Interim Results Presentation
For the 6 months ended 30 September 2019
Highlights
3
Our Society has grown strongly for the past three years
Total membership (m) Residential mortgage balances (£bn) Current account credit balances (£bn)
14.814.9
15.1
15.415.5 15.5
15.915.99
FY
15/16
H1
16/17
FY
16/17
H1
17/18
FY
17/18
H1
18/19
FY
18/19
H1
19/20
More than 1m new members;
almost 16m members
Over 50% growth in
current account balances
162
168.35
6 171.263175.262177.299
180.96
7186.012189
FY
15/16
H1
16/17
FY
16/17
H1
17/18
FY
17/18
H1
18/19
FY
18/19
H1
19/20
Continued growth in mortgages
14.8
16.617.5
19.8 19.8
21.721.1
22.9
FY
15/16
H1
16/17
FY
16/17
H1
17/18
FY
17/18
H1
18/19
FY
18/19
H1
19/20
4
Short-term profits lower as we prioritise member value and service
Underlying profit before tax (£m) Member financial benefit1 (£m)
1 Member financial benefit is quantified as our interest rate differential plus member incentives and reduced fees. 2 © Ipsos MORI 2019, Financial Research Survey (FRS) measure, as defined in the glossary (slide 34).
330 365
H1 2018/19 H1 2019/20
460
307
H1 2018/19 H1 2019/20
55
60
65
70
75
Mar 2016 Mar 2017 Mar 2018 Mar 2019
Nationwide
Peer group
Customer satisfaction score
vs peer group average2 (%)
5
We are delivering on our commitments today as we invest for the future
1 © Ipsos MORI 2019, Financial Research Survey (FRS) measure, as defined in the glossary (slide 34). 2 Institute for Customer Service UK Customer Satisfaction Index, July 2019. 3 Pro-rated from the full year target of at least £400m. 4 Engaged and committed members are as defined in the glossary (slide 34).
▪ Service and proposition: reengineering our
digital experiences, Later Life lending,
Nationwide for Business
▪ Infrastructure: system simplification and
enhancement progressing well, improving
resilience
▪ Innovation: 9 venturing investments in the
past year
▪ Branches: 150 refurbished since 2017
▪ Technology talent: premises secured and
recruitment underway for in-house
technology hubs
Measure TargetH1 19/20
performance
Outstanding service Customer satisfaction
FRS: 1st + 4.0%pts
in our peer group
UKCSI: Top 5
1st + 5.8%pts1
8th2
Value for members
Member financial benefit
Engaged members4
Committed members4
At least £200m3
10m by 2022
4m by 2022
£365m
9.4m
3.5m
Financial strength UK leverage ratio > 4.5% 4.6%
Key performance indicators Investing for the future
6
1.8
5.1
2.5
H1 17/18 H1 18/19 H1 19/20
427399 389
H1 17/18 H1 18/19 H1 19/20
Growth in member deposits
maintains market share
We have seen growth in mortgages, savings and current accounts
Change in deposit balances (£bn)Gross mortgage lending (£bn)
Current account openings and
switches remain robust
Market share of first time buyers2 (%) Market share of stock of deposits3 (%)
16.7 17.3 16.3
H1 17/18 H1 18/19 H1 19/20
Current accounts opened (‘000)
Market share of current account switches1 (%)
20.2 21.518.7
H1 17/18 H1 18/19 H1 19/20
Mortgage lending in line with expectations,
as we continue to support FTBs
10.0 10.1 9.9
H1 17/18 H1 18/19 H1 19/20
21.1 21.4 18.5
H1 17/18 H1 18/19 H1 19/20
1 Source: Pay.UK monthly CASS switching market data. 2 Source: UK Finance and Nationwide calculations. Share of number of loans to FTBs. 3 Source: Bank of England and Nationwide calculations.
Financials
8
£ million H1 2018/19 H1 2019/20
Underlying income 1,590 1,541
Underlying costs (1,100) (1,125)
Impairments (45) (57)
Other provisions 15 (52)
Underlying profit 460 307
Other items 56 2
Statutory profit 516 309
Underlying cost income ratio 69.2% 73.0%
Our profits reflect expected sustained competition, investment and PPI
Other items (£ million) H1 2018/19 H1 2019/20
FSCS release 9 0
Gains from derivatives and hedge accounting
47 2
Total 56 2
▪ Underlying income has reduced reflecting sustained competition in our core markets
▪ Underlying costs have increased by £25m, in part reflecting our future technology and services
▪ Provisions have increased primarily due to additional PPI charges
▪ £365m of member financial benefit (H1 2018/19: £330m)
9
Maintaining a low risk, strongly capitalised balance sheet
Key ratios (%) 04 Apr 19 30 Sept 19
Liquidity coverage ratio 150.2 140.3
CET1 ratio 32.2 31.5
UK leverage ratio 4.9 4.6
1 Balances are shown net of provisions. 2 Treasury assets (including liquidity portfolio). 3 Shares (member deposits) 4 Total members’ interests, subordinated liabilities and subscribed capital.
