TIDM84LC
RNS Number : 4618H
Abbey National Treasury Servs PLC
17 August 2016
Abbey National Treasury Services plc 17 August 2016
2016 Half Yearly Financial Report
The Company announces that a copy of the above document has been
submitted to the National Storage Mechanism and will shortly be
available for inspection at www.hemscott.com/nsm.do.
In fulfilment of its obligations under the Disclosure and
Transparency Rules, Abbey National Treasury Services plc hereby
releases the unedited full text of its 2016 Half Yearly Financial
Report. Accordingly, page references in the text refer to page
numbers in the 2016 Half Yearly Financial Report.
A printer-friendly PDF version of the accounts will also be made
available on the Company's website:
www.santander.co.uk
- Ends -
For further details, please contact:
Contacts
Head of Investor
Bojana Flint Relations 020 7756 6474
Andy Smith Head of Media Relations 020 7756 4212
For more information: www.aboutsantander.co.uk ir@santander.co.uk
The full text of the accounts follows:
Half Yearly Financial Report 2016
Abbey National Treasury Services plc
PART OF THE SANTANDER GROUP
Abbey National Treasury Services plc
Half Yearly Financial Report 2016
Index
Introduction 2
Financial review 4
Risk review 12
Governance 31
Financial statements 33
Introduction
The Company sets out in this report a fair review of its
business and a description of its principal risks and
uncertainties, including a balanced and comprehensive analysis of
the development and performance of the business in the first half
of the year and of its position at the end of the period.
Principal activities and business review
Abbey National Treasury Services plc (the Company) and its
subsidiaries (collectively, ANTS or the ANTS group) provides
corporate, wholesale banking and treasury services. ANTS provides
these services to UK clients and also to the wider Santander UK
group (comprising Santander UK plc and its subsidiaries), of which
ANTS is a significant part. ANTS provides certain treasury support
functions for the Santander UK group. In this regard, ANTS's role
is to provide access to certain financial markets and central bank
facilities in order to meet the Santander UK group's liquidity,
funding and balance sheet management requirements. The Company is
authorised and regulated by the Financial Conduct Authority (FCA)
and the Prudential Regulation Authority (PRA).
ANTS contains portions of a number of Santander UK's business
segments. The booking of transactions in ANTS or another Santander
UK group entity reflects historical or operational considerations
and does not necessarily reflect any particular business split.
The Company guarantees any unsubordinated liabilities of
Santander UK plc, which are not debt securities, incurred prior to
30 June 2017 under a deed poll guarantee entered into by the
Company on 5 June 2015, as amended (the Upstream Guarantee).
Santander UK plc guarantees all the unsubordinated liabilities of
the Company incurred prior to 30 June 2017 (the Downstream
Guarantee). Because these guarantees are in place, the results and
creditworthiness of ANTS should not be viewed in isolation. Account
should also be taken of the position of the Santander UK group into
which the assets and liabilities of ANTS are fully
consolidated.
ANTS has also entered into agreements to provide capital and/or
liquidity to Santander UK plc and other members of the Santander UK
group, in order to facilitate efficient intercompany funding
arrangements under current regulations. For further details, see
Note 32 to the Consolidated Financial Statements in the 2015 Annual
Report.
Preparation for ring-fencing
In the first half of the year, Santander UK began repositioning
the structure of its funding vehicles in preparation for
ring-fencing. On 1 June 2016, Santander UK plc became the issuer of
all existing medium-term wholesale securities previously issued by
the Company. Specifically, Santander UK plc became the issuer in
respect of all Existing Senior Medium Term Wholesale Securities
issued by ANTS up to that date. The Existing Senior Medium Term
Wholesale Securities comprise EUR60m Guaranteed Step-Down Fixed /
Inverse Floating Rate Notes due 2019 and GBP166,995,000 Zero Coupon
Amortising Guaranteed Notes due 2038. This change is part of the
Santander UK group ring-fence planning pursuant to the requirements
of the Financial Services (Banking Reform) Act 2013, for which we
have commenced realigning the funding structure of the operating
companies ANTS and Santander UK plc. Going forward, Santander UK
plc will be the issuer under each of the Wholesale Funding
Programmes. The Wholesale Funding Programmes comprise the US$30bn
Euro Medium Term Note Programme (EMTN), the EUR35bn Global Covered
Bond Programme and the US SEC-Registered Debt Shelf Programme. ANTS
does not guarantee the notes transferred to Santander UK plc by
ANTS nor will it guarantee the notes issued by Santander UK plc in
the future.
Economic environment
The UK economy has entered a period of significant uncertainty.
ANTS is well prepared to serve the needs of our customers as they
steer their way through the opportunities and challenges ahead.
The UK banking sector is facing some serious headwinds as the
economy deals with external pressures in the short and medium term.
In addition, against the backdrop of large scale regulatory change
already underway, the sector has to navigate the loss of regulatory
certainty as the UK negotiates new trade relationships with the
European Union.
The economic backdrop for most of the first half of the year
continued to be positive and largely supportive of our business.
The UK referendum on EU membership on 23 June 2016 marked the end
of a period of relative stability for the UK banking sector.
With GDP growth of about 2% in the first half of 2016, the UK
economy has grown for 13 consecutive quarters. Despite recent
market volatility, concerns about economic uncertainty and some
headwinds from slow global growth, labour market prospects remain
positive. The unemployment rate is close to 5% and its level before
the crisis of 2008-2009.
Inflation is currently 0.5% and, although likely to rise, is
expected to remain relatively low through 2016. Low inflation also
underpins the financial market expectation that the low interest
rate environment will continue.
Overall these have been supportive trends for our business. The
low interest rate environment - with little prospect for increases
in the short term - does however create a challenging environment
for income growth.
Demanding regulatory agenda
The most significant regulatory change which we face is the
requirement introduced by the Banking Reform Act for major UK banks
to ring-fence their retail banking operations. Santander UK's
(including our) progress to date follows extensive efforts across
the bank, and with a significant investment of management time.
Santander UK submitted its plans to the PRA and FCA in January 2016
and anticipate further feedback from them later this year.
Most other policy changes to support the wider regulatory change
agenda have now been agreed in principle. However, implementation
of these changes and compliance with the new regime remains a major
undertaking across the sector.
Development and performance of our business in H116
Information on the development and performance of our business
in H116 is set out in the 'Income statement review' section of the
Financial review.
Our position at 30 June 2016
Information on our position at the end of the period is set out
in the 'Balance sheet review' section of the Financial review.
2016 outlook
We expect the slowdown of the UK economy, which began in the run
up to the EU referendum, to continue as economic and political
uncertainties prevail.
In a period of significant macroeconomic uncertainty with a wide
range of possible economic outcomes, some downside risks are likely
to be mitigated by monetary policy actions by the Bank of England
and the capital and liquidity strength of the banking sector.
