TIDM93RD TIDMTTM
RNS Number : 6345C
Co-Operative Bank Finance PLC (The)
24 February 2022
Nick Slape (CEO) and Louise Britnell (CFO) will host a video conference on 24 February 2022
at 9am (UK time) to present the full year 2021 results and a Q&A session.
The video conference will be held via BlueJeans video conferencing.
To request access to the call please email investorrelations@co-operativebank.co.uk for the
mandatory entry details.
Participants can join the conference via:
The BlueJeans mobile app; available from your respective app store (video and audio)
Direct from a web browser (video and audio)
Or by telephone (audio only)
Additional materials are available on the Bank's investor relations website which can be found
at the following address:
www.co-operativebank.co.uk/about-us/investor-relations/
BASIS OF PRESENTATION
The Co-operative Bank Holdings Limited is the immediate parent company of The Co-operative
Bank Finance p.l.c. and the ultimate parent
company of The Co-operative Bank p.l.c. In the following pages the term 'Group' refers to
The Co-operative Bank Holdings Limited and its
subsidiaries. The term 'Finance Group' refers to The Co-operative Bank Finance p.l.c. and
its subsidiaries. The term 'Bank' refers to The
Co-operative Bank p.l.c. and its subsidiaries which are consolidated within the Finance Group
and then ultimately the Group. Unless otherwise stated, information presented for the Group
equally applies to the Bank and the Finance Group.
Underlying basis: The statutory results are adjusted to remove certain items that do not promote
an understanding of historical or future trends of earnings or cash flows, which therefore
allows a more meaningful comparison of the Group's underlying performance.
Alternative performance measures: The Group uses a number of alternative performance measures,
including underlying profit or loss, in the discussion of its business performance and financial
position.
2021 Annual Report and Accounts
24 February 2022
The Co-operative Bank ("the Bank") is pleased to provide an
update on its performance in the twelve months ended 31 December
2021. Additional materials can be found at the following link:
www.co-operativebank.co.uk/about-us/investor-relations/
-- Statutory profit before tax of GBP31.1m and underlying profit
of GBP41.0m; (an increase of GBP134.9m and GBP105.0m vs FY 20)
-- Income tax credit of GBP166.2m; including exceptional tax
credit of GBP115m relating to the recognition of historical
losses
-- Underlying cost:income ratio of 88%; (improved from 114% in FY 20)
-- Statutory cost:income ratio of 91%; (improved from 126% in FY 20)
-- Balance sheet growth; net residential lending of GBP2.4bn (an
increase of 185% compared with FY 20)
-- Organic capital growth with a CET1 ratio of 20.7%; (150bps increase compared to FY 20)
o approval received to convert non-distributable reserves to
distributable reserves
-- Proud to be the number one ethical banking brand in the UK;
market leading ESG score of 9.2 from Sustainalytics
Nick Slape, Chief Executive Officer, said,
"2021 has been a milestone year for The Co-operative Bank, in
which we have delivered against the ambitious turnaround plan set
three years ago to significantly improve the financial strength and
stability of the Bank. I am delighted to report our first full year
of profit in 10 years, signalling a return to sustainable
profitability, with a statutory profit before tax of GBP31.1m.
These positive results demonstrate that our position on ethical and
social matters is not only good for our communities, but also
delivers strong commercial outcomes.
In 2021 our Environmental Social and Governance (ESG)
credentials have received external validation from Sustainalytics,
a leading ESG ratings agency, which identified the Bank as the UK's
best ESG rated high street bank. In August, we launched our sixth
Values and Ethics poll, a unique consultation of the environmental
and social issues that are important to our customers and
colleagues. We will use their responses to inform and update our
unique Ethical Policy - which guides how we do business and the
causes we support - and will be relaunched later this year.
Our return to profitability and balance sheet growth at improved
margins gives us a strong platform for further growth in the years
ahead. As ethics and sustainability become increasingly important
to consumers, we are working to enhance our product range and
services in 2022 as now, more than ever, there is an important role
for an ethical bank like us in the marketplace. We are working more
efficiently and effectively and in the year ahead we will complete
the in-housing of all mortgage servicing as we continue to take
steps to transform our operations, focused on delivering for our
customers. This, along with increased cost efficiency gives me the
confidence that the Bank's business model, refreshed strategic
vision and our stable management team take us forward into our
150(th) year of ethical banking in a strong position.
I would like to extend my thanks to our valued customers for
their continued loyalty and to the Board, the management team and
all colleagues for their commitment and determination."
INCOME STATEMENT (GBPm)
12 months ended 31 December
-----------------------------
2021 2020
Net interest income 323.9 266.9
Other operating income 37.6 40.4
======================================== ============== =============
Total income 361.5 307.3
======================================== ============== =============
Operating expenditure (319.4) (349.6)
Impairment (1.1) (21.6)
======================================== ============== =============
Underlying profit / (loss) 41.0 (63.9)
======================================== ============== =============
Strategic change (28.8) (25.9)
Restructuring costs - (19.9)
Net customer redress credit / (charge) 2.1 (2.0)
Non-operating income 16.8 8.0
======================================== ============== =============
Statutory profit / (loss) before tax 31.1 (103.7)
======================================== ============== =============
Tax 166.2 8.0
Statutory profit / (loss) after tax 197.3 (95.7)
======================================== ============== =============
Key ratios:
Customer net interest margin (bps) (1) 161 146
Bank net interest margin (bps) (2) 125 117
Underlying cost:income ratio (%) (3) 88 114
Statutory cost:income ratio (%)(4) 91 126
Asset quality ratio (bps) (5) 1 12
======================================== ============== =============
1. Annualised net interest income over average customer
assets
2. Annualised net interest income over average interest earning
assets
3. Operating expenditure over total income
4. Total statutory expenditure over total statutory income
5. Annualised impairment charge over average customer assets
PERFORMANCE HIGHLIGHTS
Statutory profit before tax of GBP31.1m and underlying profit of
GBP41.0m
-- Total income of GBP361.5m which includes net interest income
and other operating income, has increased 18% in comparison to the
12 months ended 31 December 2020.
-- Net interest income has increased by 21% to GBP323.9m (FY 20:
GBP266.9m) and customer net interest margin (NIM) has increased by
15 basis points (bps) from 146bps to 161bps reflecting balance
sheet growth at improving margins.
-- Other operating income has reduced by 7% to GBP37.6m (FY 20:
GBP40.4m), 2020 includes a one off gain relating to renewed
supplier partnerships.
-- Underlying operating expenditure has reduced by 9% to
GBP319.4m (FY 20: GBP349.6m). The reduction follows continued
action to simplify the Bank and reflects the benefits realised from
the restructuring activity completed in 2020. Total statutory costs
have reduced by 13% to GBP346.1m (FY 20: GBP397.4m).
-- Impairment losses of GBP1.1m; this reflects improving
economic conditions partially offset by the impact of balance sheet
growth (FY 20 losses: GBP21.6m).
-- Strategic project costs charged to the income statement total
GBP28.8m (FY 20: GBP25.9m). 2021 spend has been targeted primarily
at SME investment, mortgage system transformation and IT
simplification.
-- GBP2.1m net customer redress credit (FY20: GBP2.0m charge)
relates to a provision release from the substantive completion of
our PPI remediation programme.
-- GBP16.8m non-operating income (FY 20: GBP8.0m) includes the
impact of non-recurring items. GBP14.4m relates to a refund of
historical ATM business rates. There is also a GBP7.2m charge for a
fixed asset write off due to a reduction in our head office space
which will further reduce costs from 2022 onwards.
Income tax credit of GBP166.2m
-- GBP115m relates to our return to sustainable profitability.
We have recognised a proportion (20%) of our previously
unrecognised deferred tax assets in relation to historical losses.
We now expect to receive significant value from these historical
losses over many years and expect to recognise further assets in
future years.
-- A further tax credit has been recognised due to the increase
in corporation tax from 19% to 25% and its associated impact on
deferred tax assets. The magnitude of this impact is reduced due to
the utilisation of deferred tax assets against the profits
chargeable to corporation tax for the year-to-date.
Balance sheet growth
-- Total assets have increased by GBP3.7bn since FY 2020 largely
due to GBP2.4bn net mortgage lending and higher cash balances.
Legacy assets have reduced by 9% to GBP0.7bn.
-- Total liabilities have increased by GBP3.5bn since FY 2020.
In the year the Bank has drawn a further GBP3.5bn TFSME funding
taking total drawing to GBP5.2bn. Customer deposits are GBP0.8bn
higher than at 31 December 2020.
-- The loan-to-deposit ratio of 99.1% has increased by 7.5pp
year-to-date (FY 2020: 91.6%), predominantly driven by growth in
lending supported by TFSME funding.
Organic capital growth with a CET1 ratio of 20.7%
-- CET1 ratio of 20.7% (2020: 19.2%); up 150bps year-to-date
driven by a reduction in RWAs and the accumulation of profit
generated.
-- Total capital ratio of 25.4% (2020: 23.7%).
-- Risk Weighted Assets (RWAs) of GBP4.4bn (2020: GBP4.7bn);
down GBP0.3bn driven by final settlement of the 2020 Optimum
transaction (reducing RWAs by GBP117m) and by the Bank's
Surrendered Loss Debtor (reducing RWAs by GBP48m) and reduced FVAHR
(Fair value adjustment for hedged risk) (reducing RWAs by
GBP134m).
-- Approval to convert non-distributable reserves to
distributable reserves received; unlocks ability to optimise
capital structure in the future.
Proud to be the number one ethical banking brand in the UK
-- Environmental and social issues have always mattered to us,
and how we operate, and because we embed this throughout all of our
corporate governance, we have been recognised as the UK's best
ESG-rated high street bank with a market-leading score of 9.2 from
Sustainalytics, a leading independent provider of ESG and corporate
governance ratings.
-- We've been operationally beyond carbon neutral for 14 years
and have both continued to send zero waste to landfill, and
increased the amount of waste we recycle.
-- Committed to tackling the climate-nature emergency; proud
industry ambassadors of Zero Hour, the campaign for the Climate and
Ecological Emergency Bill.
-- Ethical policy refresh launched with c.50,000 customers
sharing their views on the ethical issues that are important to
them today. These findings will inform an update to our Policy in
Q2 2022, guiding how we do business.
-- We continue to decline business banking customers involved in
fossil fuel extraction and have done for 23 years.
Outlook
We have made substantial progress in 2021 as the Original
Ethical Bank. We delivered improved financial performance across
all key measures and continued to invest in the development of our
franchise. We were rated the number 1 bank in the UK for ESG by
Sustainalytics. Our latest financial outlook for 2022 is as
follows:
-- Bank net interest margin of approximately 140bps; reflecting
improved base rate outlook and impact of capital issuance
plans.
-- Total statutory costs of approximately GBP350m; a stable
overall cost base despite increased inflationary pressure.
-- Asset quality ratio of less than 5bps; low levels of
impairment are a result of our low-risk portfolio.
-- CET1 ratio of approximately 17%; c.3pp reduction largely due
to the impact of PS11/20 (subject to regulatory approval).
-- Customer assets of GBP21bn to GBP22bn with growth in line with market growth more widely.
-- Adjusted return on tangible equity of approximately 8%;
profitability and improved performance drives shareholder
value.
We have achieved a lot this year, but there is still a lot to do
as we build a simpler, more efficient bank with co-operative values
at its heart. I am confident about the future and our ability to
deliver our strategic goals despite economic uncertainty
remaining.
SEGMENTAL PROFIT / (LOSS) (GBPm)
The Group revised its reportable segments in the period,
following an exercise to improve its internal management reporting
of income and cost allocations. As a result, the operating costs of
all business functions are allocated to the income-generating
businesses, to support further understanding of the profitability
of those businesses and accordingly the Treasury function, whose
income and cost was previously reported separately, has been fully
allocated to customer segments and is no longer reported
separately. The Group therefore now identifies two segments: Retail
Banking and SME Business Banking and has re-presented comparatives
on this basis.
