Annual Results Presentation. For the year ended 4 April 2017

Transcription

1 Annual Results Presentation For the year ended 4 April 2017

2 Highlights

3 A STRONG SOCIETY, MANAGING PROFITS FOR MEMBERS Maintaining our financial strength: 3 rd year with profits over 1bn Balancing profitability with financial benefit for members 1.34bn 1.03bn 397m 505m Underlying Profit Before Tax 2017 Other % 25.4% Savings Pricing CET1 Ratio Member Financial Benefit ( m) 3

4 MEMBERSHIP AT AN ALL-TIME HIGH Record membership Highest customer satisfaction amongst our high street peer group¹ +3% 14.4 million 14.4 million 14.8 million 15.1 million Nationwide Total Members million 7.1 million 7.4 million +5% 7.8 million Peer group average Engaged Members Net Satisfaction in Core Products 4 1 GfK 2017, Financial Research Survey (FRS) measure, as defined in the glossary (slide 31)

5 MORE PEOPLE CHOOSING NATIONWIDE THAN EVER BEFORE Top choice for current accounts Record mortgage lending % bn 27.1bn 32.6bn 33.7b n Current Account Openings ( 000) Gross Mortgage Lending Protecting savers 7.9% 9.1% 11.1% 14.7% 4.9bn 1.9bn 6.3bn 5.8bn Market Share of New Current Account Openings Growth in Member Deposits

6 Strategy

7 BUILDING SOCIETY, NATIONWIDE Shared values, shared culture, doing the right thing Leading by example and making a difference Providing a service that is genuinely different Heartfelt, Easy, Lifelong and Personal Delivering real value to our members Being safe, secure, sustainable and dependable 7

8 OUR COMMITMENT TO OUR MEMBERS Cornerstone Measure Target Built to Last Building PRIDE Underlying Profit Before Tax Leverage Ratio Employee engagement and enablement 0.9bn - 1.3bn p.a. >4% Above cross industry high performance benchmark Building Legendary Service Service Satisfaction 1 st + 2% in peer group in 2017/18 Building Thriving Membership Engaged Members 10 million by 2022 Building a National Treasure Prompted brand consideration Trust (all consumers) 1 st + 4% in peer group by st + 3% in peer group in 2017/18 8

9 Financials

10 BALANCING PROFITS IN LINE WITH MEMBERS INTERESTS UNDERLYING INCOME COSTS 2016 m 3,333 (1,796) 2017 m 3,285 (1,979) % Change Balancing profits with strategic investment, capital generation and member financial benefit We managed the business within our financial performance framework and delivered 505m (2016: 397m) of member financial benefit IMPAIRMENTS OTHER ITEMS STATUTORY PROFIT (73) (140) OTHER PROVISIONS (127) (136) UNDERLYING PROFIT 1,337 1,030 (23%) (58) 1, ,054 COST INCOME RATIO 53.9% 60.2% (18%) 2017 underlying income including 100m gain on VISA Europe disposal Other items ( m) Bank levy (41) (42) Transformation costs (10) - FSCS costs (46) - Gains from derivatives and hedge accounting Total (58) 24 10

11 A LOW RISK BALANCE SHEET RESIDENTIAL MORTGAGES OTHER LENDING LIQUIDITY¹ 4 Apr 16 bn Apr 17 bn % Change 6% (3%) 10% Asset growth of 6% driven by growth in residential mortgage lending and prudent liquidity position Prudent capital ratios with peer group leading CET1 ratio of 25.4% OTHER ASSETS % RETAIL DEPOSITS² WHOLESALE FUNDING % % % Key Ratios 4 Apr 16 4 Apr 17 Liquidity Coverage Ratio 142.6% 124.0% Wholesale Funding Ratio 24.8% 27.1% OTHER LIABILITIES CAPITAL & RESERVES ³ % CET1 Ratio 23.2% 25.4% UK Leverage Ratio 4.4% 4.4% % 11 1 Treasury liquidity and investment portfolio (on balance sheet) 2 Shares (member deposits) and amounts due to customers on consolidated balance sheet 3 Total members interests and equity including subscribed capital (PIBS) and subordinated liabilities