Despite the uncertainties we face, we believe we have the
resilience and capabilities to sustain profitability and deliver on
our strategy.
Our principal risks and uncertainties
Information on our principal risks and uncertainties is set out
in the Risk review by type of risk, with more detail by business
segment. Except where noted, there has been no significant change
to the description of these risks or key mitigating actions as set
out in the 2015 Annual Report.
Key performance indicators
The directors of Santander UK Group Holdings plc manage the
Santander UK group's operations on a business division basis. As a
result, the Company's Directors believe that analysis using key
performance indicators for the Company or the ANTS group is not
necessary or appropriate for an understanding of the development,
performance or position of the Company. The development and
performance of the business of the ANTS group, mainly at a
consolidated level, is set out in the Financial Review. The Key
Performance Indicators of Santander UK Group Holdings plc can be
found on page 5 of its 2016 Half Yearly Financial Report, which do
not form part of this report.
By Order of the Board
Chris Sullivan
Director
17 August 2016
Financial review
5 Income statement review
5 Summarised Consolidated Income Statement
6 Profit before tax by segment
7 - Commercial Banking
8 - Global Corporate Banking
9 - Corporate Centre
10 Balance sheet review
10 Summarised Condensed Consolidated Balance Sheet
INCOME STATEMENT REVIEW
SUMMARISED CONSOLIDATED INCOME STATEMENT
Half Half
year year
to to
30 June 30 June
2016 2015
GBPm GBPm
----------------------------------------------- --------- ---------
Net interest income 106 177
Non-interest income(1) 135 182
----------------------------------------------- --------- ---------
Total operating income 241 359
----------------------------------------------- --------- ---------
Operating expenses before impairment
losses, provisions and charges (129) (130)
----------------------------------------------- --------- ---------
Impairment (losses)/releases on loans
and advances (25) 4
Total operating impairment (losses)/releases,
provisions and charges (25) 4
----------------------------------------------- --------- ---------
Profit before tax 87 233
Tax on profit (27) (48)
----------------------------------------------- --------- ---------
Profit after tax for the period 60 185
----------------------------------------------- --------- ---------
(1) Comprised of Net fee and commission income and Net trading
and other income.
H116 compared to H115
Profit before tax decreased by GBP146m to GBP87m in H116 (2015:
GBP233m). By income statement line, the movements were:
- Net interest income was lower, mainly reflecting
the repricing of funding of the commercial balance
sheet.
- Non-interest income was down 26% at GBP135m, primarily
relating to mark-to-market movements on economic
hedges.
- Operating expenses before impairment losses, provisions
and charges were flat, as we continue to absorb
investment in business growth and regulatory costs.
- Impairment losses on loans and advances increased
to GBP25m, in part due to the impairment of a
single loan in Global Corporate Banking that moved
to non-performance. Overall, corporate loans continue
to perform well.
Tax on profit decreased 44% to GBP27m, driven by lower profits,
partially offset by the 8% bank corporation tax surcharge. The
effective tax rate is now 31%, up from 21% in H115.
Critical factors affecting results
The preparation of our Condensed Consolidated Interim Financial
Statements requires management to make estimates and judgements
that affect the reported amount of assets and liabilities at the
balance sheet date and the reported amount of income and expenses
during the reporting period. Management evaluates its estimates and
judgements on an ongoing basis. Management bases its estimates and
judgements on historical experience and other factors believed to
be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
Estimates and judgements that are considered important to the
portrayal of our financial condition including, where applicable,
quantification of the effects of reasonably possible ranges of such
estimates are set out in 'Critical Accounting Policies and Areas of
Significant Management Judgement' in Note 1 to the Consolidated
Financial Statements in the 2015 Annual Report.
The rest of this section contains a summary of the results, and
commentary thereon, by income statement line item for each
segment.
Basis of results presentation
The segmental information in this Half Yearly Financial Report
reflects the reporting structure in place at the reporting date in
accordance with which the segmental information in Note 2 to the
Condensed Consolidated Interim Financial Statements has been
presented. The Company's board of directors (the Board) is the
chief operating decision maker for ANTS. The segmental information
below is presented on the basis used by the Board to evaluate
performance and allocate resources. The Board reviews discrete
financial information for each segment of the business which
follows our normal accounting policies and principles, including
measures of operating results, assets and liabilities.
PROFIT BEFORE TAX BY SEGMENT
Global
Commercial Corporate Corporate
Banking Banking Centre Total
Half year to 30 June 2016 GBPm GBPm GBPm GBPm
---------------------------------- ----------- ----------- ---------- ------
Net interest income 41 36 29 106
Non-interest income/(expense)
(1) 13 160 (38) 135
---------------------------------- ----------- ----------- ---------- ------
Total operating income/(expense) 54 196 (9) 241
---------------------------------- ----------- ----------- ---------- ------
Operating expenses before
impairment losses, provisions
and charges (12) (104) (13) (129)
---------------------------------- ----------- ----------- ---------- ------
Impairment losses on loans
and advances (3) (22) - (25)
---------------------------------- ----------- ----------- ---------- ------
Total operating impairment
losses, provisions and charges (3) (22) - (25)
---------------------------------- ----------- ----------- ---------- ------
Profit/(loss) before tax 39 70 (22) 87
---------------------------------- ----------- ----------- ---------- ------
Half year to 30 June 2015
---------------------------------- ----------- ----------- ---------- ------
Net interest income 37 38 102 177
Non-interest income(1) 22 138 22 182
---------------------------------- ----------- ----------- ---------- ------
Total operating income 59 176 124 359
---------------------------------- ----------- ----------- ---------- ------
Operating expenses before
impairment losses, provisions
and charges (11) (101) (18) (130)
---------------------------------- ----------- ----------- ---------- ------
Impairment releases on loans
and advances 4 - - 4
Total operating impairment
releases, provisions and
charges 4 - - 4
---------------------------------- ----------- ----------- ---------- ------
Profit before tax 52 75 106 233
---------------------------------- ----------- ----------- ---------- ------
(1) Comprised of Net fee and commission income and Net trading
and other income
COMMERCIAL BANKING
Commercial Banking offers a wide range of products and financial
services to customers through a network of regional Corporate
Business Centres (CBCs) and through telephony and digital channels.
The management of our customers is organised according to their
annual turnover (GBP250,000 to GBP50m for SMEs, and GBP50m to
GBP500m for mid corporates), enabling us to offer a differentiated
service to SMEs and mid corporate customers. Commercial Banking
products and services include loans, bank accounts, deposits and
treasury services. Commercial Banking also includes specialist
commercial real estate and Social Housing lending businesses.