2021 Core Legacy Group
& central
items
Retail SME Total
Net interest income / (expense) 284.8 47.4 332.2 (8.3) 323.9
Other operating income 20.3 16.5 36.8 0.8 37.6
================================= ======= ====== ======= ========== =======
Operating income / (expense) 305.1 63.9 369.0 (7.5) 361.5
Operating expenses (259.8) (55.1) (314.9) (4.5) (319.4)
Credit impairment gains /
(losses) 0.9 (1.1). (0.2) (0.9) (1.1)
================================= ======= ====== ======= ========== =======
Underlying profit / (loss) 46.2 7.7 53.9 (12.9) 41.0
================================= ======= ====== ======= ========== =======
2020 Core Legacy & central items Group
Re-presented
Retail SME Total
Net interest income / (expense) 230.7 41.5 272.2 (5.3) 266.9
Other operating income 24.1 16.2 40.3 0.1 40.4
================================= ======= ====== ======= ====================== =======
Operating income / (expense) 254.8 57.7 312.5 (5.2) 307.3
Operating expenses (289.5) (54.8) (344.3) (5.3) (349.6)
Credit impairment losses (15.6) (3.2) (18.8) (2.8) (21.6)
================================= ======= ====== ======= ====================== =======
Underlying loss (50.3) (0.3) (50.6) (13.3) (63.9)
================================= ======= ====== ======= ====================== =======
SEGMENTAL ASSETS AND LIABILITIES (GBPm)
2021 Core Legacy & central items Group
Retail SME Total
Segment assets 19,756.0 441.7 20,197.7 9,125.6 29,323.3
Segment liabilities 17,604.4 3,461.0 21,065.4 6,505.9 27,571.3
2020 Core Legacy & central items Group
Re-presented
Retail SME Total
Segment assets 17,360.7 447.8 17,808.5 7,791.0 25,599.5
Segment liabilities 17,300.0 2,964.4 20,264.4 3,860.7 24,125.1
===================== ======== ======= ======== ====================== ========
SELECTED KEY PERFORMANCE INDICATORS
% (unless otherwise stated) 2021 2020 Change
CET1 ratio 20.7 19.2 1.5
Total capital ratio 25.4 23.7 1.7
Risk weighted assets (GBPm) 4,373 4,684 (311)
Leverage ratio (PRA) (1) 3.8 4.0 (0.2)
Liquidity coverage ratio 241.8 193.4 48.4
Loan to deposit ratio 99.1 91.6 7.5
Average core mortgage LTV 56.8 56.1 0.7
Core mortgage accounts > 3 months in arrears 0.13 0.18 0.05
NPL as a % of total exposures 0.3 0.4 (0.1)
============================================== ===== ===== ======
1. Calculated as per PRA definition, excluding Bank of England
reserves
Investor enquiries:
investorrelations@co-operativebank.co.uk
Gary McDermott, Treasurer and Head of Investor Relations: +44
(0) 7811 599495
Media enquiries:
Daniel Chadwick, Communications: +44 (0) 7724 701319
Nicki Parry, Communications: +44 (0) 7734 002983
Sam Cartwright, Maitland/AMO: +44 (0) 7827 254 561
The person responsible for arranging the release of this
announcement on behalf of The Co-operative Bank Finance p.l.c and
The Co-operative Bank p.l.c. is Catherine Green, Company
Secretary.
About The Co-operative Bank
The Co-operative Bank p.l.c. provides a range of banking
products and services to about 3.1m retail customers and c.96k
small and medium sized enterprises ('SME'). The Bank is committed
to values and ethics in line with the principles of the
co-operative movement. The Co-operative Bank is the only high
street bank with a customer-led ethical policy, which gives
customers a say in how their money is used. Launched in 1992, the
policy has been updated on five occasions, with new commitments
added in January 2015 to cover how the Bank operates its business,
products and services, workplace and culture, relationships with
suppliers and other stakeholders and campaigning.
The Co-operative Bank p.l.c. is authorised by the Prudential
Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. The Co-operative
Bank p.l.c. eligible customers are protected by the Financial
Services Compensation Scheme in the UK, in accordance with its
terms.
Note: This announcement contains inside information.
PRIMARY FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
GBPmillion
Year ended 31 December
====================================================================== ========================
2021 2020
====================================================================== =========== ===========
Interest income calculated using the effective interest rate method 422.7 415.3
Other interest and similar income 11.2 (5.2)
======================================================================= =========== ===========
Interest income and similar income 433.9 410.1
Interest expense and similar charges (110.0) (143.2)
======================================================================= =========== ===========
Net interest income 323.9 266.9
======================================================================= =========== ===========
Fee and commission income 58.4 56.5
Fee and commission expense (33.2) (33.0)
======================================================================= =========== ===========
Net fee and commission income 25.2 23.5
======================================================================= =========== ===========
Income from investments 0.3 0.3
======================================================================= =========== ===========
Other operating income/(expense) (net) 28.9 24.6
======================================================================= =========== ===========
Operating income 378.3 315.3
======================================================================= =========== ===========
Operating expenses (348.7) (395.4)
Net customer redress credit/(charge) 2.6 (2.0)
======================================================================= =========== ===========
Total operating expenses (346.1) (397.4)
======================================================================= =========== ===========
Operating profit/(loss) before net credit impairment losses 32.2 (82.1)
======================================================================= =========== ===========
Net credit impairment losses (1.1) (21.6)
======================================================================= =========== ===========
Profit/(loss) before taxation 31.1 (103.7)
======================================================================= =========== ===========
Income tax 166.2 8.0
======================================================================= =========== ===========
Profit/(loss) for the financial year 197.3 (95.7)
======================================================================= =========== ===========
The results above are for the consolidated Group and wholly
relate to continuing activities. More information regarding the
basis of preparation can be found in the Annual Report and
Accounts, which have been made available on our website.
The profit for the financial year is wholly attributable to
equity shareholders.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
GBPmillion
Year ended 31 December
========================
2021 2020
=============================================================================== =========== ===========
Profit/(loss) for the financial year 197.3 (95.7)
=============================================================================== =========== ===========
Items that may be recycled to profit or loss:
Changes in cash flow hedges:
Net changes in fair value recognised directly in equity - 5.5
Transfers from equity to income or expense (9.2) 3.1
Income tax 1.4 (2.8)
Changes in fair value through other comprehensive income:
Net changes in fair value recognised directly in equity 30.6 (20.5)
Transfers from equity to income or expense (32.8) 22.3
Income tax 0.3 (1.1)
Items that may not subsequently be recycled to profit or loss:
Changes in net retirement benefit asset:
Defined benefit plans gains/(losses) for the year 182.7 (49.8)
Income tax (92.8) 1.5
Other comprehensive income/(expense) for the financial year, net of income tax 80.2 (41.8)
=============================================================================== =========== ===========
Total comprehensive income/(expense) for the financial year 277.5 (137.5)
=============================================================================== =========== ===========
The results above are for the consolidated Group. More
information regarding the basis of preparation can be found in the
Annual Report and Accounts, which have been made available on our
website.
CONSOLIDATED BALANCE SHEET
GBPmillion
31 December
2021 31 December 2020
=========== ================
Assets
Cash and balances at central banks 5,696.9 3,877.8
Loans and advances to banks 191.5 536.2
Loans and advances to customers 21,002.1 18,682.5
Fair value adjustments for hedged risk (90.5) 134.1
Investment securities 1,201.4 1,148.5
Derivative financial instruments 248.5 189.9
Property, plant and equipment classified as held-for-sale 0.2 0.3
Equity shares 22.8 22.1
Investment properties 1.9 1.9
Other assets 12.7 188.9
Prepayments 20.3 13.2
Property, plant and equipment 22.2 35.2
Intangible assets 68.5 63.4
Right-of-use assets 46.9 53.7
Deferred tax assets 36.8 -
Net retirement benefit asset 841.1 651.8
================================================================= =========== ================
Total assets 29,323.3 25,599.5
================================================================= =========== ================
Liabilities
Deposits by banks 5,527.6 2,066.4
Customer accounts 21,135.9 20,365.8
Debt securities in issue 203.3 728.8
Fair value adjustment for hedged risk (7.5) -
Derivative financial instruments 148.2 340.1
Other liabilities 38.7 33.7
Accruals and deferred income 37.0 35.0
Provisions 33.9 46.4
Other borrowed funds 402.1 408.2
Lease liabilities 44.1 53.6
Deferred tax liabilities - 38.3
Net retirement benefit liability 8.1 8.8
================================================================= =========== ================
Total liabilities 27,571.4 24,125.1
================================================================= =========== ================
Capital and reserves attributable to the Group's equity holders
Ordinary share capital 0.9 0.9
Share premium account 313.8 313.8
Retained earnings 1,946.0 (1,410.2)
Other reserves (508.8) 2,569.9
Total equity 1,751.9 1,474.4
================================================================= =========== ================
Total liabilities and equity 29,323.3 25,599.5
================================================================= =========== ================
The financial positions above are for the consolidated Group.
More information regarding the basis of preparation can be found in
the Annual Report and Accounts, which have been made available on
our website.
CONSOLIDATED STATEMENT OF CASH FLOWS
GBPmillion
Year ended 31 December
========================
2021 2020
============= =========
Cash flows (used in)/from operating activities:
Profit/(loss) before taxation 31.1 (103.7)
Adjustments for non cash movements:
Pension scheme adjustments (5.6) (9.3)
Net credit impairment losses 1.1 21.6
Depreciation, amortisation and impairment of property, equipment, right of use assets and
intangibles 36.6 40.2
Other non-cash movements including exchange rate movements 121.5 78.7
Changes in operating assets and liabilities:
Increase in deposits by banks 3,461.2 922.7
(Increase)/decrease in prepayments and accrued income (7.1) 8.5
Increase/(decrease) in accruals and deferred income 2.0 (24.0)
Increase in customer accounts 769.2 1,367.8
Decrease in debt securities in issue (525.5) (143.9)
Decrease in loans and advances to banks 13.6 6.7
Increase in loans and advances to customers (2,356.6) (813.1)
Net movement of other assets and other liabilities 118.0 (205.6)
Net cash flows from operating activities 1,659.5 1,146.6
========================================================================================== ============= =========
Cash flows (used in)/from investing activities:
Purchase of tangible and intangible assets (28.9) (16.8)
Purchase of investment securities (873.2) (969.6)
Proceeds from sale of property and equipment 1.8 2.6
Proceeds from sale of shares and other interests 2.0 38.6
Proceeds from sale and maturity of investment securities 774.9 1,422.5
Purchase of equity shares (0.5) -
Proceeds from sale of investment properties 0.1 -
Dividends received 0.3 0.3
Net cash flows (used in)/from investing activities (123.5) 477.6
========================================================================================== ============= =========
Cash flows (used in)/from financing activities:
Proceeds from issuance of Tier 2 notes - 197.7
Interest paid on Tier 2 notes and senior unsecured debt (37.0) (19.0)
Lease liability principal payments (11.0) (10.0)
Net cash flows (used in)/from financing activities (48.0) 168.7
========================================================================================== ============= =========
Net increase in cash and cash equivalents 1,488.0 1,792.9
========================================================================================== ============= =========
Cash and cash equivalents at the beginning of the year 4,229.5 2,436.6
========================================================================================== ============= =========
Cash and cash equivalents at the end of the year 5,717.5 4,229.5
========================================================================================== ============= =========
Comprising of:
========================================================================================= ============= =========
Cash and balances at central banks 5,609.8 3,802.5
Loans and advances to banks 107.7 427.0
========================================================================================== ============= =========
5,717.5 4,229.5
========================================================================================= ============= =========
RECONCILIATION OF MOVEMENTS OF LIABILITIES TO CASH FLOWS ARISING
FROM FINANCING ACTIVITIES
GBPmillion
2021 2020
================= ==================== ====== ================= ==================== ======
Lease liabilities Other borrowed funds Total Lease liabilities Other borrowed funds Total
================= ==================== ====== ================= ==================== ======
Balance at the
beginning of the
year 53.6 408.2 461.8 71.2 204.2 275.4
Changes from
financing cashflows
Proceeds from
issuance of Tier
2 notes - - - - 197.7 197.7
Interest paid on
Tier 2 notes and
senior unsecured
debt - (37.0) (37.0) - (19.0) (19.0)
Lease liability
principal
payments (11.0) - (11.0) (10.0) - (10.0)
==================== ================= ==================== ====== ================= ==================== ======
Total changes from
financing cash
flows 42.6 371.2 413.8 61.2 382.9 444.1
==================== ================= ==================== ====== ================= ==================== ======
Other changes
Interest payable
on lease
liabilities and
Tier 2 notes 1.7 37.0 38.7 2.4 20.8 23.2
Other non cash
movement - (6.1) (6.1) - 4.5 4.5
Derecognition of
lease liabilities (0.2) - (0.2) (10.0) - (10.0)
==================== ================= ==================== ====== ================= ==================== ======
Balance at the end
of the year 44.1 402.1 446.2 53.6 408.2 461.8
==================== ================= ==================== ====== ================= ==================== ======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
GBPmillion
FVOCI Cash Defined
reserve flow Capital Capital benefit
Share Share hedging redemption re-organisation pension Retained Total
2021 capital premium reserve reserve reserve reserve earnings equity
At 1 January 2021 0.9 313.8 4.8 22.5 410.0 1,737.5 395.1 (1,410.2) 1,474.4
Total
comprehensive
(expense)/income
for the year - - (1.9) (7.8) - - 89.9 197.3 277.5
Reserve
reorganisation - - - - (410.0) (2,748.9) - 3,158.9 -
================= ======== ========= ========= ======== ========== =============== ======== ========= =======
At 31 December
2021 0.9 313.8 2.9 14.7 - (1,011.4) 485.0 1,946.0 1,751.9
================= ======== ========= ========= ======== ========== =============== ======== ========= =======
FVOCI Defined
reserve Cash flow Capital Capital benefit
Share Share hedging redemption re-organisation pension Retained Total
2020 capital premium reserve reserve reserve reserve earnings equity
At 1 January
2020 0.9 313.8 4.1 16.7 410.0 1,737.5 443.4 (1,314.5) 1,611.9
Total
comprehensive
income
/(expense)
for the year - - 0.7 5.8 - - (48.3) (95.7) (137.5)
============== ======== ========== ========= ========= ========== =============== ========= ========= =======
At 31 December
2020 0.9 313.8 4.8 22.5 410.0 1,737.5 395.1 (1,410.2) 1,474.4
============== ======== ========== ========= ========= ========== =============== ========= ========= =======
SELECTED NOTES TO THE FINANCIAL STATEMENTS
All amounts are stated in GBPm unless otherwise indicated.