12 STABILISING MARGIN PERFORMANCE Net Interest Margin (NIM) Evolution Movement in NIM 1.02% Net Interest Margin 1.27% 1.47% Net Interest Income 1.52% 1.33% 152bps (11bps) 1,981 2,431 2,872 3,086 2, (4bps) (3bps) (2bps) 1bps 133bps 1.58% 1.46% 1.33% 1.33% 1,557 1,529 1,449 1,511 H H H H Mortgage Managed Rate run off Mortgage Deal Book repricing PCA & Structural Hedge Commercial Savings & Other

13 INVESTING IN SERVICE AND GROWTH Underlying Costs ( m) +10% +5% 1, , , Impact of Inflation & Business Regulation Strategic Contractual Volumes & Control Investment Other Efficiencies Costs Excl. One-Offs Asset Impairment Efficiency Investment

14 EFFICIENCY: 300M SUSTAINABLE SAVES BY 2022 Costs ( m) 1% - 2% CAGR 8% CAGR 628 1, ,308 1, Cost Increase 2017* Projected Increases Sustainable Saves 2022 Impact of Strategic Investment Business Volumes Regulation & Control Living Wage/Pension Other Inflation & Contractual 14 * Excluding efficiency investment of 43m. One-off asset impairment of 46m shown separately.

15 HIGHER RETAIL PROVISION DRIVEN BY INCREASED PRUDENCE Impairments ( m) Retail Lending Residential Unsecured lending Treasury & Other Commercial Lending Consumer Banking Residential Lending Total balances ( m) 4 Apr 16 4 Apr 17 4 Apr 16 4 Apr , ,263 3,869 3, Non performing balances ( m) 3,179 2, NPL 2.0% 1.6% 4% 1 4% 1 NPL provisions coverage 3.2% 5.3% 81% 2 86% month+ arrears 0.45% 0.45% CML industry average 1.04% 0.91% Total negative equity balances 544m 385m Negative equity 83m 61m 15 1 Excluding charged off balances 2 Including charged off balances

16 PRIMARILY PRIME Residential lending and new business by borrower type Retail Lending Prime Specialist Buy to let (BTL) 18% Self certified 1% BTL new purchases 3% Other 1% BTL remortgagers 11% Home movers 30% Residential portfolio Distribution of new business 4 Apr 16 4 Apr 17 4 Apr 16 4 Apr 17 80% 81% 20% 19% 78% 86% 22% 14% Remortgagers 19% Ave LTV loan stock 54% 54% 61% 59% Ave LTV new business 71% 72% 65% 62% Prime 81% First time buyers 36% 3 month+ arrears 0.35% 0.36% 0.90% 0.89% Residential portfolio Distribution of new business 16

17 CUSTOMER REDRESS REFLECTS IMPACT OF REGULATORY PROPOSALS Customer Redress ( m) PPI Other

18 HIGH QUALITY LIQUID ASSET BUFFER Other securities 1 Liquid assets ( bn) -1% Liquidity portfolio composition changed as 3.7bn FLS redemptions reduced treasury bills and 6.0bn TFS drawings increased cash Maintained term funding market presence - 6.4bn issued in Government bonds Decrease in LCR reflects inclusion of additional outflows following the finalisation of Pillar 1 requirements and a one-off commitment to acquire securitised assets Cash On a like-for-like basis, the LCR remains broadly consistent with last year s 4 Apr 16 4 Apr 17 Liquidity Coverage Ratio 142.6% 124.0% Net Stable Funding Ratio 127.9% 132.6% 18 All figures sterling equivalent. 1 Other securities include covered bonds, RMBS and asset backed securities. 2 Government bonds include T-bills held through FLS drawings supranational bonds.