Summarised income statement
Half year Half year
to to
30 June 30 June
2016 2015
GBPm GBPm
----------------------------------------------- ---------- ----------
Net interest income 41 37
Non-interest income 13 22
----------------------------------------------- ---------- ----------
Total operating income 54 59
----------------------------------------------- ---------- ----------
Operating expenses before impairment
losses, provisions and charges (12) (11)
----------------------------------------------- ---------- ----------
Impairment (losses)/releases on loans
and advances (3) 4
Total operating impairment (losses)/releases,
provisions and charges (3) 4
----------------------------------------------- ---------- ----------
Profit before tax 39 52
----------------------------------------------- ---------- ----------
H116 compared to H115
Profit before tax decreased by GBP13m to GBP39m in H116 (2015:
GBP52m). By income statement line, the movements were:
- Net interest income increased 11%, resulting from
continued growth in customer lending.
- Non-interest income decreased 41%, with lower
asset restructuring and rates management fees
partially offset by growth in international fees,
driven by more loyal customer relationships.
- Operating expenses before impairment losses, provisions
and charges rose 9%, reflecting the investment
in our expanded footprint and network of CBCs.
- Impairment losses on loans and advances increased
to GBP3m, largely due to the non-repeat of a modest
provision release of GBP4m in H115 following the
full repayment of a loan. Overall, the loan book
continues to perform well and is supported by
our prudent lending policy.
GLOBAL CORPORATE BANKING
Global Corporate Banking services corporate clients and
financial institutions that, because of their size, complexity or
sophistication, require specially-tailored services or value-added
wholesale products. It offers risk management and other value-added
financial services to large corporates with a turnover above
GBP500m per annum, and financial institutions, as well as to the
rest of Santander UK's businesses. The main businesses areas
include: working capital management (trade and export finance and
cash management), financing (mainly corporate and specialised
lending) and risk management (foreign exchange, rates and liability
management).
Summarised income statement
Half year Half year
to to
30 June 30 June
2016 2015
GBPm GBPm
----------------------------------------- ---------- ----------
Net interest income 36 38
Non-interest income 160 138
----------------------------------------- ---------- ----------
Total operating income 196 176
----------------------------------------- ---------- ----------
Operating expenses before impairment
losses, provisions and charges (104) (101)
----------------------------------------- ---------- ----------
Impairment losses on loans and advances (22) -
Total operating impairment losses, (22)
provisions and charges -
----------------------------------------- ---------- ----------
Profit before tax 70 75
----------------------------------------- ---------- ----------
H116 compared to H115
Profit before tax decreased by GBP5m to GBP70m in H116 (2015:
GBP75m). By income statement line, the movements were:
- Net interest income decreased to GBP36m, with
continued margin compression partially offset
by ongoing demand for project and acquisition
finance, transactional services and factoring
products.
- Non-interest income increased 16% to GBP160m,
underpinned by ongoing demand for derivative and
cash sales activities.
- Operating expenses before impairment losses, provisions
and charges increased 3% to GBP104m, mainly due
to the timing of projects as we continue to implement
our target operating model.
- Impairment losses on loans and advances increased
to GBP22m, due to the impairment of a single loan
that moved to non-performance.
CORPORATE CENTRE
Corporate Centre predominantly consists of the non-core
portfolios of Social Housing loans and structured credit assets.
Corporate Centre in ANTS is also responsible for managing balance
sheet composition and structure, and strategic liquidity risk for
the Santander UK group. The non-core portfolios are being run-down
and/or managed for value.
Summarised income statement
Half Half
year year
to to
30 June 30 June
2016 2015
GBPm GBPm
-------------------------------------- --------- ---------
Net interest income 29 102
Non-interest (expense)/income (38) 22
-------------------------------------- --------- ---------
Total operating (expense)/income (9) 124
-------------------------------------- --------- ---------
Operating expenses before impairment
losses, provisions and charges (13) (18)
-------------------------------------- --------- ---------
(Loss)/ profit before tax (22) 106
-------------------------------------- --------- ---------
H116 compared to H115
Profit before tax decreased by GBP128m to a loss of GBP22m in
H116 (2015: profit of GBP106m). By income statement line, the
movements were:
- Net interest income decreased, reflecting the
repricing of funding of the commercial balance
sheet.
- Non-interest (expense)/income decreased, primarily
relating to mark-to-market movements on economic
hedges.
- Operating expenses before impairment losses,
provisions and charges decreased, reflecting
increased cost control.
BALANCE SHEET REVIEW
SUMMARISED CONDENSED CONSOLIDATED BALANCE SHEET
30 June 31 December
2016 2015
GBPm GBPm
------------------------------------------- -------- ------------
Assets
Cash and balances at central banks 3,499 2,279
Trading assets 28,949 23,649
Derivative financial instruments 32,918 24,875
Financial assets designated at fair value 2,238 2,130
Loans and advances to banks 11,968 21,544
Loans and advances to customers 16,506 32,455
Loans and receivables securities 165 15
Available-for-sale securities 561 1,168
Macro hedge of interest rate risk 823 521
Property, plant and equipment 10 12
Tax, intangibles and other assets 292 219
------------------------------------------- -------- ------------
Total assets 97,929 108,867
------------------------------------------- -------- ------------
Liabilities
Deposits by banks 33,737 21,333
Deposits by customers 2,736 2,838
Trading liabilities 14,674 12,722
Derivative financial instruments 36,033 25,178
Financial liabilities designated at fair
value 1,604 2,016
Debt securities in issue 5,195 40,811
Tax, other liabilities and provisions 320 326
------------------------------------------- -------- ------------
Total liabilities 94,299 105,224
------------------------------------------- -------- ------------
Equity
Total shareholders' equity 3,630 3,643
------------------------------------------- -------- ------------
Total equity 3,630 3,643
------------------------------------------- -------- ------------
Total liabilities and equity 97,929 108,867
------------------------------------------- -------- ------------
A more detailed consolidated balance sheet is contained in the
Condensed Consolidated Interim Financial Statements.
30 June 2016 compared to 31 December 2015
Assets
Cash and balances at central banks
Cash and balances held at central banks increased by 54% to
GBP3,499m at 30 June 2016 (2015: GBP2,279m). The increase was
mainly attributable to an increase at central bank for liquidity
purposes.
Trading assets
Trading assets increased by 22% to GBP28,949m at 30 June 2016
(2015: GBP23,649m) reflecting changes in the mix of assets held for
liquidity purposes, with higher levels of securities purchased
under resale agreements and debt partially offset by decreased
holdings of equity securities.
Derivative financial instruments - assets
Derivative assets increased by 32% to GBP32,918m at 30 June 2016
(2015: GBP24,875m). The increase was mainly attributable to
increases in the fair value of interest rate and cross currency
derivative assets principally driven by movements in yield curves
and foreign exchange rates.