NOTE 1: SEGMENTAL INFORMATION
The Group provides a wide range of banking services within the
UK. The Executive Committee (ExCo) has been determined to be the
chief operating decision-maker of the Group. The Group's operating
segments reflect its organisational and management structures in
place at the reporting date. ExCo reviews information from internal
reporting based on these segments in order to assess performance
and allocate resources. The segments are differentiated by whether
the customers are individuals or corporate entities. The Group
revised its reportable segments in the period, following an
exercise to improve its internal management reporting of income and
cost allocations. As a result, the operating costs of all business
functions are allocated to the income-generating businesses, to
support further understanding of the profitability of those
businesses and accordingly the Treasury function, whose income and
cost was previously reported separately, has been fully allocated
to customer segments and is no longer reported separately. The
Group therefore now identifies two segments: Retail Banking and SME
Business Banking and has re-presented comparatives on this
basis.
Core
------------------------
Retail SME Total Legacy &
2021 unallocated Group
Net interest income 284.8 47.4 332.2 (8.3) 323.9
Other operating income 20.3 16.5 36.8 0.8 37.6
================================= ======= ====== ======= ============ =======
Operating income 305.1 63.9 369.0 (7.5) 361.5
Net credit impairment losses 0.9 (1.1) (0.2) (0.9) (1.1)
Operating expenses (259.8) (55.1) (314.9) (4.5) (319.4)
================================= ======= ====== ======= ============ =======
Underlying profit 46.2 7.7 53.9 (12.9) 41.0
================================= ======= ====== ======= ============ =======
Strategic change (28.8)
Restructuring programme -
Gain on shares revaluation and
sale 2.4
Covered bond premium expense -
Loss on asset sales -
Other exceptional items 16.5
================================= ======= ====== ======= ============ =======
Statutory profit before tax 31.1
================================= ======= ====== ======= ============ =======
Re-presented
Core
------------------------
Retail SME Total Legacy &
2020 unallocated Group
Net interest income 230.7 41.5 272.2 (5.3) 266.9
Other operating income 24.1 16.2 40.3 0.1 40.4
================================= ======= ====== ======= ============ =======
Operating income 254.8 57.7 312.5 (5.2) 307.3
Net credit impairment losses (15.6) (3.2) (18.8) (2.8) (21.6)
Operating expenses (289.5) (54.8) (344.3) (5.3) (349.6)
================================= ======= ====== ======= ============ =======
Underlying loss (50.3) (0.3) (50.6) (13.3) (63.9)
================================= ======= ====== ======= ============ =======
Strategic change (25.9)
Restructuring programme (19.9)
Gain on shares revaluation and
sales 16.7
Covered bond premium expense (5.2)
Loss on asset sales (3.5)
Other exceptional items (2.0)
================================= ======= ====== ======= ============ =======
Statutory loss before tax (103.7)
================================= ======= ====== ======= =====================
The table below represents the reconciliation of the underlying
basis and the segmental note to the consolidated income statement.
The underlying basis is the basis on which information is presented
to the chief operating decision maker and excludes the items below
which are included in the statutory results.
Removal of:
----------------------
IFRS Volatile Strategic Non Underlying
2021 statutory items(1) projects recurring(2) basis
Net interest income 323.9 - - - 323.9
Other operating income/(expense) 54.4 (2.4) - (14.4) 37.6
=================================== =========== ========== ========== ============== ===========
Operating income 378.3 (2.4) - (14.4) 361.5
Operating expenses (348.7) - 28.8 0.5 (319.4)
Net customer redress release 2.6 - - (2.6) -
Net credit impairment losses (1.1) - - - (1.1)
=================================== =========== ========== ========== ============== ===========
Statutory profit before tax 31.1 (2.4) 28.8 (16.5) 41.0
=================================== =========== ========== ========== ============== ===========
Cost:income ratio (3) 91% 88%
=================================== =========== ========== ========== ============== ===========
1. Relates to gain on equity shares revaluation and sales
(GBP2.4m, including GBP0.2m dividend).
2. Comprises refunds of historical ATM business rates paid
(GBP14.4m) and residual PPI impacts (GBP2.1m).
3. Cost:income ratio is calculated as (operating expenses plus
net customer redress release)/(operating income).
Re-presented
----------------------------------------------------------------
Removal of:
----------------------
IFRS Volatile Strategic Non Underlying
2020 statutory items(1) projects recurring(2) basis
Net interest income 266.9 - - - 266.9
Other operating income/(expense) 48.4 (16.7) - 8.7 40.4
=================================== =========== ========== ========== ============== ===========
Operating income 315.3 (16.7) - 8.7 307.3
Operating expenses (395.4) - 25.9 19.9 (349.6)
Net customer redress charge (2.0) - - 2.0 -
Net credit impairment losses (21.6) - - - (21.6)
=================================== =========== ========== ========== ============== ===========
Statutory loss before tax (103.7) (16.7) 25.9 30.6 (63.9)
=================================== =========== ========== ========== ============== ===========
Cost:income ratio (3) 126% 114%
=================================== =========== ========== ========== ============== ===========
1. Relates to the revaluation gain on equity shares (GBP16.7m, including GBP0.3m dividend).
2. Comprises restructuring programme costs (GBP19.9m), the
premium paid on the Covered bond repurchase (GBP5.2m), the net loss
recognised on the sale of Optimum mortgage assets (GBP3.5m) and
legacy customer redress charges (GBP2.0m).
3. Cost:income ratio is calculated as (operating expenses plus
net customer redress release)/(operating income).
The table below represents the segmental analysis of assets and
liabilities.
2021 Core Legacy & central items Group
Retail SME Total
Segment assets 19,756.0 441.7 20,197.7 9,125.6 29,323.3
Segment liabilities 17,604.4 3,461.0 21,065.4 6,505.9 27,571.3
2020 Core Legacy & central items Group
Re-presented
Retail SME Total
Segment assets 17,360.7 447.8 17808.5 7,791.0 25,599.5
Segment liabilities 17,300.0 2,964.4 20,264.4 3,860.7 24,125.1
===================== ======== ======= ======== ====================== ========
NOTE 2: RELATED PARTY TRANSACTIONS
Parent, subsidiary and ultimate controlling party
As at 31 December 2021, the Group had two significant
shareholders: SP Coop Investments Ltd and Anchorage Illiquid
Opportunities Offshore Master V L.P., each holding over 20% of the
B shares of the Holding Company, and therefore considered to be
related parties.
During the last 12 months, certain funds managed by Anchorage
Illiquid Opportunities Offshore Master V L.P and SP Coop
Investments Ltd have sold the entirety of their holdings in the
Tier 2 and senior unsecured debt issued by The Co-operative Bank
Finance p.l.c. The contractual features of the senior unsecured
debt are set out in the Annual Report and Accounts, which have been
made available on our website.
Total interest paid for the year on the MREL-qualifying debt to
certain funds managed by SP Coop Investments Ltd and Anchorage
Illiquid Opportunities Offshore Master V L.P. was GBP1.2m (2020:
GBP6.7m). At 31 December 2021, the total outstanding balance
payable (including accrued interest) to these related parties was
GBPnil (2020: GBP98.2m).
A loan was recognised by Finance Company and Bank Company to
achieve structural subordination of the MREL-qualifying debt (the
"internal MREL"). The terms of the internal MREL are the same as
those of the external MREL-qualifying debt. The total amount due
from Bank Company to Finance Company at 31 December 2021 in this
regard was GBP402.1m (2020: GBP408.2m) including accrued interest.
The interest paid by Bank Company to Finance Company on the
internal MREL instrument was GBP37.0m (2020: GBP19.0m).
Transactions with other related parties
Key management personnel are defined as the Board of Directors
and Executive Committee members.
The related party transactions with key management are disclosed
below:
2021 2020
==== =====
Deposits and investments at the beginning of the year 0.5 1.1
Net movement 1.1 (0.6)
Deposits and investments at the end of the year 1.6 0.5
======================================================= ==== =====
In addition, there were GBP0.1m (2020: GBP0.4m) relating to
loans to key management personnel, arising in the normal course of
business.
Key management personnel
2021 2020
==== ====
Total remuneration receivable by key management personnel 8.6 7.1
========================================================== ==== ====
In 2021, the total number of key management personnel was 18
(2020: 19). Further information about the remuneration of senior
management personnel and material risk takers is included in the
Directors' remuneration report.
NOTE 3: EVENTS AFTER THE BALANCE SHEET DATE
There are no post balance sheet events to report.
RISK MANAGEMENT
1. RISK MANAGEMENT OBJECTIVES AND POLICIES
1.1 Our approach to risk management
Responsibility for risk management resides at all levels within
the Group and is supported by Board and management level
committees. A three lines of defence model is deployed on the
following basis:
-- 1st line - are responsible for owning and managing all risks
within defined appetites, complying with Risk Policies and Control
Standards, ensuring supporting procedures are documented and
maintained using the Group's Risk and Control Self-Assessment
(RCSA), and are responsible for reporting the performance, losses,
near-misses and status of risks through governance.
-- 2nd line - the risk function acts as the 2nd line of defence.
The Risk Framework Owners (RFOs) are responsible for setting Risk
Policies, Control Standards, Group-wide procedures and risk
appetite. RFOs sit within the 2nd line with the exception of some
specialist areas where the RFO sits within 1st line (for example
Legal, Financial Reporting and People Risk); the 2nd line risk
function will provide oversight over the RFO activities in such
cases.
-- 3rd line - the internal audit function assesses the adequacy
and effectiveness of the control environment and independently
challenges the overall management of the Risk Management Framework
(RMF).
COVID-19 update
The COVID-19 pandemic continues to present further risks in both
the short and medium term, creating additional challenges and
increasing the likelihood of principal risks manifesting, given the
external environment and the increased pressure to operate our
internal processes remotely. The Group has continued to respond
dynamically to these challenges whilst maintaining the fundamental
principles and a consistent approach to risk management.
The initial strategy to deal with the pandemic in 2020 included
intensive incident management to plan and respond to changes
required to our procedures and operational activities. In 2021, the
Group continued to monitor its early warning indicators and other
key metrics closely for signs of stress. The Group adapted again as
restrictions started to ease throughout the first half of 2021 and
into the second half of the year. New COVID-19 variants, surges of
infections, ongoing caution and the threat of reinstated
restrictions have reaffirmed the need for organisations to be on
almost constant alert and be prepared to respond to these types of
challenges swiftly and decisively. The Group continues to monitor
and manage the impacts of COVID-19 thematically through its RMF,
ensuring decisive action is supported by robust governance.
