VMUK6 May 2020 08:53
H1 financial highlights
· Balance sheet mix optimisation continued with loan growth of 0.3% to £73.2bn and deposit growth of 1.4% to £64.7bn:
o Business lending growth of 5.7% in H1 to £8.3bn and Personal lending growth of 6.2% to £5.3bn
o Mortgage lending declined 0.9% to £59.5bn as we maintained our disciplined approach to margin management
o Relationship deposits grew 4.3% to £22.3bn as we successfully implemented our strategy
· Pre-provision operating profit of £352m is 3% lower year-on-year due to the expected NIM compression:
o H1 NIM of 1.62% within guidance range (Q2: 1.63%); asset mix benefits more than offset mortgage impact in H1
o Non-interest income stable; £16m gilts sale gain offset absence of investment fee income now recorded in ASI JV
o Operating costs of £465m down 3% YoY; cost:income ratio of 57%; £76m of net run-rate cost savings now delivered
· Total impairment charge of £232m (63bps cost of risk); pre-COVID-19 credit quality robust at 23bps cost of risk
o COVID-19 balance sheet impairment provision of £164m derived through three-stage approach: (1) re-weighted our IFRS 9 models 100% to existing multi-year "severe downside" scenario; (2) applied expert credit risk judgement overlays; (3) modelled a "pandemic shock" scenario for Business & Credit Card portfolios incorporating a 10% GDP decline and peak unemployment of 9.7%
o COVID-19 impairment provision divisional split of: £110m Business, £39m Personal and £15m Mortgages
o Considerable on balance sheet provision reserves of £542m; coverage ratio of 75bps
· Underlying profit of £120m (H119: £286m) is down 58% YoY primarily due to the COVID-19 impairment charge
· Statutory profit after tax of £22m reflects £127m of exceptional items, including £61m of integration & transformation costs
· Good progress on PPI processing with no provision required in the period; current uphold rates much lower than planned
· CET1 ratio of 13.0% reduced 0.3%pts primarily due to higher RWAs from a planned mortgage model change
o COVID-19 impairment P&L charge was fully absorbed with no CET1 capital impact due to an offset against the Group's existing Excess Expected Loss (EEL) capital deduction of c.£90m and IFRS 9 transitional relief
· Guidance: FY20 NIM of 155-160bps and costs of <£920m reflecting lower interest rate environment and COVID-19 impacts
Supporting our customers, colleagues & communities
· Working with Government, regulators and the industry to introduce new measures to support customers impacted by COVID-19, while implementing additional flexibility and product changes to bring further relief to customers in need:
o Supported c.4.5k businesses with lending support facilities including c.£135m of CBILS loans approved to date
o c.40k Personal lending payment holidays granted to date; <2% of our cards customers & c.6% of personal loans
o Mortgage payment hol
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