Financial assets designated at fair value
Financial assets designated at fair value through profit and
loss increased by 5% to GBP2,238m at 30 June 2016 (2015:
GBP2,130m), mainly driven by the increase in the valuation of
assets partially offset by maturities within the portfolio. In
accordance with ANTS group policy, new loans are no longer being
designated at fair value.
Loans and advances to banks
Loans and advances to banks decreased to GBP11,968m at 30 June
2016 (2015: GBP21,544m). The decrease was mainly driven by lower
balances with Santander UK group undertakings. This was due to the
netting and settlement of intercompany balances following the
transfer of the issuer on a number of funding programmes from the
Company to Santander UK plc, as Santander UK began repositioning
the structure of its funding vehicles in preparation for Banking
Reform.
Loans and advances to customers
Loans and advances to customers decreased by 49% to GBP16,506m
at 30 June 2016 (2015: GBP32,455m). The decrease was mainly driven
by lower intercompany balances with Abbey Covered Bonds LLP
following the transfer of the issuer on the EUR35bn Global Covered
Bond Programme from the Company to Santander UK plc.
Available-for-sale securities
Available for sale securities decreased by 52% to GBP561m at 30
June 2016 (2015: GBP1,168m) primarily due to a decrease in debt
securities as part of normal liquid asset portfolio management
activity.
Macro hedge of interest rate risk - assets
The macro hedge of interest rate risk increased by 58% to
GBP823m at 30 June 2016 (2015: GBP521m), mainly driven by general
movements in yield curves.
Tax, intangibles and other assets
Tax, intangibles and other assets increased by 33% to GBP292m at
30 June 2016 (2015: GBP219m). The increase was primarily driven by
an increase in prepayments and trade and other receivables relating
to settlement of transactions.
Liabilities
Deposits by banks
Deposits by banks increased by 58% to GBP33,737m at 30 June 2016
(2015: GBP21,333m). This was due to an increase in intercompany
balances as consideration for the transfer of the issuer on a
number of funding programmes from the Company to Santander UK plc,
as Santander UK began repositioning the structure of its funding
vehicles in preparation for Banking Reform.
Deposits by customers
Deposits by customers decreased by 4% to GBP2,736m at 30 June
2016 (2015: GBP2,838m). The decrease was due to lower levels of
deposits from third party customers partially offset by increased
balances with other Santander UK group companies.
Trading liabilities
Trading liabilities increased by 15% to GBP14,674m at 30 June
2016 (2015: GBP12,722m) as a result of an increase in short
positions and short-term deposits and collateral held partially
offset by a reduction in securities sold under resale agreements,
as part of normal trading activity.
Derivative financial instruments - liabilities
Derivative liabilities increased by 43% to GBP36,033m at 30 June
2016 (2015: GBP25,178m). The increase was mainly attributable to
increases in the fair value of interest rate and cross currency
derivative liabilities mainly driven by movements in yield curves
and foreign exchange rates.
Financial liabilities designated at fair value
Financial liabilities designated at fair value through profit
and loss decreased by 20% to GBP1,604m at 30 June 2016 (2015:
GBP2,016m). This was due to the transfer of the issuer on a number
of funding programmes from the Company to Santander UK plc, as
Santander UK began repositioning the structure of its funding
vehicles in preparation for Banking Reform.
Debt securities in issue
Debt securities in issue decreased by 87% to GBP5,195m at 30
June 2016 (2015: GBP40,811m). This was due to the transfer of the
issuer on a number of funding programmes from the Company to
Santander UK plc, as Santander UK began repositioning the structure
of its funding vehicles in preparation for Banking Reform.
Tax, other liabilities and provisions
Tax, other liabilities and provisions decreased by 2% to GBP320m
at 30 June 2016 (2015: GBP326m). The decrease mainly reflected a
reduction in deferred tax liabilities on cash flow hedges relating
to the funding programmes transferred from the Company to Santander
UK plc in the period. This was partially offset by an increase in
current tax liabilities attributable to the banking corporation tax
surcharge.
Equity
Total shareholders' equity decreased to GBP3,630m at 30 June
2016 (2015: GBP3,643m). The decrease was mainly due to the transfer
of the cash flow hedge reserve on the funding programmes
transferred from the Company to Santander UK plc in the period.
This was partially offset by the profit for the period of
GBP60m.
Risk review
13 Risk governance
14 Credit risk
14 - ANTS group level
15 - Commercial Banking
20 - Global Corporate Banking
22 - Corporate Centre
24 Market risk
25 Liquidity risk
27 Capital risk
28 Other key risks and areas of focus
Risk review
We provide corporate, wholesale banking and treasury services to
UK clients and also to the wider Santander UK group, of which we
are a significant part. ANTS also provides certain treasury support
functions for the Santander UK group. In this regard, our role is
to provide access to certain financial markets and central bank
facilities in order to meet the Santander UK group's liquidity,
funding and balance sheet management requirements.
ANTS contains portions of a number of Santander UK's business
segments. Specifically, ANTS consists of part of the Santander UK
group's Commercial Banking, Global Corporate Banking, and Corporate
Centre business segments. The booking of transactions in ANTS or
another Santander UK group entity reflects historical or
operational considerations and does not necessarily reflect any
particular business split.
The Company guarantees any unsubordinated liabilities of
Santander UK plc, which are not debt securities, incurred prior to
30 June 2017 under a deed poll guarantee entered into by the
Company on 5 June 2015, as amended (the Upstream Guarantee).
Because of the Upstream Guarantee, the Company is exposed to the
same risks as the Santander UK group, of which the Company and the
ANTS group are part.
As a subsidiary of Santander UK plc, ANTS has adopted the
Santander UK Risk Framework. As a result, the ANTS group's risks
are managed at a Santander UK group level in accordance with the
Santander UK group's Risk Framework. The Risk review describes the
Santander UK group's Risk Framework and includes more detail on the
key risks (on a segmental basis or aggregated where relevant) to
which the ANTS group is directly exposed. In addition, as a result
of the guarantee given by the ANTS group in respect of the
unsubordinated liabilities of Santander UK plc, we are indirectly
exposed to risks that arise in parts of the Santander UK group that
are wholly outside the ANTS group. Those risks consist of retail
credit risk and pension obligations risk.
Throughout the Risk review, except where we say otherwise,
references to Santander UK should be taken to include the ANTS
group (reflecting both the risks that we are directly exposed to
through our own activities and the risks arising elsewhere in the
Santander UK group that we are indirectly exposed to due to the
existence of the Upstream Guarantee described above).