The Group's response during 2021 to the risks posed by the
COVID-19 pandemic included (but is not limited to):
-- Continuing support for our customers through the maintenance
of government support measures including payment deferrals,
overdraft buffers, removal of late fees on certain products and
participation in the CBILS and Bounce-Back loan scheme;
-- Continued participation in the Term Funding Scheme with
additional incentives for SMEs (TFSME) government scheme;
-- Creating capacity to meet intense demand as a result of the
UK population reassessing their housing needs and substantially
grow the Group's residential lending levels to GBP2.4bn in 2021,
from GBP841m in 2020;
-- Transforming the way we respond to the needs of our SME
customers by providing tailored support and innovative solutions
such as the 'request to pay' app from Incomeing, Business Concierge
services, relaunch of the business banking website and 'Breathing
Space' for sole traders;
-- Enhancements to our customer call triaging processes and
systems, prioritising calls effectively in response to customer
demand during uncertain times;
-- Making changes to our operating model, reflecting recent
societal trends towards a more flexible workplace. This has
included improving our working from home proposition, including
trialling homeworking for some of our contact centre roles whilst
also making homeworking a permanent option for our back office
colleagues. The Group continues to review role structures closely
to attract and retain staff;
-- Updating our Financial Plan regularly to reflect the changes
in market economics so as to react more quickly to changes in
market conditions, including changes to our capital and liquidity
forecasts, income and cost projections and the level of investment
spend in light of potential deterioration in economic benefit in
the short to medium term; and
-- Evaluating the potential impacts on financial reporting
risks, establishing the potential impact of changes to the
recognition or valuation of assets and liabilities in light of
COVID-19 under accounting standards and applicable UK laws and
regulations, including potential impacts on provisions, income
recognition and the associated valuation of assets and their risk
weights for capital purposes.
The COVID-19 vaccination programme and the relaxation of
restrictions earlier this year was encouraging, particularly in
relation to the effect on market conditions in 2021. However, the
duration and severity of the risks arising from COVID-19 are still
developing, particularly the uncertainty in relation to the rise of
new variants of the virus. We therefore believe the effects have
not yet fully crystallised; these remain potentially wide-ranging
in impact across the financial services industry both in the short
and medium term. The Group continues to assess risk factors both
internally and externally such as the credit risk portfolio, the
regulatory environment, the macroeconomic environment and peer bank
performance.
1.2 Overview
The Board oversees and approves the Group's RMF and is supported
by the Risk Committee (RC) of the Group. The RC's purpose is to
review the Group's principal risk categories and risk appetite,
report its conclusions to the Board for approval and oversee the
implementation of the RMF, whilst anticipating changes in business
conditions. The purpose of the RC of the Board of the Holding
Company is to review and challenge the Group's risk appetite and
RMF. It should also approve the Holding Company's risk appetite and
risk policy, which shall be aligned to the RMF.
There is a formal structure for identifying, reporting,
monitoring and managing risks. This comprises, at its highest
level, risk appetite statements which are set and approved by the
Board and are supported by granular risk appetite measures across
the principal risk categories. This is underpinned by an RMF which
sets out the high level policy, control standards, roles,
responsibilities, governance and oversight for the management of
all principal risks.
Material risks and issues, whether realised or emerging,
inclusive of those documented in relation to the RMF itself are
described along the lines of principal risks within section
1.8.
1.3 Our Risk Management Framework (RMF)
Further information can be found in the full Annual Report and
Accounts, which has been made available on our website.
1.4 Risk management strategy and appetite
The Board has primary responsibility for identifying the key
business risks faced and approving the risk management strategy
through the setting of risk appetite, which defines the type and
amount of risk the Group is prepared to take both qualitatively and
quantitatively in pursuit of its strategic objectives. In addition,
the Board approves key regulatory submissions including the
Internal Liquidity Adequacy Assessment Process (ILAAP) and the
Internal Capital Adequacy Assessment Process (ICAAP).
Risk appetite is translated into specific risk appetite measures
which are tracked, monitored and reported to the appropriate risk
committees (refer to section 1.7). The risk appetite framework has
been designed to create clear links to the strategic planning
process whereby appropriate metrics and limits for each risk
category are established, calibrated and reported.
1.5 Our risk culture
A critical supporting factor of the RMF is the risk culture in
the Group; this is a shared set of values and behaviours that
defines how all colleagues approach the management of risk. This
culture begins at the top of the organisation with the Group's
Executive team who lead by example with consistent and clear
communication of their commitment to managing risk at all levels of
the organisation. Risk management is included in every colleague's
objectives each year and is embedded within the Group scorecard
against which performance is measured.
The Group has committed to embedding a strong culture of risk
management and provides regular training and opportunities for
colleagues to refresh knowledge on the RMF and opportunities for
leaders to share knowledge and experience in respect of risk
management in their roles. Culture is measured through continued
monitoring of the Risk section of the CEO scorecard, the RMF
dashboard which includes metrics on Risk process adherence through
RMF-focussed 2nd line of defence assurance reviews and through 2nd
line of defence oversight and feedback.
A Group-wide risk culture survey was conducted at the end of
2021 in order to assess the underlying behaviours and attitudes
towards risk at all levels in the organisation. The survey will
help identify any areas where improvements are required and shape
the next stage of development for the RMF.
1.6 Evolution of the RMF in 2021
The Group continually seeks to enhance and further embed its RMF
to ensure efficient and effective risk ownership and management
within risk appetite, supporting appropriate customer outcomes and
the delivery of its Plan. The focus during 2021 has been to
continue to embed the RMF through changing structures,
responsibilities and Group strategies, to adapt where required
ensuring stability and effectiveness, but also to simplify where
possible without detriment to the management of risk or the risk
culture. The secondary driver was to consider where simplification
could be achieved in order to focus resource on significant and
material risk-related activities.
During the year, a number of initiatives have further
strengthened and embedded the RMF, bringing with them an increased
commitment to and understanding of risk management amongst all
Group colleagues. In order to support this, simplification
initiatives have also been implemented. These have been possible
due to the maturity of the RMF and the level of embedding that has
been achieved: Continued improvements to key operational risk
processes, for example, the risk acceptance process in order to
drive further efficiencies;
-- In line with structural changes and Group-wide
simplification, continued clarity of the alignment of first line
ownership of principal risks to the Senior Managers and
Certification Regime to create an integrated and consistent
accountability matrix;
-- Continued training for those new to roles e.g. Risk Framework
Owners and Risk Managers with improved mandatory training and
targeted topic-based training e.g. Root Cause Analysis;
-- Continued improvements to key operational risk processes, for
example, the risk acceptance process in order to drive further
efficiencies;
-- The move to a bi-annual cycle for refresh of Risk Policies
and Control Standards (unless significant change is required
outside cycle); and
-- The risks relating to climate change have been incorporated
into the RMF and managed thematically (see section 1.9 for more
detail).
The Group will continue to simplify and evolve the RMF in 2022
whilst continuing to drive commitment and understanding of risk
management at all levels of the organisation.
1.7 Our risk governance
The Board is the key governance body and is responsible for
strategy, performance and ensuring appropriate and effective risk
management. It has delegated the responsibility for the day-to-day
running of the business to the CEO. The CEO has established the
Executive Committee to assist in the management of the business and
deliver against the approved Plan in an effective and controlled
manner.
The Board has established Board committees and senior management
committees to oversee the RMF, including identifying the key risks
faced and assessing the effectiveness of any risk management
actions.
The committees which directly oversee the effective management
and oversight of the RMF are highlighted in the table below.
Each committee in the Group's governance structure is required
to manage and assess risk as part of its terms of reference;
however, a number of these committees are specifically focussed on
risk. Further comment is provided below detailing the specific
areas of risk on which each committee focusses.
Committee Risk focus
========================================================= =========================================================
Board The Board has collective responsibility for the long-term
success of the Group and the Bank.
Its role is to provide leadership of the Group within a
framework of prudent and effective
controls which enable risk to be assessed and managed. It
sets the values and standards and
ensures the obligations to its shareholders, customers
and other stakeholders are understood
and met. The Board sets the strategy and approves plans
presented by management for the achievement
of the strategic objectives it has set. It determines the
nature and extent of the significant
risks it is willing to take in achieving its strategic
objectives and is responsible for ensuring
maintenance of sound risk management and internal control
systems.
========================================================= =========================================================
Risk Committee (RC) RC is responsible for reviewing and reporting its
conclusions to the Board on the Group's
risk appetite and propose for approval by the Board and
oversee the implementation of a Risk
Management Framework, taking a forward-looking
perspective and anticipating changes in business
conditions.
========================================================= =========================================================
Executive Risk Oversight Committee (EROC) EROC is responsible for oversight of the risk profile of
the Group (within the agreed Board
risk appetite). The Committee reviews and challenges the
risks associated with the Group's
business strategy, plans and overall management of risks.
EROC achieves some of its objectives
through delegating responsibility to sub-committees:
OCROC, MROC, PROC and CROC. EROC will
escalate, where appropriate, to the Board via the RC.
========================================================= =========================================================
Executive Committee (ExCo) ExCo is responsible for defining and implementing the
Board-approved strategy successfully
by monitoring and managing delivery against plan and
applying appropriate risk management
actions to emerging risks.
========================================================= =========================================================
Asset and Liability Committee (ALCo) ALCo is primarily responsible for overseeing the
management of capital, market, earnings,
liquidity and funding risks. Its responsibilities include
identifying, managing and controlling
the balance sheet risks in executing its chosen business
strategy, ensuring the capital and
liquidity position is managed in line with appropriate
policies and that adequate capital
is maintained at all times.
========================================================= =========================================================
Model Risk Oversight Committee (MROC) MROC ensures, on an ongoing basis, that the model rating
systems and material models are operating
effectively. This includes providing Executive level
review and challenge of the model risk
and the impact of model risks on the Group's business
model and strategies. MROC also provides
oversight of the Group's IRB permissions, including the
exemptions where the Group applies
the Standardised Approach to calculate Pillar 1 capital
requirements.
========================================================= =========================================================
Credit Risk Oversight Committee (CROC) CROC is responsible for monitoring significant credit
risks and issues within the entire credit
lifecycle, the controls and management actions being
taken to mitigate them and to hold to
account the Executives responsible for actions. CROC
reviews the credit risk strategy on an
ongoing basis, making recommendations to EROC as
appropriate.
========================================================= =========================================================
Operational, Compliance & Financial Crime Risk Oversight OCROC is responsible for monitoring significant
Committee (OCROC) operational risks and issues including significant
conduct, regulatory, product, reputational, fraud and AML
risks and issues, the controls and
management actions being taken to mitigate them and to
hold to account the Executives responsible
for actions. OCROC oversees the current and emerging
operational risk profile, ensuring key
risk exposures are managed within risk appetite and
reported to EROC as appropriate, including
the monitoring of adherence to the RMF alongside a
process for continuous improvement.
========================================================= =========================================================
Pension Risk Oversight Committee (PROC) PROC is responsible for oversight of all aspects of
pension arrangements which the Group either
sponsors or participates in, to ensure cost, risk,
capital, investment and employee requirements
are met.
========================================================= =========================================================
1.8 Principal risk categories
The following pages outline the key financial and non-financial
risks as identified by the RMF and approved by the Board as risks
that could result in an adverse effect on the business, operating
results, financial condition, reputation and prospects.
OPERATIONAL RISK
Definition:
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, people and systems or external
events.
Operational risk has 13 sub-risks as part of the Group's RMF.
These sub-risks are included in the commentary below. All sub-risks
are subject to annual review and each risk is managed individually
and in line with the Group's RMF, including having individual risk
framework owners, risk policies and control frameworks.
Key themes:
Operational risk levels remain elevated due to increased levels
of fraud and a number of issues such as reliance on manual
processes and legacy IT systems. The COVID-19 pandemic, which poses
risks to multiple operational areas, has further elevated
operational risks, especially related to supplier and people risks.
The most significant operational risk themes are outlined
below.
The Group continues to strengthen its systems and control
environment by leveraging the RMF.
Fraud - Fraud losses have been a significant contributing factor
to operational losses in 2021. Like many in the industry, the Group
has had to respond to the ever-changing tactics of fraudsters and
the impact of authorised push payment fraud. Adherence to the
requirements of the Contingent Reimbursement Model, Payment Service
Regulations and FOS have culminated in high volume and value
refunds impacting fraud and operational risk for the Group.
The Group understands the importance of investing in its fraud
controls and is progressing with both strategic and tactical
solutions to improve controls and moderate fraud loss. These
solutions include the delivery of Confirmation of Payee in early
2021, which in line with other participating industry members, has
had a positive impact in identifying fraud at the point of a new
payment set up, also providing additional protection for customers
from authorised push payment scams. The Group has also signed up to
Ofcom's Do Not Originate initiative to reduce telephone number
spoofing and, whilst both have had a positive effect, fraudsters
continue to look for ways to circumvent controls and take advantage
of customer insecurities through methods such as safe account
scams.
Social engineering is an ongoing, evolving threat. Enhancements
to digital payment warnings and telephony questions are examples of
changes that have been delivered in 2021 to reduce the volume of
customers becoming victims of fraud. Future initiatives, due to be
delivered in early 2022, include the rollout of a PSD2-compliant
card not present solution which will reduce card fraud losses and
investment in an SME payment fraud screening solution.
The Group invested in a behavioural biometrics solution in 2021
with development planned through 2022 to reduce the impact of
account takeovers on our customers. The roadmap of initiatives will
support a strengthened position for the Group within the industry
against a challenging fraud landscape.