19 MAINTAINING FINANCIAL STRENGTH: SOLVENCY Movements in CET1 Ratio Peer Group CET1 Ratio¹ 23.2% 2.2% (0.7%) 0.6% 0.1% 25.4% % 14.3% 14.1% 12.5% 11.9% Mar 16 Profit Pension Deficit RWAs Other Mar 17 Nationwide Lloyds RBS Barclays Santander UK Movements in end-point UK Leverage Ratio Peer Group UK Leverage Ratio¹ 4.4% 0.4% (0.1%) (0.2%) (0.1%) 4.4% 5.7% 5.4% 4.6% 4. 4% 4.1% Mar 16 Profit Pension Deficit Balance Sheet Growth Other 2 Mar 17 RBS Lloyds Barclays Nationwide Santander UK 19 ¹ As at March Rounding

20 CAPITAL STRENGTH DRIVING STRONG RATINGS FPC Stress Test highest CET1 ratio Strong ratings position 2016 FPC stress test included a severe UK domestic stress, with a property price fall, rising unemployment and GDP contraction Nationwide remained profitable in each year of the stress and was the only institution to continue to make full distributions on all capital instruments Low point CET1 ratio of 15.6% - 530bps above closest peer Stress Test Low Point CET1 Ratio* S&P s RAC ratio projection for Nationwide is 9.7% to 10.7% over the next 24 months Due to MREL issuance requirements, Nationwide expects ALAC eligible issuance of 5bn over the next 24 months Moody s upgrade to Aa3 in June 2016 due to improved loss absorbency of deposits and senior unsecured debt Fitch upgrade to A+ in February 2017 reflecting a sufficiently large qualifying junior debt buffer % 10.3% 9.9% 5.9% 5.8% S&P and Moody s placed Nationwide on negative outlook following the result of the EU referendum as part of a sector-wide move S&P A Negative Nationwide Lloyds Santander UK Barclays RBS Moody s Aa3 Negative Fitch A+ Stable 20 * After strategic management actions

21 WELL-PLACED TO COMPLY WITH MREL REQUIREMENTS Going concern capital MREL 10bn 8bn 6bn 4bn 2bn 0bn AT1 CET1 End point Tier 1 capital resources Buffers AT1 CET1 Leverage requirement Buffers Pillar 2A Pillar 1 CET1 requirements % of RWA 28.4% 25.4% 24.1% 19.3% 14.4% 12.7% 8.2% 4.5% 15bn 10bn 5bn 0bn Resources Resources Buffers 6% of leverage exposure Requirements CET1 resources > than minimum leverage and RW requirements Expected MDA threshold < current minimum leverage ratio requirements Indicative MREL = 6% UK leverage exposure plus RW buffers Confident that we will comply with MREL requirements applicable to the Society from 1 st January Buffer requirements represent regulatory guidance for normal conditions of 2.5% capital conservation buffer, 1% countercyclical capital buffer & 1% systemic risk buffer

22 Outlook & Summary

23 WELL-PLACED TO CONTINUE TO SUPPORT MEMBERS IN UNCERTAIN TIMES Economy Strong economic performance since referendum has supported confidence Inflation and falling wages likely to combine to squeeze household budgets Housing House price growth to cool to around 2% in 2017 House prices expected to rise in line with earnings over the long term Consumers Brexit, low interest rates and inflation registering as consumer concerns Consumers are relatively optimistic about their personal finances, and will protect mortgage/rent payments in a squeeze Nationwide Nationwide well placed to support members thanks to financial strength, stable and low risk business model, and strong trading performance 23

24 BUILDING SOCIETY, NATIONWIDE All employee engagement refreshed Society s strategy and purpose 75% of employees involved in fundraising, volunteering or payroll giving Most trusted brand among financial services peer group Which? Banking Brand of the Year 2017 No. 1 for customer satisfaction amongst high street peer group 1 Uk s top choice for current accounts CET1 ratio improved to 25.4% Profits of over 1bn for third year running Record membership; now 15 million Member financial benefit of 505m 24 1 GfK 2017, Financial Research Survey (FRS) measure, as defined in the glossary (slide 31)