The UK's referendum on EU membership
Our financial performance is strongly linked to the health of
the UK economy. We are particularly affected by factors that impact
the profitability of our larger credit portfolios, including in our
commercial real estate portfolio. The decision to leave the EU has
led to further economic uncertainty and financial market
volatility. In the near-term, this could result in lower consumer
confidence that would be negative for continued economic growth. In
addition, the lower value of GBP sterling, when combined with the
pickup in oil prices, is likely to lead to higher inflation. In a
period of significant macroeconomic uncertainty with a wide range
of possible economic outcomes, some economic downside risks are
likely to be mitigated by monetary policy actions by the Bank of
England and the capital and liquidity strength of the banking
sector.
Although the result does not entail any immediate changes to our
current operations and structure, economic uncertainty could
adversely affect our business. Whilst the terms and timing of the
UK's exit from the EU are yet to be confirmed, it is not possible
to determine with any accuracy the full impact that this might
have. In addition, it remains unclear whether, following exit from
the EU, it will be possible for us (and other UK banks) to continue
to provide financial services on a cross-border basis within other
EU member states.
The risks associated with the outcome of the referendum have
been considered by our Board, together with the action plans needed
to ensure the impact on our business is appropriately managed.
RISK GOVERNANCE
As a financial services provider, managing risk is a core part
of our day-to-day activities. To be able to manage our business
effectively, it is critical that we understand and control risk in
everything we do. We aim to use a prudent approach and advanced
risk management techniques to help us deliver robust financial
performance and build sustainable value for our stakeholders.
We aim to keep a predictable medium-low risk profile, consistent
with our business model, and within the limits set out in our Risk
Appetite. This is key to achieving our strategic objectives.
30 June 2016 compared to 31 December 2015
In H116, we continued to make good progress with our risk
culture program, I AM Risk, to continue to embed personal
accountability for managing risk across the business. For all new
and existing employees, we enhanced our mandatory risk training and
we ensured that the updated performance management risk objectives
were used across the business. In a recent survey, 99% of employees
acknowledged their personal responsibility for risk management,
helping to show how we are successfully embedding risk management
in our culture.
CREDIT RISK
Credit risk management
In H116, there were no significant changes in the way we manage
credit risk as described in the 2015 Annual Report, except as set
out below.
Credit risk review
We analyse below our maximum and net exposures to credit risk,
and we also summarise our credit performance, and forbearance
activities.
ANTS GROUP LEVEL - CREDIT RISK REVIEW
Our maximum exposure to credit risk
The table below shows our maximum exposure to credit risk. The
table only shows the financial assets that credit risk affects.
30 June 2016 31 December 2015
----------------------------------------------- ------------------------------------------------
Maximum exposure Maximum exposure
----------------------------------------------- ---------------------------------- ------------
Balance sheet asset Balance sheet asset
---------------------------------
Impairment Impairment
Gross loss Net Off-balance Gross loss Net Off-balance
amounts allowances amounts sheet(1) amounts allowances amounts sheet(1)
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
-------------------- --------- ----------- --------- ------------ --------- ----------- ---------- ------------
Cash and balances
at central banks 3.5 - 3.5 - 2.3 - 2.3 -
Trading assets 23.5 - 23.5 - 16.9 - 16.9 -
Derivative
financial
instruments 32.9 - 32.9 - 24.9 - 24.9 -
Financial assets
designated at fair
value 2.2 - 2.2 0.3 2.1 - 2.1 0.3
Loans and advances
to banks 12.0 - 12.0 212.9 21.5 - 21.5 170.6
Loans and advances
to customers 16.6 (0.1) 16.5 14.0 32.6 (0.1) 32.5 13.7
Loans and
receivables
securities 0.2 - 0.2 - - - - -
Available-for-sale
debt securities 0.6 - 0.6 - 1.2 - 1.2 -
Total 91.5 (0.1) 91.4 227.2 101.5 (0.1) 101.4 184.6
-------------------- --------- ----------- --------- ------------ --------- ----------- ---------- ------------
(1) Off balance sheet exposure includes the Upstream Guarantee
of the liabilities of Santander UK plc.
Forbearance summary
In H116, we changed our policy on forbearance so that customer
loans that meet exit criteria will no longer be reported as
forborne. In the past, we reported loans as forborne until they
were fully repaid or written off. In order to exit from forbearance
a loan must now:
- Have been forborne at least two years ago or, where the
forbearance was temporary, it must have returned to performing
under normal contractual terms for at least two years,
- Have been performing under the forborne terms for at least two
years, and
- Not be more than 30 days in arrears.
Applying these exit criteria to our customer loans at 31
December 2015, the loans reported as forborne would reduce from
GBP98m to GBP68m.
Non-performing loans and advances(1)(2)
An analysis of our NPLs is presented below.
30 June 2016 31 December 2015
GBPm GBPm
---------------------------------------------- ------------- -----------------
Loans and advances to customers of which:(2) 16,594 32,518
NPLs(3) 165 79
---------------------------------------------- ------------- -----------------
Impairment loss allowances 88 63
---------------------------------------------- ------------- -----------------
% %
---------------------------------------------- ------------- -----------------
NPL ratio(4) 0.99 0.24
Coverage ratio(5) 53 80
---------------------------------------------- ------------- -----------------
(1) We define NPLs in the 'Credit risk management' section in
the 2015 Annual Report.
(2) Includes Social Housing loans and finance leases.
(3) All NPLs are in the UK and continue accruing interest.
(4) NPLs as a percentage of loans and advances to customers.
(5) Impairment loss allowances as a percentage of NPLs.
For more on the credit performance of our key portfolios by
business segment, see the 'Commercial Banking - credit risk
review', 'Global Corporate Banking - credit risk review', and
'Corporate Centre - credit risk review' sections.
COMMERCIAL BANKING - CREDIT RISK REVIEW
In Commercial Banking, credit risk arises on asset balances and
off-balance sheet transactions such as credit facilities or
guarantees. As a result, committed exposures are typically higher
than asset balances.
Commercial Banking - committed exposures
Rating distribution
These tables show our credit risk exposure according to our
internal rating scale (see the 'Credit quality' section in the 2015
Annual Report) for each portfolio. On this scale, the higher the
rating, the better the quality of the counterparty.
Commercial
Mid Corporate Real Social
and SME Estate Housing Total
30 June 2016 GBPm GBPm GBPm GBPm
--------------- -------------- ----------- --------- ------
9 13 - 911 924
8 112 - 1,433 1,545
7 300 446 246 992
6 1,119 2,825 - 3,944
5 480 1,298 - 1,778
4 112 131 - 243
1 to 3 11 85 - 96
Other(1) - 3 - 3
--------------- -------------- ----------- --------- ------
2,147 4,788 2,590 9,525
--------------- -------------- ----------- --------- ------
31 December 2015
----------------- ------ ------ ------ ------
9 13 - 970 983
8 114 - 892 1,006
7 314 653 257 1,224
6 791 2,296 50 3,137
5 567 1,271 - 1,838
4 121 150 - 271
1 to 3 7 92 - 99
Other(1) 4 2 - 6
----------------- ------ ------ ------ ------
1,931 4,464 2,169 8,564
----------------- ------ ------ ------ ------
(1) Consists of smaller exposures mainly in the commercial
mortgages portfolio. We use scorecards for them, instead of a
rating model.