Technology debt - As with many other financial institutions, the
Group is reliant in some areas on end-of-life IT systems to provide
key services. To reduce the associated risks and minimise the
impact of any disruptions, the Group has a strategy to remove the
highest risk legacy systems and add additional contingency
arrangements to protect IT services until replacement. Funding for
this strategy has been approved for 2022 and will be subject to
regular monitoring and reporting against progress.
Cyber crime - As with other financial institutions, reflecting
the increased use of technology in financial services, the Group
and its customers are at risk of actual or attempted cyber attacks
from parties with criminal or malicious intent, including attacks
designed to overload the Group's systems. These risks increase as
the Bank moves to digitise its products, services, key functions
and distribution channels, and as cyber attacks become more
sophisticated and prevalent. There is the potential for greater
exposure to cyber attacks where systems are reliant on legacy
technologies, as highlighted in the technology debt section above.
In addition to the risk of fraudulent activity in connection with
customer accounts resulting in customer detriment, the Group is
also subject to the risk that any cyber attack may result in
temporary loss of operational availability of systems to its
colleagues and/or customers and disclosure of confidential
information. This has the potential to cause business disruption
and legal exposure which may have adverse effects on the Group's
financial condition, operating results, reputation and brand. The
Group continues to invest in its security tools, processes and
capability to counter the ever-evolving cyber threat landscape in
addition to remediating its legacy IT estate. The most recent
external benchmarking activity has evidenced an improvement
year-on-year in the maturity of the Group's cyber framework, while
acknowledging the risks associated with legacy systems. Where
specific risks arise, bespoke solutions are evaluated and deployed
to minimise exposures to cyber threats until older IT systems are
replaced.
COVID-19 impact on our people and external labour market - Staff
availability across the Group continues to be impacted by the
COVID-19 pandemic and the challenging external labour market
resulting in increases in staff sickness and attrition rates in
concurrence with compression of staff leave. This is closely
monitored by absence reporting to identify any operational
impacts.
Staff capacity has been impacted by an increase in more complex
customer-related queries, challenges posed where systems were not
available for homeworking (especially in regard to training
newly-recruited staff) and an increase in fraud checks to protect
our customers in response to an increase in fraud risk seen across
the industry.
These factors have contributed to an increased length of average
call handling times which has consequently increased the challenge
of managing call volumes. In response the Group has promoted a
secure message email service, promoted the use of interative voice
response (IVR) and recruited, contracted and flexed existing
resource whilst also utilising overtime measures to manage customer
demand.
In response to industry-wide challenges around recruitment and
retention, the Group has made changes to the workplace model,
launching homeworking roles for some contact centre colleagues in
addition to making permanent homeworking options available for back
office colleagues. The Group's front-line recruitment options have
been enhanced by launching a working from home role for new to Bank
colleagues and expanding our recruitment catchment area for staff
from regional areas to nationwide.
Third party supplier management - The Group continues to be
dependent on suppliers to support or provide key banking services.
This has presented a heightened risk exposure due to the COVID-19
pandemic. The Group has taken steps to improve the control
environment with no significant disruptions experienced from
suppliers. The Group assembled a dedicated task force to ensure
compliance with the EBA-published revised Guidelines on Outsourcing
Arrangements when these come into force in the first quarter of
2022. This activity will ensure that control enhancements are
embedded into existing supplier processes for material and
outsourced suppliers.
During the year, IBM gave notice of a major restructure, which
resulted in the divestment of critical services outsourced by the
Group to a newly created subsidiary, Kyndryl. The Group navigated
this change in consultation with its regulators and secured a
contractual relationship with its new critical service
provider.
In December, the Group gave formal notice to Capita, our current
mortgage servicing operations provider, that we will be moving this
activity back in-house by December 2022. We believe it is the right
time for the Group to welcome its mortgage servicing activity and
colleagues back into the business to ensure provision of a
consistent end-to-end service for mortgage customers. We are
working closely with Capita to ensure a safe re-integration and
support for the incoming team to enable a seamless transition for
our mortgage customers.
Anti-money laundering (AML) - Enhancements to rule sets used
within Group systems to monitor and alert where transactions are
unusual or suspicious have resulted in an improved risk profile
throughout 2021. System assurance completed within the same period
provided an overall satisfactory result.
System upgrades, along with migration of customer feeds, remain
a key focus into 2022 in order to drive enhancements to AML
controls. The Group recognises there are limitations across
existing AML systems mainly relating to legacy systems. Planning is
currently underway for an upgrade to address these limitations; in
the meantime the Group is managing the risk through the application
of manual and system based workarounds.
Conduct risk and compliance - We have reacted to our customers'
need for forbearance, ensuring they are treated fairly, and
provided support to customers that require assistance in line with
regulatory expectations.
The Group has met our SME customers' needs for forbearance via
the 'Pay As You Grow' measures announced by the Chancellor in
September 2020, enabling the Group to provide essential flexibility
during an incredibly tough period for many of our SME
customers.
There is a greater need to support our vulnerable customers and
assess how we service them given the additional risk factors
presented by the COVID-19 pandemic. In response the Group has made
changes to enhance training, awareness, management information and
governance aligning to the FCA's new vulnerable customer
guidance.
The Group also delivered customer-focussed changes related to
'Breathing Space' which assists individuals and sole traders with
problem debt. Confirmation of Payee was also introduced in 2021 to
protect our customers from fraud as outlined in the fraud section
above.
The Group was actively engaged with the FCA's Consumer Duty
consultation supporting enhancements to consumer protection, with
further engagement via the consultation process planned prior to
the anticipated implementation in 2022.
There are key regulator developments due to be delivered in 2022
to improve the Group's resilience and protect the customer from
fraud:
-- Climate Change
-- LIBOR to SONIA
-- PSD2 - Card Not Present
-- FCA and PRA Building Operational Resilience: Impact Tolerances
-- PRA Outsourcing and third party risk management
Payments risk - In 2021 there were no material breaches of
payment scheme rules. Payment risk remains a key area of focus and
the Group will continue to assess the risks from its legacy
systems.
The Group will invest in improvements to the customer journey,
improve the resilience of the underlying infrastructure and
architecture and provide further oversight of payment risk through
additional governance in 2022.
Operational resilience - Approaches to disciplines such as
business continuity and disaster recovery are being revisited to
take a more holistic approach to ensuring continuity for Bank
services under operational resilience. Operational resilience has
been introduced as a thematic principal risk within the Risk
Management Framework and remained a targeted area of focus for the
Group in 2021. The programme of work that has been set up to
deliver key regulatory requirements and establish an enduring model
(including the timely identification of important business services
and scenario testing) is on track for completion in the first half
of 2022.
Emerging risks:
Technology and security - Distancing measures brought in as a
consequence of the COVID-19 pandemic are accelerating the pace of
technological change, raising the need for remote operations and
new service delivery systems. The integration of new technologies
with existing infrastructure to ensure safer, improved and more
secure systems will increase the demand for resource and will
require appropriate redesign of existing activities and
accountabilities.
COVID-19 - Although the UK's vaccination programme has provided
a much welcomed reduction in rates of cases and hospitalisations in
comparison to the previous year, it is expected that the ongoing
effects of the COVID-19 pandemic will continue to disrupt and cause
uncertainty for our customers, which has the potential to affect
the Group's credit risk profile and capital position.
New COVID-19 variants, surges of infections, the effects of
consequential lockdown measures, societal shifts in working
patterns and ongoing caution have resulted in significant sectoral
impacts, particularly in relation to areas such as international
travel and transport. Whilst the Group has limited exposure to
these affected sectors, potential impacts will be carefully
monitored and managed thematically through the Group's RMF to
ensure decisive action.
Climate change - In order to ensure that it is holistically
embedded across the RMF and integrated through the Group's current
suite of principal risks, climate change risk has been assessed as
a 'thematic risk' which impacts on other risk types. The Group
understands the potential operational impact of climate-related
physical or transition risks and the way the physical risks in
particular may manifest in the form of disruption to business
services (including potential impacts to workforce availability),
supply chains and transport links. The Group also remains cognisant
of ever-evolving climate related regulatory requirements and
reporting obligations. The Group's progress against the four key
areas the PRA expects firms to focus on to deliver compliance with
PS11/19 (governance, risk management, scenario analysis and
disclosure) is detailed in section 1.9 - Climate change risk.
Regulatory change - Regulatory impacts are anticipated in 2022
to further combat the challenges posed by financial crime, improve
customer outcomes and respond to the changes to the regulatory
landscape from the PRA, FCA, HMT and the BoE including:
-- HMT - Access to Cash - HMT has published a consultation on
'Access to Cash' which is the next step in legislating to protect
access to cash and ensuring that the UK's cash infrastructure is
sustainable for the long term;
-- FCA Consumer Duty - The proposed Consumer Duty reasserts the
FCA's intention 'to set a higher expectation for the standard of
care that firms give consumers' which will have far-reaching
implications for the financial services industry;
-- Further parliamentary scrutiny of the position of mortgage
prisoners requiring the Group's engagement and consideration;
-- A continuation of the FCA's assertive and robust approach to
engagement especially in respect of financial crime with a focus on
management of cash received through the post office distribution
channel;
-- The introduction of a financial crime levy requirement of an
amount determined by an institution's UK revenue and size; and
-- Potential increases in capital requirements linked to CRR
II/V changes and potential review of impairment modelling
requirements.
Mitigating actions:
Ongoing management, oversight and reporting of key risks and
controls by the Group's three lines of defence and the adoption of
a thematic approach to managing risks posed by the COVID-19
pandemic and climate change.
Management, oversight and reporting of risk through the Group's
risk governance structure. The management of risk and controls
continues to be reflected within all colleagues' performance
objectives and key measures of performance against the RMF are
included in the Group's scorecard.
Key indicators:
Analysis of operational net losses is disclosed in our Pillar 3
report (table 34). In the current year, 85.3% of net losses arose
from external fraud (2020: 65.7%).
CAPITAL RISK
Definition:
The risk that the Group's regulatory capital resources are
inadequate to cover its regulatory capital requirements.
Key themes:
Risk Weighted Assets (RWAs) - Our RWAs at 31 December 2021 total
GBP4,373.4m. RWAs reflect our risk adjusted assets factoring in
probability of default (PD), loss given default (LGD) and exposure
at default (EAD). This calculation is used to derive the capital
requirement of the Group. Increases in RWAs are driven either by
increases in the underlying assets or increases in the risk
weighting (or density) assigned to these assets. Significant
changes in RWAs are typically driven by changes in modelling
requirements, for banks that have permission to use the Internal
Ratings Based (IRB) approach. The Group, alongside other IRB
institutions, is currently developing its suite of secured IRB
models to be compliant with PS11/20.
The PRA guidance in relation to cyclicality in PD is expected to
have a material impact and drive greater consistency across the
industry. Model redevelopment is expected to increase our RWAs in
2022 and the Group is expecting its CET1 ratio to decrease by c.3%
by the end of 2022, of which the majority relates to the impacts of
PS11/20.
The macroeconomic environment - We have previously indicated
that the ability to maintain sufficient capital resources now and
in the future was dependent on the return to profitability and
issuances of MREL-qualifying debt within external capital markets.
Here, we highlight that the successful implementation of the
Group's strategy and its return to profitability are contingent
upon a range of external factors, including market conditions, the
general business environment, regulation (including currently
unexpected regulatory change), the activities of its competitors
and consumers and the legal and political environment. All of these
factors have been subject to greater uncertainty as a result of the
COVID-19 pandemic.
Capital issuance - The introduction of the MREL framework in the
UK requires the Group to issue additional MREL-qualifying capital
to meet future requirements. The quantum, form and timing of these
capital issuances will be influenced by investor appetite in an
evolving economic environment as well as the Group's capital
requirements which are subject to uncertainty largely as a result
of the expected RWA impacts of PS11/20 and secured model
development as outlined above. The 2020 MREL issuance, along with
favourable financial results, continuing robustness in credit
profile and external credit rating agency upgrades in 2021 have led
to the Group's structured debt trading at favourable levels on the
secondary market. This gives us further confidence we are
well-positioned to deliver our issuance plans in 2022 to meet MREL
end-state requirements and demonstrating capital resilience.
Mitigating actions:
The Group achieved profitability in 2021, which facilitates
organic capital growth. Whilst this profitability is assessed to be
sustainable, it is reliant on successful implementation of the
Group's strategy, which is subject to significant oversight and
monitoring, including by the Board. Recognising that its income
profile is concentrated around interest income, the Group is
committed to diversifying its income streams through 2022 and the
life of the Plan. In addition, the Group expects to issue new
capital in 2022 in order to meet MREL end-state requirements and
provide further comfort in respect of capital adequacy.
