Nationwide's Response to the Stress Test Results

28 NOVEMBER 2018: NATIONWIDE'S RESPONSE TO THE RESULTS OF THE BANK OF ENGLAND STRESS TEST 2018

Today the Bank of England issued the results of its latest Concurrent Stress Test. The specified hypothetical Annual Cyclical Scenario (ACS) was consistent with ACS 2017 with a 33% fall in house prices and 9.5% peak in unemployment, and a rapid increase in Bank Base Rate to 4% in the first year of the scenario.

Consistent with the results of ACS 2017, the results of the 2018 test confirm that Nationwide would remain profitable in such conditions and continue to make full distributions on all Tier 1 capital instruments, with a minimum stressed CET1 ratio of 14.1%, and a minimum UK leverage ratio of 5.1%, after the application of management actions. In each case the Society remains substantially above the regulatory hurdle rates set for this stress test of 7.9% CET1 ratio and 3.6% UK leverage ratio, both before and after the application of management actions.

The PRA has confirmed that Nationwide is not required to submit a revised capital plan or take additional actions as a result of this stress test exercise.

The CET1 ratio reduces primarily due to the impact of the significant house price reduction, rising interest rate environment and increase in unemployment rate on model risk weights, rather than capital losses or the implementation of the IFRS 9 accounting standard.

Nationwide recognises the value of industry-wide stress testing and continues to support the financial stability objectives of the Financial Policy Committee and the Bank of England.

On 22 November, Nationwide issued its interim results for the period 5 April to 30 September 2018. These results reflected the continued capital strengthening and security of our business with a CET1 ratio of 31.7% (4 April 2018: 30.5%) and UK leverage ratio of 5.0% (4 April 2018: 4.9%).

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