Geographical distribution
Almost all our lending is to customers in the UK. We classify
geographical location according to country of risk - in other
words, the country where each counterparty has its main business
activity or assets unless there is a full risk transfer guarantee
in place, in which case we use the guarantor's country of domicile
instead. If our clients have operations in many countries, we use
their country of incorporation.
30 June 2016 compared to 31 December 2015
Our lending to customers has grown consistently since 2008, and
we continue to operate within our prudent Risk Appetite. At 30 June
2016 99.4% (2015: 99.1%) of our portfolio was with UK
counterparties.
In H116, our committed exposures increased by 11% to GBP9.5bn
(2015: GBP8.6bn) despite an increasingly competitive environment,
macro-economic uncertainty and the resulting slowdown in activity
relating to the UK referendum on EU membership. Our Mid Corporate
and SME exposures increased by 11% to GBP2.1bn (2015: GBP1.9bn) due
to growth in the Mid Corporate portfolio. This more than offset a
slight reduction in SME exposures. Our Commercial Real Estate
portfolio increased by 7% to GBP4.8bn (2015: GBP4.5bn) with new
business levels more than offsetting repayments.
Our Social Housing portfolio increased by 19% to GBP2.6bn (2015:
GBP2.2bn), driven by refinancing of longer-dated loans previously
managed in Corporate Centre onto shorter maturities and on current
market terms.
Commercial Banking - credit risk mitigation
At 30 June 2016, the collateral we held against impaired loans
was100% (2015: 100%) of the carrying amount of the impaired loan
balances.
Commercial Banking - credit performance
We monitor exposures that show potentially higher risk
characteristics using our Watchlist process (described in 'Risk
monitoring' in the 'Credit risk management' section in the 2015
Annual Report). The table below shows the exposures we monitor, and
those we classify as non-performing by portfolio at 30 June 2016
and 31 December 2015.
Commercial
Mid Corporate Real Social
and SME Estate Housing Total
30 June 2016 GBPm GBPm GBPm GBPm
---------------------------------- -------------- ----------- --------- ------
Total committed exposure
of which:(1) 2,147 4,788 2,590 9,525
-Performing (Non-Watchlist) 1,942 4,644 2,529 9,115
-Watchlist: Enhanced monitoring 160 1 50 211
-Watchlist: Proactive management 37 27 11 75
-Non-performing exposure(2) 8 116 - 124
Observed impairment loss
allowances 6 28 - 34
IBNO(3) 8
Total impairment loss allowances 42
---------------------------------- -------------- ----------- --------- ------
31 December 2015
------------------------------------- ------ ------ ------ ------
Total committed exposure of
which:(1) 1,931 4,464 2,169 8,564
-Performing (Non-Watchlist) 1,670 4,248 2,162 8,080
-Watchlist: Enhanced monitoring 188 66 7 261
-Watchlist: Proactive management 66 77 - 143
-Non-performing exposure(2) 7 73 - 80
Observed impairment loss allowances 6 24 - 30
IBNO(3) 9
Total impairment loss allowances 39
------------------------------------- ------ ------ ------ ------
(1) Includes committed facilities and derivatives. We define
'enhanced monitoring' and 'proactive management' in the 'Risk
monitoring' section in the 2015 Annual Report.
(2) Non-performing exposure includes committed facilities and
derivative exposures. So it can exceed the NPLs on page 14 which
only include drawn balances.
(3) Allowance for incurred but not observed (IBNO) losses as
described in Note 1 to the Consolidated Financial Statements in the
2015 Annual Report.
30 June 2016 compared to 31 December 2015
In our Mid Corporate and SME portfolio, exposures subject to
enhanced monitoring decreased by 15% to GBP160m (2015: GBP188m),
and exposures subject to proactive management decreased by 44% to
GBP37m (2015: GBP66m). These decreases were across a number of
sectors and related mainly to improved trading for certain
customers.
In our Commercial Real Estate portfolio, exposures subject to
proactive management decreased by 65% to GBP27m (2015: GBP77m),
driven by the reclassification of a single legacy case to NPL,
where the collateral currently exceeds the value of the loan.
Exposures subject to enhanced monitoring decreased by 98% to GBP1m
(2015: GBP66m) due to successful refinancings.
In our Social Housing portfolio, exposures subject to enhanced
monitoring increased to GBP50m (2015: GBP7m), due to the addition
of one customer following governance issues. One case of GBP11m
(2015: GBPnil) is subject to proactive management due to further
governance issues.
Commercial Banking - forbearance
We only made forbearance arrangements for lending to customers.
We have not made any forbearance arrangements with our Social
Housing counterparties.
Forbearance started in the period(1)
The exposures that entered forbearance in H116 and H115
were:
Half year Half year
to 30 June to 30 June
2016 2015
-------------- -------------------- ----------- --------------------
Mid Corporate Commercial Total Mid Commercial Total
and SME Real Corporate Real
Estate and Estate
SME
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------------- ------------ ------ ----------- ------------ ------
Term extension 19 12 31 - - -
19 12 31 - - -
---------------- -------------- ------------ ------ ----------- ------------ ------
(1) The figures reflect the forbearance activity in the period,
regardless of whether there was any forbearance on the accounts
before.
Forbearance total position(1)
The exposures at 30 June 2016 and 31 December 2015, analysed by
their payment status at the period-end and the forbearance we
applied, were:
Other Impairment
Term payment Total loss
30 June 2016 extension rescheduling GBPm allowances
GBPm GBPm GBPm
------------------------- ------------ --------------- -------- -------------
Non-performing 33 16 49 21
Performing 19 30 49 -
------------------------- ------------ --------------- -------- -------------
52 46 98 21
------------------------- ------------ --------------- -------- -------------
Proportion of portfolio 0.5% 0.5% 1.0%
------------------------- ------------ --------------- -------- -------------
31 December 2015
------------------------- ----- ----- ----- ---
Non-performing 22 16 38 14
Performing 30 30 60 -
------------------------- ----- ----- ----- ---
52 46 98 14
------------------------- ----- ----- ----- ---
Proportion of portfolio 0.6% 0.5% 1.1%
------------------------- ----- ----- ----- ---
(1) We base forbearance type on the first forbearance we
applied. Tables only show accounts that were open at the
period-end.
30 June 2016 compared to 31 December 2015
The forbearance started in H116 was higher than in H115 due to
an increase in forbearance activity mainly in our Mid Corporate and
SME portfolio.