The Group has embedded capital risk monitoring across the
organisation and closely manages its current and future capital
position from a TCR, MREL and leverage ratio perspective. Capital
management activities at all levels of the Group are overseen by
the 2nd and 3rd lines of defence.
Regular discussions are held with the Group's regulator in
respect of the capital position of the Group and future
expectations in relation to the Group's capital compliance,
including meeting capital buffer requirements and the Group's
individual MREL requirements.
Emerging risks:
Financial regulatory changes - The response to the COVID-19
pandemic has resulted in a number of immediate changes to the
regulatory landscape, including reducing the Countercyclical
Capital Buffer and amending the Group's Individual Capital
Requirement (ICR) to a nominal amount. Alongside the change in IRB
model requirements for the secured portfolio (noted above), which
is well underway, one of the most significant changes to the
regulatory environment is the Basel III reform, which has been
delayed but remains a significant regulatory change for banks in
the medium term.
Key indicators:
CET1 ratio - 2021: 20.7% (2020: 19.2%)
Total capital resources - 2021: GBP1,109.0m (2020:
GBP1,110.3m)
Leverage ratio (EBA) - 2021: 3.1% (2020: 3.4%)
CREDIT RISK
Definition:
Credit risk is the risk to profits and capital that arises from
a customer's failure to meet their legal and contractual payment
obligations. Credit risk applies to retail, SME and treasury.
Key themes:
Managing the profile of lending to new and existing customers is
key to the ongoing management of the Group's exposure to credit
risk. This involves the continual optimisation of its strategies
across all portfolios, using both internal and external customer
performance data, as well as ensuring the appropriate oversight of
their performance. The Group's strategy continues to focus on
growth in new mortgage business volumes principally through
mortgage intermediaries. Nevertheless, the Group recognises that it
remains heavily reliant on interest income from its mortgage
portfolio and is therefore seeking opportunities to diversify its
income streams and yield whilst remaining cognisant of the credit
implications of this approach. The SME business offers significant
future growth potential and continues to be a key cornerstone of
the Group's strategy. The financial health of our SME customers
will be closely monitored within the context of continued economic
uncertainty in 2022 and beyond. The Group's treasury portfolio is
held primarily for liquidity management purposes and, in the case
of derivatives, for the purpose of managing market risk. The Group
monitors the risk to earnings and capital arising as a result of
any of its treasury counterparties defaulting on their legal and/or
contractual obligations through its Treasury Credit Risk Policy and
Control Standards.
During 2020, and as a direct result of the COVID-19 pandemic, a
number of measures were introduced across the different portfolios
in order to support our customers, including payment deferrals and,
for SME, the participation in both the Bounce-Back loan and CBILS
schemes. With these measures being industry-wide, the credit
performance of our customers was initially masked from both an
internal and external perspective. This continued through 2021, not
least as a result of government support measures such as the
Coronavirus Job Retention Scheme, which provided temporary easing
of the impact of the pandemic on unemployment and a challenge in
undertaking affordability assessments. There have been minimal
movements (including credit rating downgrades) in the low-risk
profile of the treasury portfolio during the year and the Group has
not experienced any historical defaults. The exposures remain
predominantly concentrated to counterparties rated AA- or higher,
suggesting a very low probability of default. Additionally, the
Group's credit monitoring has not identified any material changes
in the creditworthiness of its treasury counterparties as a result
of the COVID-19 pandemic, although this will continue to be
monitored closely as the impacts may materialise in the medium to
long term.
Key risks in 2022 relate to the macroeconomic impacts from
rising inflation and Bank interest rates. Unemployment is likely to
remain low with businesses facing a challenge of recruiting in a
competitive environment with increased national insurance
contributions and increases in the cost of living likely to impact
service ability. The annual affordability calculator refresh will
incorporate these rising costs into the affordability calculation
for applications. In addition, the ongoing uncertainty for many SME
customers as a result of Brexit and the COVID-19 pandemic is likely
to continue. These risks in turn may result in increased arrears
across the portfolios, hence crystallising in increased losses to
the Group.
Mitigating actions:
Credit risk is managed within an agreed set of risk appetite
measures for each portfolio, which are monitored through a clearly
defined Risk Management Framework. All credit exposure mandates are
approved within a clearly defined credit approval authority
framework.
The impact of the significant measures put in place has had an
uncertain impact on credit scoring of retail customers. The Group
has taken a prudent approach and increased score cut-offs (minimum
scores needed to be accepted) across all the residential LTV
segments to manage the quality of applications and mitigate the
risk of house price deterioration stemming from the economic
uncertainty. In addition, the use of income received from the
Coronavirus Job Retention Scheme has been under continuous review
and, in line with industry standard, was no longer accepted for
mortgage affordability assessments from September 2020. To further
mitigate against the risk from affordability, any mortgage pipeline
cases using furloughed income, along with all applications from
self-employed customers, are referred to the Group's underwriting
team for manual review. Re-entry into 95% LTV lending was managed
through a lower risk appetite limit (compared to pre-pandemic
levels), as well as higher score cut-offs and restricting
flats/maisonettes as acceptable collateral. A significant
proportion of 95% LTV applications are also reviewed by the Group's
underwriting team.
The housing market has remained relatively buoyant in 2021,
despite the end of the stamp duty moratorium which ended in
September 2021.
The profile of customers making use of measures such as payment
deferrals has been closely monitored, with performance feeding into
future arrears forecasting. The performance of SME customers is
also being closely monitored with data from the credit reference
agency Experian supporting this. There are also strategies in place
to identify and contact 'at risk' customers.
Emerging risks:
There is a risk that as the government's Coronavirus Job
Retention Scheme (furlough) came to an end in September customers
cannot sustain their payments due to unemployment. So far, the
Group's secured and unsecured assets remain high quality, with
arrears volumes remaining stable.
There are significant uncertainties around the requirement for
buy-to-let landlords to obtain and provide Energy Performance
Certificates (EPC) and impacts to properties affected by cladding
risks.
Although our criteria on lending against high rise properties
has meant limited exposure to cladding issues across our mortgage
portfolios, we continue to monitor ongoing developments and to take
actions to mitigate our risks as required.
As anticipated, the volume of SME customers that drew down
support from the Bounce-Back loan schemes and are unable to meet
their payment obligations is increasing. The availability of 'Pay
As You Grow' (PAYG) options provide businesses with extended
support and flexibility around repayments and this will remain
under close review as PAYG options expire. Aside from the
Bounce-Back loans, SME customers are generally performing well
within continued uncertainty as businesses adjust to a post-Brexit
environment and continued impacts from COVID-19.
The Group recognises that the physical and transition risks
arising from climate change represents a major source of credit
risk in the medium to long term, mainly due to increased severity
of damage to physical assets against which the Group secures
mortgages. Asset impairment as a result of damage to property, in
addition to increased demand for energy efficient and low flood
risk properties and other factors may impact the Group's future
profitability which in turn could create knock-on capital risk. The
table under the climate change risk section on page 103 provides
further examples of climate risk events manifesting, the linkage to
principal risks, and consequent potential impacts on The
Co-operative Bank, its customers and other stakeholders.
Key indicators:
2021 impairment charge: GBP1.1m (2020: GBP21.6m). See our Annual
Report and Accounts for further information, which is published on
our website.
3 months in arrears: 0.09% (2020: 0.12%)
LIQUIDITY AND FUNDING RISK
Definition:
Liquidity and funding risk is the risk that the Group is unable
to meet its obligations as they fall due or can only do so at
excessive cost.
Key themes:
The Group maintained a strong level of liquidity through 2021
against regulatory minimum but also recognising the potential for
changes in customer profiles and market conditions given the
continued uncertainties of COVID-19. The BoE liquidity support to
the industry through TFSME has provided the Group with an
additional funding source to support its lending activities,
funding profile and liquidity resources.
The Group remains predominantly customer-funded, continuing to
grow retail and SME franchise deposits. Customer behaviours and
balances have remained relatively stable despite periods of further
COVID-19 restrictions and other economic factors. Trends toward
demand deposits, with reduced appetite for term products,
continues, reflecting both historically low interest rates and
higher average balances which continue to be maintained following
COVID-19.
Wholesale funding comprises secured and unsecured debt issuances
as well as participation in the BoE TFSME. The availability of
TFSME, alongside strong customer deposit performance, has continued
to reduce the Group's wholesale funding activity in 2021, with no
new issuances in the period and maturity of the outstanding
Moorland Covered Bond notes.
Mitigating actions:
Liquidity and funding risk is managed primarily with respect to
the Group's Liquidity Risk Appetite and Liquidity Coverage Ratio.
The Group prepares an annual Internal Liquidity Adequacy Assessment
Process (ILAAP) to ensure that its liquidity risk framework remains
appropriate and the Group holds sufficient liquidity resources.
The Group holds a portfolio of high-quality liquid assets
(HQLA), alongside contingency funding actions which enable the
Group to raise or preserve liquidity in adverse conditions, and
assets available for BoE facilities.
Emerging risks:
Whilst the Group's liquidity and funding position is strong, the
Group recognises that the continued market volatility relating to
the COVID-19 pandemic and broader economic factors may impact the
level of liquidity and funding risk in the future. The impact of
wholesale market conditions on the Group's liquidity and funding
position is limited as the Group has made use of TFSME in 2021,
reducing the reliance on external markets. The Group recognises the
potential for uncertainty in customer behaviour as COVID-19
measures are unwound and the economic situation evolves,
considering such risks in its management of liquidity
resources.
Key indicators:
Loan to deposit ratio: 99.1%(2020: 91.6%). The Group's loan to
deposit ratio has increased in 2021 as the Group has drawn down on
TFSME funding to support positive net lending to our customers.
Primary liquidity resources: GBP5,924.0m (2020: GBP4,099.4m).
Increased primary liquidity resources include TFSME drawings.
Liquidity Coverage Ratio: 241.8% (2020: 193.4%). LCR maintained
significantly above regulatory minimum, including TFSME
drawings.
MARKET RISK
Definition:
Market risk is the risk of loss as a result of the value of
assets or liabilities being adversely affected by movements in
market prices, interest rates or exchange rates.
Key themes:
The Group's business model and market risk framework mean that
its main exposure to market risk is through potential mismatches
between the profiles of customer assets and deposit liabilities.
This risk has continued to be impacted as a result of the COVID-19
pandemic, including the extended stamp duty moratorium as well as
underlying economic uncertainties. Market conditions, with
historically low interest rates through 2021 but increasing
uncertainty as to future base rate rises, have presented
challenging conditions in which to manage the Group's market risk
exposures. In addition, the Group has continued to progress LIBOR
to SONIA transition requirements.
Mitigating actions:
The Group has a clear market risk framework with risk appetite
limits in place to monitor and manage exposures and impacts of
market movements. The Group seeks to hedge market risks where
appropriate, including matching of assets and liabilities where
possible, as well as use of derivative instruments (interest rate
swaps). The framework has provided a structure in 2021 to adapt to
changing conditions and continue to appropriately manage the
Group's overall exposure to market risk.
Emerging risks:
The Group recognises the potential for further volatility in
market conditions, in response to ongoing COVID-19 developments and
the broader economic outlook and rate environment. Specific risks
to be managed include the final activities to complete SONIA
transition, customer behaviours across lending products, but
particularly with respect to customer repayment options on
Bounce-Back loans, mortgage prepayment rates, as well as mortgage
market conditions and pipeline risk as the impact of the stamp duty
moratorium unwinds and mortgage markets and performance respond to
underlying economic conditions and rate volatility.
The impact of severe events due to changing climate patterns or
rapid shifts in climate change-related regulation around the world
has the potential to cause sharp adjustments to market prices as
well as interest rates and exchange rates. Increased market risk as
well as operational risk could also arise as a result of disruption
to business services, supply chains and transport links.
Key indicators:
PV01: measures the sensitivity of future cash flows to a one
basis point shift in interest rates. More information is available
in our Annual Report and Accounts, which is available on our
website.
MODEL RISK
Definition:
Model risk is the potential for adverse consequences caused by
models. Model risk can lead to financial loss, regulatory penalty
or fine, poor business or strategic decision-making, incorrect
financial reporting, damage to a bank's reputation or adverse
customer outcomes.
Key themes and emerging risks:
The Group has permission to adopt the IRB approach for the
majority of its exposures, which provides a significant capital
benefit to the organisation relative to the Standardised Approach.