£ billion 04 Apr 19 30 Sept 19 %
Residential mortgages1 185.8 188.9 75
Other lending 13.3 12.9 5
Liquidity2 32.7 38.8 16
Other assets 6.5 9.4 4
Assets 238.3 250.0 100
Retail deposits3 154.0 156.5 62
Wholesale funding 61.2 67.6 27
Other liabilities 3.0 3.8 2
Capital & reserves4 20.1 22.1 9
Liabilities 238.3 250.0 100
▪ Balance sheet growth driven by net mortgage lending of £3bn and an increase in cash and collateral held
▪ Capital position remains strong with our CET1 and UK leverage ratios at 31.5% and 4.6% respectively
10
Net interest margin has decreased due to a reduction in mortgage income and growth in liquid assets
Net interest income drivers1 (£m) Net interest income (£bn) & net interest margin (%)1
1.50 1.51 1.44 1.48
1.39
1.331.28
1.23 1.221.12
H1 17/18 H2 17/18 H1 18/19 H2 18/19 H1 19/20
Net interest income NIM
1The opportunity has been taken to reclassify certain items previously included within net interest income to reflect better the nature of the transactions. As a result, gains and losses recognised on the disposal
of investment securities classified as FVOCI are now presented within net other income, as opposed to net interest income. Gross margin has been restated from a LIBOR to SONIA basis for prior periods.
Average assets (£bn)
11
Closed mortgage book
Average balances (£bn) & gross margin1 (%)
Open mortgage book
Average balances (£bn) & gross margin1 (%)
1Gross margin has been restated from a LIBOR to SONIA basis for prior periods.
New business margins stabilise, as managed rate book runs off
32.829.3 26.5 23.7 21.3
3.83.5
3.33.0
2.8
2.24% 2.23% 2.22% 2.22% 2.22%
1.50%
1.60%
1.70%
1.80%
1.90%
2.00%
2.10%
2.20%
2.30%
-5.0
5.0
15.0
25.0
35.0
45.0
55.0
65.0
H1 17/18 H2 17/18 H1 18/19 H2 18/19 H1 19/20
Closed managed rate mortgage books Legacy books Gross margin %
123.9130.4
138.8147.4
155.612.1
11.1
10.3
9.2
8.4
1.90% 1.79%
1.63%1.49% 1.49%
-0.50%
0.00%
0.50%
1.00%
1.50%
100.0
110.0
120.0
130.0
140.0
150.0
160.0
170.0
180.0
H1 17/18 H2 17/18 H1 18/19 H2 18/19 H1 19/20
Mortgage deal books Revert rate mortgage books Gross margin %
12
Our cost profile reflects our investment in our future
▪ Administrative expenses have seen a modest increase of £25m compared to the same period last year
▪ The period-on-period growth is mainly attributable to strategic investment, including development of our business banking proposition
▪ Our investment continues to support the long-term interests of our members, including improving member service and propositions, both in branch and through digital channels
£ million H1 16/17 H1 17/18 H1 18/19 H1 19/20
Investment and Depreciation 271 287 398 396
Nationwide for Business - - 2 22
Business as usual 667 679 700 707
Total 938 966 1,100 1,125
£ million FY 16/17 FY 17/18 FY 18/19
Investment and Depreciation 596 593 769
Nationwide for Business - - 13
Business as usual 1,425 1,431 1,472
Total 2,021 2,024 2,254
13
Low impairments reflect lending quality
Impairment charge (£m)
1 Residential: percentage of loans, by number. Unsecured: percentage of balances, exc. charge offs. 2 Source: UK Finance, 3m+ arrears balance divided by latest contractual payment.3 Final data point is for Sep 2019.
