, which only includes
those subsidiaries meeting particular criteria contained within CRD
V. The Individual Consolidated CET 1 ratio on an end-point basis at
30 June 2023 is 0.3% higher than the Group ratio due to assets held
by entities that sit outside of the Individual Consolidation,
primarily those held by the Group's securitisation and covered bond
entities.
1. Administrative expenses, depreciation and amortisation/ Total
income.
2. Administrative expenses, depreciation and
amortisation/Average total assets.
3. As at 27 July 2023 based on available market data.
4. Deposits from banks, Other deposits, Amounts owed to other
customers and Debt securities in issue.
5. The UK leverage ratio includes a restriction on the amount of
Additional Tier 1 (AT1) capital and excludes central bank reserves
from the calculation of leverage exposures.
Other Information
The Interim Financial Report has also been placed on the website
of Coventry Building Society at www.thecoventry.co.uk .
The directors are responsible for the maintenance and integrity
of the information on the Society's website. Information published
on the internet is accessible in many countries with different
legal requirements. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Forward Looking Statements
Certain statements in this Interim Financial Report are forward
looking. The Society, defined in this Interim Financial Report as
Coventry Building Society and its subsidiary undertakings, believes
that the expectations reflected in these forward looking statements
are reasonable based on the information available at the time of
the approval of this report. However, we can give no assurance that
these expectations will prove to be an accurate reflection of
actual results; because these statements involve risks and
uncertainties, actual results may differ materially from those
expressed or implied by these forward looking statements. We
undertake no obligation to update any forward looking statements
whether as a result of new information, future events or
otherwise.
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END
IR BLGDRSUDDGXR
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