A robust IRB attestation is completed annually to ensure permission
is retained. The Group maintains an active dialogue with the PRA
regarding adapting the secured models in line with regulatory
expectations of PS11/20 with EAD and LGD models submitted and PD
model submission scheduled for June 2022. Capital risk implications
of major regulatory changes are covered in the capital risk section
on pages 94 to 95. The Group has initiated a model remediation
programme which incorporates a detailed milestone plan for the
development. Following PRA approval of the credit card models in
November 2021, the redeveloped current account and credit card
models are in the process of being implemented. A proposed model
development for the unsecured retail models in 2022 is now paused
following the PRA update of the IRB roadmap wave 4 submission
timeline, now in line with Basel 3.1 implementation.
The COVID-19 pandemic presented unprecedented conditions that
proved challenging to model accurately, particularly in the case of
the Group's IFRS 9 models. The Group relied on the use of model
adjustments to reflect these challenges and this remained so in
2021 as the macroeconomic environment improved. In addition, the
effects of the COVID-19 pandemic on the suppression of defaults,
with the possibility of defaults increasing following the
withdrawal of government support schemes, still has the potential
to impact on the performance of key models. IFRS 9 model
development activity will proceed in 2022 with a rebuild of the
credit card PD model the key priority.
Finally, as part of the Group's close consideration of climate
change risks as part of its ongoing strategic planning exercises in
2021 (described in more detail in section 1.9), the Group has
committed to a proportionate scenario analysis of the financial
risks arising from climate change, and has therefore engaged with
an external party to develop an in-house modelled solution for
assessing these risks across its largest portfolio in retail
secured. This model is used to assess the impacts of climate change
scenarios on credit losses, capturing both physical and transition
climate risks and used for ongoing assessment and inclusion as part
of future financial planning, risk monitoring, product development
and ICAAP cycles. The Group will continue to embed this modelling
capability in 2022 and provide oversight of the methodology and
outputs through its robust model governance framework.
Mitigating actions:
The Group operates a robust model governance framework,
including independent model validation of all models, including new
models, as well as ongoing monitoring of model performance and
periodic risk appetite and policy refreshes.
The Group commits to providing Executive level review and
challenge of model risk through its Model Risk Oversight Committee
(MROC) which ensures that the model rating systems and material
models are operating effectively and the impact of model risks on
the Group's business model and strategies is assessed regularly.
This also includes oversight of the Group's IRB permissions,
including the exemptions where the Group applies the Standardised
Approach to calculate Pillar 1 capital requirements.
The Group has in place a mechanism to determine post-model
adjustments (PMAs) to adjust impairment stock where it is
determined that direct model outputs do not adequately reflect all
risks within a portfolio, or subset of a portfolio. To mitigate the
risk of capital requirements underestimation as a result of
non-compliant IRB models, the Group applies temporary model
adjustments (TMAs) where required.
Key indicators:
A range of indicators continue to be used to assess this
principal risk. These include, but are not limited to, the number
of models that are not IRB compliant, the volume of models rated
with a 'Red' RAG status in terms of model performance or rated 'Not
Fit for Purpose' following periodic model review.
PENSION RISK
Definition:
Pension risk is defined as the risk to Group capital and company
funds from exposure to defined benefit scheme liabilities (to the
extent that liabilities are not covered by scheme assets),
associated funding commitments and risks inherent in the valuation
of scheme liabilities. Uncertainty in the estimated size of the
liabilities and volatility in future investment returns from the
assets may cause volatility in the pension fund funding level.
Key themes and emerging risks:
The Group is the Principal Employer of the Bank section of The
Co-operative Pension Scheme (Pace) and Britannia Pension Scheme
(BPS). Both schemes remain in surplus on an accounting basis and
were also determined to be in surplus on the statutory funding
basis at the time of their last triennial valuations, as at 2019
and 2020 respectively. The Group continues to assess the funding
and accounting positions of both schemes, including impacts of
COVID-19, with a particular focus on any potential erosion of
capital resources due to additional funding requirements.
Risks to the Group arise from the valuation of each scheme on
each of the statutory funding and low risk target (a secondary
funding measure for Pace) bases, a deterioration in which could
give rise to additional cash contributions into the schemes in the
future, and the accounting basis, which could give rise to
immediate erosion of CET1 resources if the schemes were determined
to be in deficit on the accounting basis. Risks may arise if actual
experience differs from the assumptions employed in the valuation
on either basis, in particular as a result of changes to market and
economic conditions and longer lives of members. Risks may also
arise due to volatility in the valuation of scheme investments. The
Group remains cognisant of the potential future impact of
climate-related physical or transition risks on pension asset
valuations. The scheme trustees are responsible for managing
pension assets and do so in line with their Responsible Investment
policies, taking advice from appointed investment consultants and
investment managers. Whilst pension assets are exposed to general
market conditions including interest rates, inflation and credit
spreads, which could deteriorate under longer-term climate stress,
the low-risk investment strategies employed by both of the Group's
defined benefit schemes, together with high levels of interest rate
and inflation protection through hedging strategies, are considered
to go some way to mitigating the overall risk to the funding levels
of the schemes posed by climate change.
There is also a risk that the Group's covenant weakens,
potentially resulting in a perceived deterioration in scheme
funding and a request from the Trustee for additional cash
contributions. In addition, there is a risk that the Trustee seeks
to fully insure the scheme's liabilities with a third party
insurance company. Such a transaction would usually involve payment
of a single insurance premium met from the scheme's own assets and,
in some cases, an additional contribution from the corporate
sponsor. Such a contribution would give rise to an immediate
erosion of CET1 resources of an equivalent amount. Under the
Payment Agreement relating to the Pace escrow account, the Trustee
is not entitled to request a cash contribution for this purpose
until March 2023 at the earliest, following which time the amount
the Trustee is entitled to request is a maximum of GBP45.0m, rising
to GBP75.0m by 2027. For further information refer to note 30 to
the Group and Bank consolidated financial statements.
Mitigating actions:
The majority of the schemes' inflation risk and interest rate
risk are hedged through the investment strategy, which is
liability-driven investment (LDI) strategy, and therefore minimise
the overall volatility in the scheme. The Group regularly monitors
and stresses its pension scheme assets to understand potential for
adverse impact of volatilities.
Key indicators:
The schemes are in a significant surplus position on an
accounting basis. Further information is included in the retirement
benefits note to the consolidated financial statements.
REPUTATIONAL RISK
Definition:
Reputational risk is the risk of damage to the Group's
reputation, or to the way the Co-operative Bank brand or image is
perceived by its internal or external stakeholders as a result of
its conduct, performance, the impact of operational failures, or
other external issues.
Key themes:
It is critical to the success of the Group's Plan that
reputational risks are identified, managed and mitigated. The Group
continued to maintain a strong 'customer first' culture in 2021,
responding to our customers' needs during the COVID-19 pandemic
with branches remaining open and the introduction of an agile
governance structure enabling safe customer-focussed decisions to
be made quickly.
In 2021 the Group's unwavering commitment to co-operative values
and ethics and its unique customer-led Ethical Policy have made it
a natural leader in environmental and social issues today. The
Group has been recognised as the UK's best ESG rated high street
bank by leading experts, Sustainalytics - with an ESG risk score of
just 9.2. This scoring officially cements our long-standing
commitment to our co-operative values(1) . The Group recognises the
importance of maintaining its market-leading ESG position,
particularly in respect to the intrinsic link this has to the
Ethical Policy and the importance of both concepts to our
customers. We will continue to champion the commitments to our
Ethical Policy and drive our credentials within the developing ESG
frameworks in 2022.
Assessing the Group's future risk profile in relation to climate
change risks is challenging due to the dependency on a significant
number of variables, some of which are known and some which are
uncertain or unknown at this point. What is clear is that there is
significant reputational risk that could arise from actions by
colleagues, customers, suppliers and other key stakeholders not
meeting the Group's standards in relation to the climate agenda. At
the same time potential for reputational risk will continue to
increase as additional climate-related regulatory requirements and
reporting obligations come into force. The Group will continue to
assess its own environmental impact, further enhance and improve
its commitment to protect the environment and closely monitor its
regulatory requirements and reporting obligation with respect to
climate change.
The Group continues to use the 'co-operative' name as the Group
adheres to and supports the co-operative movement. The Group
demonstrates its commitment to the co-operative values through our
partnership with The Hive which began in 2016 and the programme has
already helped over 1,000 new and existing co-operatives and
groups. Through our partnership, we are helping to build a
resilient and successful co-operative economy. We have invested
GBP1.7m into this programme since our partnership began and this
has led to positive feedback from Co-operatives UK.
The Group can experience media coverage and social media content
relating to matters such as speculation relating to the Group's
ownership, call wait times in the contact centre and digital
outages. The Group continues to focus on the successful delivery of
the Plan and supporting our customers.
The impact of the COVID-19 pandemic has continued in 2021 and
the banking industry has transitioned to 'business as usual' as
temporary financial measures ceased. This represented a key area of
focus and throughout the pandemic the Group has maintained
effective communications and dialogue with all of its customers and
regulators.
Mitigating actions:
An active dialogue has been maintained with all key stakeholders
throughout the year. The Group continues to invest in channel
offerings, including enhancing digital capabilities allowing
customers to bank more flexibly and at their own convenience.
Investing in technology to improve resilience has remained a focus,
whilst utilising multiple communication channels to keep customers
informed during outages.
Emerging risks:
Given the high level of scrutiny regarding financial
institutions' treatment of customer and business conduct from
regulatory bodies, the media and politicians, from time to time the
Group may be exposed to conduct issues, legal proceedings and
regulatory investigations that could give rise to reputational
risk. Where appropriate, the Group discloses such exposures as
contingent liabilities in note 31 to the Group and Bank financial
statements.
Key indicators:
A range of indicators continue to be used to assess changes in
this principal risk. These include, but are not limited to, the
number and nature of reputational risks, social media sentiment and
adverse Ombudsman decisions made against the Group.
[1]
https://www.co-operativebank.co.uk/assets/pdf/bank/investorrelations/The-Co-operative-Bank-ESG-Rating-by-Sustainalytics.pdf
1.9 Climate change risk
Introduction:
The Group has been committed to tackling climate change since
the inception of our Ethical Policy in 1992, as we remain focussed
on safeguarding the environment both now and in the future. Across
the industry, banks are taking action to ensure that we are all
able to support the global transition towards a low-carbon economy.
The PRA expects firms to consider how climate-related risks might
impact all aspects of their risk profiles and take action in
specific areas, as set out in PS11/19 and SS3/19 (Enhancing banks'
and insurers' approaches to managing the financial risks from
climate change) and be able to evidence this by December 2021.
Definition
Climate change presents a real risk to the global economy, with
the financial impacts of climate change arising through two main
sources: i) physical risks and ii) transition risks. The table on
page 103 provides details of the principal risks that the Group has
considered against the physical and transition risks arising from
the climate change.
i. Physical risks arise from both acute and chronic shifts in
climate patterns, which can lead to damage to assets, business
disruption and changes in individuals' health and incomes, driving
financial losses and impaired asset values. For banks, these could
manifest themselves primarily as credit, market, operational and
reputational risks. The Group has assessed the risks of exposure to
flooding, subsidence and coastal erosion in the mortgage portfolio
at a fixed point in time (further details are published in our
Annual Report and Accounts, which is available to view on our
website).
ii. Transition risks relate to the risk of loss in the
transition to a low carbon economy. This is influenced by factors
such as regulation, legislation and guidelines to reduce the impact
or level of climate change, as well as developments in technology
and changing consumer and market sentiment. These may drive changes
in the value of assets and liabilities for banks and insurers,
increase the cost of business for SMEs and result in changes to
consumer spending habits which could have a material impact on the
profitability of certain industries. There is also the risk of
climate-related lawsuits, which could impact firms and/or
customers. As with physical risks, the Group has used a
point-in-time assessment to understand the energy performance of
the properties in the mortgage portfolio (further details are
published in our Annual Report and Accounts, which is available to
view on our website).
In 2021, the Group has also developed a model for assessing the
impact of the physical and transition risks of climate change
across its mortgage portfolio, with quantitative methods also
considered for assessing risks to its corporate and unsecured
retail portfolios. Further details are published in our Annual
Report and Accounts, which is available to view on our website.
Our approach to climate change risk
Key steps taken to date
The Group completed a number of actions across 2020 and 2021 to
embed the understanding and mitigation of climate change risks
across the organisation. In our 2020 Annual Report and Accounts, we
shared details of the actions taken to that point, including:
-- Assigning the Chief Risk Officer SMF responsibility for
climate change risk, which includes performing the initial risk
assessment and oversight of the formulation and delivery of plans
to identify and address the financial impacts of climate change;
and
-- Establishing a Climate Change Working Group, made up of
representatives from across the business, firstly to ensure a
common understanding of how climate-related risks might impact all
aspects of the Group's risk profile and secondly to ensure a
comprehensive implementation of the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD). The working
group has established four key workstreams: governance and
strategy, risk management, scenario analysis and disclosures.