73
140
105113
4557
FY 15/16 FY 16/17 FY 17/18 FY 18/19 H1 18/19 H1 19/20
Residential lending Consumer banking Commercial & other lending Treasury & other
Retail lending
Residential Unsecured
04 Apr 19 30 Sep 19 04 Apr 19 30 Sep 19
Total balances (£m) 186,012 189,063 4,586 4,889
Provision balances (£m) 206 213 418 441
3m+ arrears1 (%) 0.43 0.40 1.35 1.26
3m+ arrears industry
average2 (%)0.78 0.73
Total negative equity
balances (£m)203 190
Negative equity (£m) 30 27
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Apr 2005 Apr 2007 Apr 2009 Apr 2011 Apr 2013 Apr 2015 Apr 2017 Apr 2019
Nationwide
Industry average
Mortgage balances in 3m+ arrears1,2,3 (%)
141 This table excludes Fair Value through Profit or Loss (FVTPL) balances which totalled £77m as at 30 September 2019 (4 April 2019: £72m).
IFRS9 staging and provisioning stable
Residential mortgages1 Unsecured
04 Apr 19 30 Sep 19 04 Apr 19 30 Sep 19
Balance
(£m)
Share of
book
(%)
Provision
coverage
(%)
Balance
(£m)
Share of
book
(%)
Provision
coverage
(%)
Balance
(£m)
Share of
book
(%)
Provision
coverage
(%)
Balance
(£m)
Share of
book
(%)
Provision
coverage
(%)
Stage 1 176,023 95 0.02 177,377 94 0.02 3,538 77 0.8 3,780 77 0.9
Stage 2 8,479 5 1.5 10,191 5 1.3 761 17 17.3 808 17 17.2
Of which: >30 dpd 480 439 18 19
Stage 3 and POCI 1,438 <1 2.9 1,418 1 2.6 287 6 90.1 301 6 89.8
Of which: >90 dpd or in
possession760 718 59 59
Of which: charged off
accountsn.a. n.a. 209 222
Total 185,940 0.11 188,986 0.11 4,586 9.1 4,889 9.0
Memo: Stage 3 coverage exc.
charged off accounts (%)n.a. n.a. 74 74
15
Customer redress charge driven by pre-deadline surge in PPI enquiries
▪ The Group holds provisions of £168m (4 April 2019: £159m) in respect of the potential costs of remediation and redress in relation to past sales of PPI, issues relating to administration of customer accounts, non-compliance with consumer credit legislation and other regulatory matters
PPI:
▪ In common with the rest of the industry, we received a higher than
anticipated volume of PPI enquiries in the run-up to the 29 August
deadline
▪ Additional PPI provision (£36m) reflects the increase in complaints
we expect to process based on our best estimate, from sampling,
of how many of the PPI enquires will result in a complaint
▪ Nationwide continues to account for only c.1% of PPI complaints
industry-wide
£ million
At 5 April 2019 159
Provision utilised (43)
Charge for the period 54
Release for the period (2)
Net income statement charge 52
At 30 September 2019 168
Customer redress charge
16
We remain strongly capitalised
Movement in CET1 ratio1,2 (%)
Profits support lending growth
Peer group CET1 ratios3 (%)
Continue to benchmark well against peers
1 RWA increase was driven by lending and investment activities in the period and the impact on fixed assets as a result of IFRS 16. 2 The ‘Other’ category primarily relates to the impact of changes in the fair value of assets and
liabilities. 3 Peer group as at 30 Sep 2019 on an end point basis where published.
▪ Revised residential mortgage IRB models and the finalised Basel III framework will increase RWAs significantly, but we expect our CET1 ratio to remain ahead of peers
Movement in UK leverage ratio2 (%)
31.5
15.7 13.9 13.5 13.4
Nationwide RBS Santander UK Lloyds Barclays
5.7 4.9 4.8 4.6 4.6
RBS Lloyds Barclays Nationwide Santander UK
Peer group UK leverage ratios3 (%)
17
CET1
AT1
Tier 2
SNP
6.50% of
leverage
exposure
Buffers
0.75%
Current resources 2020 expected
requirements
£19.7bn
£17.4bn
We meet all existing and known future capital requirements MREL
1 Leverage requirements comprise: 3.25% minimum, 0.35% additional leverage ratio buffer and 0.4% countercyclical leverage ratio buffer. 2 Based on 30 Sep 2019 balance sheet. 3 Risk Adjusted Capital and Additional Loss Absorbing Capacity. 4 Excluding 0.3% surplus Total Adjusted Capital above 10% RAC threshold.