25 Q&A

26 Appendices

27 MARKET ENVIRONMENT: MACROECONOMIC OUTLOOK After expanding by a stronger than expected 1.8% in 2016, the pace of UK economic activity appears to have slowed. The economy grew by 0.3% q/q in Q respectable, but modestly below the UK s trend growth rate. The outlook is uncertain, but like most forecasters, we expect the economy to slow this year and next as rising inflation puts a squeeze on household budgets. Brexit related uncertainty may act as a drag until new trading arrangements are finalised, but we continue to expect modest growth in the years ahead. Although inflation is expected to exceed target in the coming months, most of this increase is due to sterling s past depreciation. Comments from policymakers suggest that, unless wage growth increases significantly, they are minded to keep rates on hold, though there are risks in both directions. UK GDP Growth 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Bank of England Base Rate (FY end) % Q/Q Y/Y Source: ONS /12 12/13 13/14 14/15 15/16 16/17 17/18 (F) Source: Bank of England/ Nationwide (F) Nationwide Forecast 27

28 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 MARKET ENVIRONMENT: HOUSING MARKET Annual house price growth has been fairly stable, fluctuating in a band between 3% and 6% for much of the past two years. However, there were tentative signs of softening in April annual house price growth slowed to 2.6% (from 3.5% in March), the weakest pace for almost four years. Housing trends will depend on developments in the wider economy, which are unusually uncertain. Low interest rates will provide support for demand, though in parts of the country (especially London) affordability is already stretched. With supply still constrained, a small increase in house prices of c2% is likely over the course of 2017, with the potential for a further modest slowdown in 2018/19 if the economy slows. Over the long term we would expect house prices to rise in line with earnings. However, if the construction of new homes continues to lag behind the increase in the number of households, house price growth could outpace earnings growth. UK house prices Y/Y % 15% 10% 5% 0% -5% -10% -15% -20% Source: Nationwide 28

29 MARKET ENVIRONMENT: MORTGAGE & SAVINGS Mortgage market gross lending has been broadly flat over the past year, with purchase activity remaining relatively subdued. The BTL market has softened following tax changes and changes in underwriting standards. Mortgage Net Lending ( bn) Mortgage market net lending slowed in 2016/17, mainly due to weaker growth in the BTL sector. Growth in savings balances has continued to run well in excess of net mortgage lending, in contrast to the pre-recession period. However, the savings market showed signs of softening in the second half of 2016/17. Rising inflation and persistently muted wage gains represent significant headwinds to households' ability to save, while the low interest rate environment also remains a drag on the deposit market / / / / / /17 Savings Change in Balance ( bn) / / / / / /17 29

30 CONTACTS Alex Wall Head of Investor Relations, Rating Agencies & Capital Nationwide Treasury Mailbox 30

31 GLOSSARY Definitions used are in line with the glossary in the Annual Report and Accounts In addition, further items included in the results presentation are defined below. Customer satisfaction measure Net satisfaction in core products (slide 4) Definition GfK 2017, Financial Research Survey (FRS), 3 months rolling data, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across current account, mortgage and savings, high street peer group defined as providers with main current account market share >6% (Barclays, Halifax, HSBC, Lloyds Bank (inc C&G), NatWest and Santander). Prior to April 2015, Lloyds Bank and TSB combined as Lloyds TSB Group (including Lloyds Bank, TSB and C&G). No. 1 for customer satisfaction amongst high street peer group (Slide 24) GfK 2017, Financial Research Survey (FRS), 3 months ending 31 March 2017, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across current account, mortgage and savings. High street peer group defined as providers with main current account market share >6% (Barclays, Halifax, HSBC, Lloyds Bank (inc C&G), NatWest and Santander). 31

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