At 30 June 2016, the cumulative forbearance stock remained
stable at GBP98m. This was mainly due to the application of exit
criteria to our forbearance policy in H116 as described in the
'Forbearance summary' of the 'ANTS group level - credit risk
review' section, offset by a small number of new exposures entering
forbearance in the period. Applying these exit criteria to our
forbearance stock at 31 December 2015, the loans reported as
forborne would reduce by GBP30m to GBP68m. The accounts in
forbearance as a percentage of the portfolio reduced slightly to
1.0% (2015: 1.1%).
At 30 June 2016, 71% (2015: 84%) of the cumulative forbearance
stock had entered forbearance before default. 50% (2015: 61%) of
these exposures were keeping to the forbearance terms showing that
much of the action had been effective.
Debt-for-equity swaps
At 30 June 2016, we had no equity securities that arose from
debt-for-equity swaps in respect of loans (2015: GBPnil).
Higher risk loans and other segments of particular interest
Commercial Real Estate is lending to UK customers, primarily on
tenanted property assets, with a focus on the office, retail,
industrial and residential sectors. The Commercial Real Estate
market experienced a challenging environment in the immediate years
after the last financial crisis and has previously seen regular
cyclical downturns. In addition to the disclosures on the
Commercial Real Estate portfolio earlier in this section, we
include below more detail on credit management, credit performance,
and sector and LTV analyses.
Commercial Real Estate - credit management
We have a clearly defined Commercial Real Estate credit risk
policy and risk appetite, both of which we review regularly in
light of market conditions and our exposure to separate asset
classes. We assess risk appetite on a deal-by-deal basis taking
into account transaction risks and the risk profile. We structure
transactions on a case-by-case basis to give us a clear exit
strategy at loan maturity. The repayment schedule is driven by a
number of factors, including the exit strategy, the opening debt
position, the nature of the asset class, the weighted average lease
length, the tenant profile and the re-letting risk. All Commercial
Real Estate loans benefit from senior positions in the creditor
hierarchy.
Commercial Real Estate - credit performance
The table below shows the Commercial Real Estate total committed
exposures, non-performing exposure ratios and weighted average LTVs
at 30 June 2016 and 31 December 2015:
30 June 31 December
2016 2015
---------------------------------- ---------- ------------
Total committed exposure GBP4,788m GBP4,464m
Non-performing exposure ratio(1) 2.4% 1.6%
Weighted average LTV 52% 53%
---------------------------------- ---------- ------------
(1) Non-performing exposures as a percentage of total committed exposures.
30 June 2016 compared to 31 December 2015
At 30 June 2016, our non-performing exposure ratio increased to
2.4% (2015: 1.6%) driven by the classification of a single legacy
case as non-performing, where the collateral exceeds the value of
the loan. Commercial Real Estate loans written before 2009 totalled
GBP279m (2015: GBP318m), with a non-performing exposure ratio of
41.4% (2015: 23.0%), the increase in the ratio being driven by a
continued reduction in the pre-2009 exposures, as well as the
single loan noted above. The pre-2009 loans were written on market
terms which, compared with more recent times and following a
significant tightening in our lending criteria, included higher
original LTVs, lower interest coverage and exposure to development
risk.
Commercial Real Estate - sector analysis
The table below shows the sector analysis of the Commercial Real
Estate portfolio at 30 June 2016 and 31 December 2015:
30 June 31 December
2016 2015
----------------------- ------------ --------------
Sector GBPm % GBPm %
----------------------- ------ ---- -------- ----
Office 1,509 32 1,258 28
Retail 1,234 26 1,183 26
Industrial 645 13 664 15
Residential 277 6 257 6
Mixed use 580 12 615 14
Student accommodation 84 2 84 2
Hotels and leisure 238 5 238 5
Other 221 4 165 4
4,788 100 4,464 100
----------------------- ------ ---- -------- ----
Commercial Real Estate - LTV analysis
The table below shows the LTVs of the Commercial Real Estate
portfolio at 30 June 2016 and 31 December 2015:
30 June 2016 31 December 2015
---------------------- --------------------------------------------- ---------------------------------------------
Total exposure Non-performing exposure Total exposure Non-performing exposure
GBPm % GBPm % GBPm % GBPm %
---------------------- --------- ------ -------------- ---------- --------- ------ -------------- ----------
Up to 50% 1,918 40 - - 1,840 40 - -
50% to 60% 1,862 39 - - 1,509 34 - -
60% to 70% 487 10 - - 654 15 - -
70% to 80% 61 1 50 43 37 1 - -
80% to 90% 18 - - - 68 2 - -
90% to 100% 1 - - - 16 - 15 21
>100% i.e. negative
equity 47 1 47 41 40 1 40 54
Other 81 2 - - 79 2 - -
Total with collateral 4,475 93 97 84 4,243 95 55 75
Development loans 313 7 18 16 221 5 18 25
---------------------- --------- ------ -------------- ---------- --------- ------ -------------- ----------
4,788 100 115 100 4,464 100 73 100
---------------------- --------- ------ -------------- ---------- --------- ------ -------------- ----------
30 June 2016 compared to 31 December 2015
The Commercial Real Estate portfolio was well diversified by
sector at 30 June 2016 and 31 December 2015. The portfolio also
represented a diverse geographical footprint across the UK, while
continuing to reflect a slight concentration around London and the
South East.
At 30 June 2016, the LTV profile of the portfolio remained
conservative with GBP3,780m (2015: GBP3,349m) of the portfolio at
or below 60% LTV. This reflects the vintage of the portfolio as 94%
(2015: 93%) was originated in 2009 or later. Most higher LTV deals
are older deals still in the portfolio.
At 30 June 2016, loans with development risk were only 7% (2015:
5%) of the total Commercial Real Estate portfolio. All development
lending is on a non-speculative basis with significant pre-lets in
place.
In H116, no new business was written above 70% LTV, and 99% was
at or below 60% LTV. At 30 June 2016, the average LTV, weighted by
exposure, was 52% (2015: 53%). The weighted average LTV of new
deals in H116 was 51% (FY15: 50%).
The average loan size at 30 June 2016 was GBP33.2m (2015:
GBP31.7m) and the top ten exposures made up 18% (2015: 18%) of the
total Commercial Real Estate portfolio exposure.
Commercial Real Estate - refinancing risk
As part of our annual review process, for Commercial Real Estate
loans approaching maturity, we look at the prospects of refinancing
the loan on current market terms and applicable credit policy. We
also look at other aspects (such as covenant compliance) which
could mean we have to put the case on our Watchlist. In addition,
if we do not receive an acceptable refinancing proposal six months
before the loan matures, we put it our Watchlist.