33.3% of RWAs4.0% of UK
leverage
exposure1
7.25% of UK
leverage
exposure2
8.2% of UK
leverage
exposure
Optimising credit ratings
Estimated S&P RAC and ALAC3
Going concern capital (end point)
CET1
AT1
Minimum
leverage
Buffers
P1 4.5%
P2 4.1%
Buffers
4.5%
End point Tier 1
resources
UK leverage
requirement
CET1
requirement
£4.4bn
£11.1bn
£9.6bn
RAC
10.3%
ALAC
8.1%
RAC
10%
ALAC
8%
Current resources RAC / ALAC
thresholds
£19.6bn £19.2bn
4
18
30-Sep-19 New IRB models
(end 2020)
31.5%
>20%
Impact of future regulatory reform
Well positioned to absorb impact of RWA reforms
Proforma CET1 ratio impact▪ The adoption of new IRB models for mortgage exposures1 is expected
by end 2020, and is forecast to reduce the CET1 ratio by
approximately one third
▪ Basel 3.1 regulatory reforms propose the implementation of a RWA
output floor from 2022 followed by a transition period until 2027
▪ As at September 2019, the proforma impact of the Basel RWA output
floor at the end of transition is a reduction of the CET1 ratio by around
one half
▪ UK leverage requirements expected to remain the binding going
concern capital constraint
1 PRA Policy Statement, PS13/17 Residential mortgage risk weights
19
12.516.7
12.0
11.6
2.4
2.526.9
30.8
04 Apr 2019 30 Sep 2019
Other securities Government bonds Cash Total
Continued strong liquidity position
Liquid assets1 (£ billion)
▪ Liquid assets increased during the period by £3.9bn to £30.8bn
(4 April 2019: £26.9bn) driven by an increase in short term
funding balances and collateral inflows
▪ The reported LCR reduced to 140.3% (4 April 2019: 150.2%) as net
cash outflows increased in line with liquid assets
▪ Nationwide continues to manage liquidity risk against an internal
risk appetite which is more prudent than regulatory requirements
1 All figures sterling equivalent. 2 Balances include all RMBS held by the Society which can be monetised through sale or repo.
High quality liquid asset buffer
Key ratios (%) 04 Apr 19 30 Sept 19
Liquidity coverage ratio 150.2 140.3
Net stable funding ratio 130.5 131.82
20
Senior
preferredShort term
Senior Non-
PreferredTier 2 AT1 Outlook
Standard & Poor’s A A-1 BBB+ BBB BB+ Positive
Moody’s Aa3 P-1 Baa1 Baa1 Baa3 Negative
Fitch A+ F-1 A A- BB+ Rating Watch Negative
▪ S&P affirmed positive outlook in November 20181
▪ Moody’s affirmed Nationwide’s long and short term ratings in November 20192. Moody’s changed the Society’s outlook to
negative from stable in October 20183
▪ In March 2019, Fitch changed Nationwide’s long term Issuer Default Rating outlook to rating watch negative from stable in a
sector-wide action for all UK banks relating to Brexit uncertainty4
Credit ratings reflect robust business model but macro uncertainty
1 S&P Global Ratings Credit Opinion, 6 Nov 2018. 2 Moody’s Investors Service Credit Opinion, 18 Nov 2019. 3 Moody’s Investors Service Rating Action, 26 Oct 2018.4 Fitch Ratings Press Release, ‘Fitch places Long-Term IDR’s of 19 UK Banking Groups on Ratings Watch Negative’, 1 Mar 2019.
21
Continue to develop our ESG1 ratings strategy
Rating Latest update
MSCI BBB Jun 19
Sustainalytics2 20.3 May 19
Oekom C – PRIME Aug 18
During the period, we:
▪ Engaged with ESG rating agencies to ensure our ratings better
reflect our business model
▪ Published our Responsible Business Report, and we are
committed to improving our disclosures
▪ Became a signatory to the UN Global Compact, and we are
exploring how we can support the UN Sustainable Development
Goals
▪ Committed to support the TCFD recommendations
1 ESG: Environmental, Social and Governance. 2 Rating corresponds to material ESG risk that has not been or cannot be managed. Nationwide’s score of 20.3/100 indicates that Nationwide is considered to be
at medium risk of experiencing material financial impacts from ESG factors.