Details of how the Group has continued to embed climate change
risk through the four key workstreams in 2021 are below.
Governance and strategy
The Group recognises that ensuring climate change risks are
embedded across the Group's governance framework is critical to
supporting climate-conscious decision-making. The Group has
provided training to the Board, Executive team and senior
management teams to build awareness and understanding of climate
change risks, including the potential impact of these risks. More
information can be found within our Annual Report and Accounts,
which has been made available on our website.
The Group has considered climate change opportunities and risks
as part of its strategic planning exercises in 2021, in the context
of its broader ESG strategy. We have targeted programmes in place
to reduce the environmental impacts of our operations including
recycling a greater proportion of operational waste with zero waste
to landfill, reducing our operational greenhouse gas emissions
intensity ratio and sourcing 100% electricity from renewable
sources as well as focussing on maintaining our carbon neutrality.
The Group will continue to support environmental campaigns and add
its voice to calls to address the climate and ecological
emergency.
Other strategic considerations include product development and
diversification in retail and supporting our SME customers to
promote a healthy environment whilst recognising the need to
mitigate the financial risks arising from climate change through
continuous 'greening' of the balance sheet.
Risk management
Climate change risk has been assessed in the context of the
Group's current suite of principal risks, as well as the wider Risk
Management Framework. Whilst climate change risk has its own
definition and risk appetite statement, in 2020, it was decided to
establish climate change as a 'thematic risk', in order to ensure
that it was holistically embedded across the RMF and integrated
through the Group's current suite of principal risks. This decision
was reviewed and reconfirmed in 2021. The rationale for this
decision is that climate change risks are expected to impact other
risks, such as increased credit risk, operational risk and capital
risk. This also demonstrates that the Group has considered the
relative significance and linkage of climate-related risks in
relation to other risks.
To this effect, each principal risk in the Group was assessed
for sources of physical and transition risk factors through
dedicated risk framework owner review. For absolute clarity, risk
framework owners were asked to confirm whether climate change has
an impact on their principal risk-type or provide rationale for why
it does not. Impacted principal risk policies and control standards
were then refreshed to reflect any climate change risks identified.
The Group has also assessed its exposure to climate change risk as
part of the 2021 Internal Capital Adequacy Assessment Process, to
understand whether the impacts to its principal risks should be
capitalised. The 2022 Internal Capital Adequacy Assessment Process
will further build upon this assessment, with greater emphasis
placed upon the quantitative elements.
The Group monitors emerging risks (including climate change
risk) as part of the Group Risk Report, which is produced by the
risk function and is reviewed and challenged by both the EROC and
the RC. Climate change risk is also monitored through the Climate
Change Working Group, as well as through the Group's statutory and
sustainability reporting, ICAAP and ILAAP.
Decisions to mitigate, transfer, accept or control any
significant climate-related risks identified are made in accordance
with RMF principles. This involves engaging the relevant principal
risk framework owner in the first instance, assessing the potential
impact and likelihood of risk crystallisation using approved risk
measurement tools, making a materiality determination and
escalating through the risk governance and committee structure
outlined above. Exercises such as the annual ICAAP provide further
opportunities for the Group to conduct strategic risk assessments
relating to climate change risk and assist materiality
determinations.
The Group runs a robust horizon scanning process in order to
identify, action and monitor any regulatory developments relating
to climate matters. Each new development (such as new or amended
policy statements) is flagged, assigned to the relevant Executive,
prioritised and tracked through to compliance with oversight
provided by the Climate Change Working Group, Risk Oversight and
EROC. The Group's Director, Risk Governance, Regulatory Affairs and
Prudential Oversight also attends material supervisory updates and
education sessions with the PRA, FCA and BoE to ensure the Group is
at the forefront of any changes concerning climate matters in the
banking industry. The Group acknowledges the updates to the
implementation guidance on TCFD recommendations in October 2021 and
continues to evidence compliance with the prevailing
regulations.
Scenario analysis
The Group has engaged with an external provider to perform a
point-in-time 'static' assessment of the Group's exposure to the
physical and transition risks of climate change on its mortgage
portfolio. A model has also been built for the continuous
assessment of these risks against key credit risk parameters in the
mortgage portfolio. Further details of these two components of the
scenario analysis workstream are outlined below.
a) Static assessment results:
This assessment took a view of the physical and transition risks
in the residential mortgage portfolio as at 30 June 2021, relative
to national averages. The results of this assessment is split in
two parts: physical and transition risks.
i) Physical risks
The assessment has considered the flooding, subsidence and
coastal erosion risks to which the properties in the residential
mortgage portfolio are exposed. The process for sourcing physical
climate risk data involved matching of the physical address of each
property to spatial coordinates (longitude and latitude) using
AddressBase. The spatial coordinates of each property were then
mapped to geospatial files showing locations of flood plains and
areas with subsidence and coastal erosion.
The results showed that the flood and subsidence risk of the
properties in the Group's residential mortgages is broadly in line
with the national average, whilst only one property in the
portfolio is at a risk of coastal erosion.
ii. Transition risks
The assessment has considered the current and potential EPC
ratings of the properties in the residential mortgage portfolio.
The process for sourcing EPC data involved matching the address of
each property in the Group's residential mortgages portfolio to
addresses contained in the EPC register, of which 74% of properties
were matched, which is much higher than the national average.
The results showed that the energy performance of the properties
in the Group's portfolio is lower than the overall EPC
register.
b) Modelled solution:
The Group has committed to a proportionate scenario analysis of
the financial risks arising from climate change, and has therefore
engaged with an external party to develop an in-house modelled
solution for assessing these risks across its retail secured
portfolio, for ongoing assessment and inclusion as part of future
financial planning, risk monitoring, product development and ICAAP
cycles. The Group also considered developing modelled solutions for
its other core customer lending portfolios (retail unsecured and
SME); however, it was decided that this should be reconsidered at a
future date as the Group's exposure across these two portfolios
grows, with a focus on the Group's largest portfolio (retail
secured). For the purposes of the 2022 ICAAP, a non-modelled
quantitative assessment will be considered to assess the Group's
exposure to climate change risk in its other portfolios.
The model developed for retail secured is used to assess the
impacts of different climate change scenarios on credit losses,
capturing both physical and transition climate risks. This allows
the Group to demonstrate compliance with the requirements of the
PRA's Supervisory Statement 3/19 and is largely aligned to the
requirements of the Climate Biennial Exploratory Scenario 2021
exercise by the BoE ('CBES'). The analysis covers the residential
mortgages within the secured portfolio (direct, Platform
residential and Platform buy-to-let) and are based on the three
climate scenarios from the BoE and guidance issued by the BoE as
part of CBES, outlined below:
-- Early policy action - the transition to a carbon-neutral
economy starts early so is more gradual and moderate. The Paris
Agreement target of global warming staying below 2degC is met.
-- Late policy action - the global climate goal is met but the
transition is delayed until 2030 and must be more sudden to
compensate.
-- No additional policy action - no policy action beyond that
which has already been enacted is delivered, leading to severe
physical risks.
The scenario assessment process includes the consideration of a
number of macroeconomic variables, including GDP, HPI and
unemployment, as well as the appropriate physical and transition
risks which are aligned to the 2021 CBES guidance issued by the
BoE.
The Group will continue to embed its modelling capability in
2022, with the outputs of these models to be included in the 2022
ICAAP, to provide an assessment of the impact of climate change
risk on the residential secured portfolio. The Group will also seek
ways to build out its own internal non-modelled quantitative
assessments of its exposures to climate change risk in its other
lending portfolios, and revaluate the merits of a modelled
solution, particularly with respect to SME and corporate lending.
Quantitative impacts of the outputs of the scenario analysis will
be reviewed by the Climate Change Working Group and, with
consideration of the materiality of the risk posed, used to inform
future strategic initiatives at the Group.
Climate-related disclosures
The Group has recognised the importance of ensuring that
accountability for its own management of climate change risk is
clearly defined through its climate-related objectives and
performance against those objectives. The Group is also committed
to ensuring the public disclosure of this performance to re-enforce
this accountability. Furthermore, for 2022, part of Executive
remuneration will be measured against the Group's ESG performance,
ensuring that climate change risk is considered alongside financial
and risk management metrics. Further detail about changes to the
Group-wide scorecard to reflect ESG performance can be found in the
Directors' Report on remuneration to the shareholder in the Annual
Report and Accounts, which is available on our website.
Climate-related objectives
The Group introduced and clearly defined these goals as part of
its 2020 Sustainability Report, with further progression outlined
in the 2021 Sustainability Report. Historically, the Group has
issued its Values & Ethics Report to share details of its ESG
credentials (and by extension its climate-related actions).
The Group has set a number of targets as part of its ongoing
strategic planning process, into which the Group's ESG and
climate-related objectives are now embedded. A summarised view of
these targets is provided in our strategic report and our full
Sustainability Report for 2021, which is available on the Bank's
website.
Work remains ongoing to continue to build additional metrics and
monitoring of climate change risks. This work includes, but is not
limited to:
-- Embedding climate change risk within the Group's suite of
risk metrics and tolerances (including Board and EROC Risk Appetite
Metrics), e.g. in 2021, the Group's Asset and Liability Committee
agreed that the Group should set itself a minimum requirement for
the ESG ratings assigned to its treasury counterparties and, where
no rating is available, the counterparty would be considered a
'high' ESG risk (except for sovereign exposure);
-- Develop products that support the UK's transition to a
low-carbon economy, including the continued financing of low-carbon
industries, climate-related retail products and investments into
green securities, supporting the greening of the Group's balance
sheet;
-- Utilising the outputs of the scenario analysis and model
development to set risk tolerances and inform strategic
decision-making across the Group, including risk management
objectives that are based on the Group's resilience to climate
change risk; and
-- Further develop climate change risk within the Group's
governance framework, to ensure decisions at all levels consider
the impact on the climate and senior management, the Executive team
and the Board are incentivised to tackle climate change risk.
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements with
respect to the business, strategy and plans of the Group (including
its updated long-term forecast) and its current targets, goals and
expectations relating to its future financial condition and
performance, developments and/or prospects. In particular, it
includes, but is not limited to, targets under the summary section
of this presentation and the "Outlook" section of the key
highlights, and outlook section of the Chief Executive's review in
the annual report and accounts. Forward looking statements
sometimes can be identified by the use of words such as 'may',
'will', 'seek', 'continue', 'aim', 'anticipate', 'target',
'projected', 'expect', 'estimate', 'intend', 'plan', 'goal',
'believe', 'achieve', 'predict', 'should' or in each case, by their
negative or other variations or comparable terminology, or by
discussion of strategy, plans, objectives, goals, future events or
intentions.
Examples of such forward-looking statements include, without
limitation, statements regarding the future financial position of
the Group and its commitment to its plan and other statements that
are not historical facts, including statements about the Group or
its directors' and/or management's beliefs and expectations. Any
such forward-looking statements are not a reliable indicator of
future performance, as they may involve significant stated or
implied assumptions and subjective judgements, which may or may not
prove to be correct. There can be no assurance that any of the
matters set out in forward-looking statements are attainable, will
actually occur, will be realised, or are complete or accurate. Past
performance is not necessarily indicative of future results.
Differences between past performance and actual results may be
material and adverse.
For these reasons, recipients should not place reliance on, and
are cautioned about relying on, forward-looking statements as
actual achievements, financial condition, results or performance
measures could differ materially from those contained in the
forward-looking statement. By their nature, forward looking
statements involve known and unknown risks, uncertainties and
contingencies because they are based on current plans, estimates,
targets, projections, views and assumptions and are subject to
inherent risks, uncertainties and other factors both external and
internal relating to the Group's plan, strategy or operations, many
of which are beyond the control of the Group, which may result in
it not being able to achieve the current targets, predictions,
expectations and other anticipated outcomes expressed or implied by
these forward-looking statements. In addition, certain of these
disclosures are dependent on choices relying on key model
characteristics and assumptions and are subject to various
limitations, including assumptions and estimates made by
management. No representations or warranties, expressed or implied,
are given by or on behalf of the Group as to the achievement or
reasonableness of any projections, estimates, forecasts, targets,
prospects or returns contained herein. Accordingly, undue reliance
should not be placed on forward-looking statements.
Any forward-looking statements made in this document speak only
as of the date of this document and it should not be assumed that
these statements have been or will be revised or updated in the
light of new information or future events and circumstances arising
after today. The Group expressly disclaims any obligation or
undertaking to provide or release publicly any updates or revisions
to any forward-looking statements contained in this document as a
result of new information or to reflect any change in the
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based,
except as required under applicable law or regulation.
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