Economic outlook
23
The UK economy has slowed, but households have proved relatively resilient
24
Housing market has remained broadly stable
25
House price growth broadly flat, modest declines in London and SE
26
Recent developments in mortgage lending and household deposit markets
Summary
28
No. 1 for customer satisfaction amongst our
peer group1
Which? Banking Brand of the Year 2019
150 branches refurbished since 2017 through
our investment programme
UK leverage ratio of 4.6%
Member financial benefit of £365m
Society technology transformation underway
UK’s most trusted financial brand2
£3m in grants to fund another 73 housing
projects
Planning permission secured for Oakfield
housing project
First high street provider to offer a
comprehensive range of retirement
mortgages
Broadening relationships with our ‘just for
members’ personal loans, insurance and
credit cards
Premises secured for new in-house digital
innovation centres in Swindon and London
1 © Ipsos MORI 2019, Financial Research Survey (FRS) measure, as defined in the glossary (slide 34) 2 Nationwide Brand Guidance Study, as defined in the glossary (see slide 34)
Building society, nationwide
Q&A
30
Contacts
Alex Wall
Head of Financial Risk & Resource Optimisation
0845 602 9053
Investor Relations Mailbox
Appendix
32
IFRS9 economic scenarios
▪ The weighting applied to the downside scenarios has increased to 45% (4 April 2019: 30%) reflecting the increased economic uncertainty as at 30 September 2019
▪ The impact on provisions of the multiple economic scenarios is £137m (4 April 2019: £133m)
Economic variables (%) Central scenario Upside scenario Downside scenarioSevere downside
scenario
UK GDP growth 1.7 2.3 0.4 (0.1)
Unemployment rate 4.1 3.8 5.5 8.0
House price growth 2.6 4.6 (2.0) (5.3)
Base rate 1.1 1.9 0.2 3.5
Weight 40 15 35 10
Key economic variables used in the economic scenarios: average values over the first five years of the scenario
33
1.3
11.5
14.9
5.1 5.0
3.7
12.6
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26+
TFS
AT1
T2
SNP
RMBS
Covered
bonds
Senior
Preferred3
Diversified funding sources ahead of TFS refinancing
1 All figures sterling equivalent 2 Redemptions assumed at first call date 3 Six month period from 30 Sept 2019
▪ Over the period, wholesale funding increased by £6.0bn to £67.2bn, with issuance across all secured and unsecured platforms, in both public and private transactions
▪ In September, we successfully issued £600m of AT1 to support our UK leverage ratio, with a final order book approaching 10x oversubscribed
▪ As well as issuing in our core currencies of GBP, EUR and USD, we diversified our funding base by issuing in JPY senior debt and CHF covered bonds
Term wholesale funding redemptions1,2 (£bn)
34
GlossaryMeasure Definition
Net satisfaction in core products
(slide 4)
© Ipsos MORI 2019, Financial Research Survey (FRS), 12 month rolling data from March 2016 to September 2019,
c.60,000 adults surveyed per annum, proportion of extremely/very satisfied customers minus proportion of
extremely/very/fairly dissatisfied customers summed across main current account, mortgage and savings. Peer
group defined as providers with main current account market share >4% as of April 2019 (Barclays, Halifax, HSBC,
Lloyds Bank, NatWest, Santander and TSB). Prior to April 2017, peer group defined as providers with main current
account market share >6% (Barclays, Halifax, HSBC, Lloyds Bank, NatWest and Santander).
Net satisfaction in core products
(slide 5, slide 28)
© Ipsos MORI 2019, Financial Research Survey (FRS), 12 months to September 2019, c.60,000 adults surveyed per
annum, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied
customers summed across main current account, mortgage and savings. Peer group defined as providers with main
current account market share >4% as of April 2019 (Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and
TSB).
Committed and engaged members
(slide 5)
Engaged members have a main current account, a mortgage with balance greater than £5,000, or a savings
account with a balance greater than £1,000. Committed members have two or more of our products, at least one of
which is an engaged membership product.
Trust (slide 28)
Nationwide Brand Guidance Study compiled by an independent research agency, based on all consumer responses,
12 months ending September 2019. Financial brands included Nationwide, Barclays, Co-operative Bank, First Direct,
Halifax, HSBC, Lloyds, NatWest, TSB and Santander.
35
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and operational resources and other relevant circumstances.
You should take such independent investigations and such
professional advice as you consider necessary or appropriate for
such purpose.
Furthermore, you should consult with your own legal,
regulatory, tax, business, investment, financial and accounting
advisers to the extent that you deem it necessary, and make
your own investment, hedging and trading decisions (including
decisions regarding the suitability of any transaction) based
upon your own judgement and advice from such advisers as you
deem necessary and not upon any view expressed in this
presentation. Certain data in this presentation has been
rounded. As a result of such rounding, the totals of data
presented in this presentation may vary slightly from the
arithmetic totals of such data.