At 30 June 2016, Commercial Real Estate loans of GBP706m (2015:
GBP731m) were due to mature within 12 months. Of these, GBP107m,
i.e. 15% (2015: GBP103m, i.e. 14%) had an LTV ratio higher than is
acceptable under our current credit policy. At 30 June 2016 and 31
December 2015, all of this had been put on our Watchlist or
recorded as NPL and had an impairment loss allowance of GBP21m
(2015: GBP13m).
GLOBAL CORPORATE BANKING - CREDIT RISK REVIEW
In Global Corporate Banking, credit risk arises on asset
balances and off-balance sheet transactions such as credit
facilities or guarantees. As a result, committed exposures are
typically higher than asset balances. But in the committed
exposures tables below, we show Sovereigns and Supranationals net
of short positions. They also include Sovereign and Supranational
exposures that form part of our liquidity management strategy,
managed by Short Term Markets on behalf of Corporate Centre.
Large Corporate reverse repurchase agreement exposures are shown
net of repurchase agreement liabilities and include OTC
derivatives. As a result, the committed exposures can be smaller
than the asset balances on the balance sheet.
The derivative and other treasury product exposures (which are
classified as 'Financial Institutions') shown are also typically
lower than the asset balances. This is because we show our overall
risk exposure which takes into account our procedures to mitigate
credit risk. The asset balances on our balance sheet only reflect
the more restrictive netting permitted by IAS 32.
Global Corporate Banking - committed exposures
Rating distribution
These tables show our credit risk exposure according to our
internal rating scale (see the 'Credit quality' section in the 2015
Annual Report) for each portfolio. On this scale, the higher the
rating, the better the quality of the counterparty.
Sovereign
and Large Financial
Supranational Corporate Institutions Total
30 June 2016 GBPm GBPm GBPm GBPm
--------------- --------------- ----------- -------------- -------
9 145 20 218 383
8 2,985 1,580 3,102 7,667
7 980 5,049 2,709 8,738
6 - 7,772 630 8,402
5 - 3,319 126 3,445
4 - 69 - 69
1 to 3 - 54 1 55
4,110 17,863 6,786 28,759
--------------- --------------- ----------- -------------- -------
31 December 2015
----------------- ------ ------- ------ -------
9 889 3 263 1,155
8 2,766 1,614 3,596 7,976
7 789 5,042 2,786 8,617
6 - 6,941 314 7,255
5 - 2,908 6 2,914
4 - 36 - 36
1 to 3 - 4 - 4
4,444 16,548 6,965 27,957
----------------- ------ ------- ------ -------
Geographical distribution
We classify geographical location according to country of risk -
in other words, the country where each counterparty has its main
business activity or assets, unless there is a full risk transfer
guarantee in place, in which case we use the guarantor's country of
domicile instead. If our clients have operations in many countries,
we use their country of incorporation.
Sovereign
and Large Financial
Supranational Corporate Institutions Total
30 June 2016 GBPm GBPm GBPm GBPm
--------------------- --------------- ----------- -------------- -------
UK - 15,721 3,334 19,055
Peripheral eurozone 980 413 478 1,871
Rest of Europe 48 1,465 1,506 3,019
US 74 79 1,054 1,207
Rest of world 3,008 185 414 3,607
4,110 17,863 6,786 28,759
--------------------- --------------- ----------- -------------- -------
31 December 2015
--------------------- ------ ------- ------ -------
UK - 14,621 3,524 18,145
Peripheral eurozone 789 395 625 1,809
Rest of Europe 872 1,287 1,104 3,263
US - 103 1,101 1,204
Rest of world 2,783 142 611 3,536
4,444 16,548 6,965 27,957
--------------------- ------ ------- ------ -------
30 June 2016 compared to 31 December 2015
In H116, our committed exposures increased by 3% to GBP28.8bn
(2015: GBP28.0bn) mainly due to increases in our Large Corporate
portfolio, partially offset by decreases in our Sovereign and
Supranational portfolio.
Sovereign and Supranational exposures decreased by 8% to
GBP4.1bn (2015: (GBP4.4bn). Increased holdings, primarily in
Japanese Government securities, were more than offset by decreases
in European government securities as part of normal liquid asset
portfolio management and short-term markets trading activity. The
portfolio profile stayed mainly short-term (up to one year),
reflecting the purpose of the holdings.
Large Corporate exposures increased by 8% to GBP17.9bn (2015:
GBP16.5bn) with two sizeable client drawdowns, in addition to other
refinancing and origination activities relating to project
acquisition finance and transactional services. At 30 June 2016,
our direct lending committed exposure to oil and gas customers was
GBP0.7bn (2015: GBP1.1bn) and to mining customers was GBP0.8bn
(2015: GBP1.0bn). Credit quality remained broadly stable. The
portfolio profile stayed mainly short to medium-term (up to five
years), reflecting the type of finance we provided to support our
clients' needs.
Exposures in our Financial Institutions portfolio reduced
marginally to GBP6.8bn (2015: GBP7.0bn).
Global Corporate Banking - credit risk mitigation
At 30 June 2016, the top 20 clients with derivative exposure
made up 67% (2015: 71%) of our total derivative exposure, all of
which were banks and central counterparties (CCPs). The
weighted-average credit rating was 7.2 (2015: 7.4). At 30 June 2016
and 31 December 2015, we held no collateral against impaired loans
in the Large Corporate portfolio.
Global Corporate Banking - credit performance
We monitor exposures that show potentially higher risk
characteristics using our Watchlist process (described in 'Risk
monitoring' in the 'Credit risk management' section in the 2015
Annual Report). The table below shows the exposures we monitor, and
those we classify as non-performing by portfolio at 30 June 2016
and 31 December 2015.
Sovereign
and Large Financial
Supranational Corporate Institutions Total
30 June 2016 GBPm GBPm GBPm GBPm
------------------------------------- --------------- ----------- -------------- -------
Total committed exposure of
which:(1) 4,110 17,863 6,786 28,759
- Performing (Non-Watchlist) 4,110 16,805 6,343 27,258
- Watchlist: Enhanced monitoring - 792 442 1,234
- Watchlist: Proactive management - 212 1 213
- Non-performing exposure(2) - 54 - 54
Observed impairment loss allowances - 22 - 22
IBNO(3) 24
Total impairment loss allowances 46
------------------------------------- --------------- ----------- -------------- -------
Sovereign
and Large Financial
Supranational Corporate Institutions Total
31 December 2015 GBPm GBPm GBPm GBPm
------------------------------------- --------------- ----------- -------------- -------
Total committed exposure of
which:(1) 4,444 16,548 6,965 27,957
- Performing (Non-Watchlist) 4,444 15,335 6,909 26,688
- Watchlist: Enhanced monitoring - 1,159 4 1,163
- Watchlist: Proactive management - 54 52 106
- Non-performing exposure(2) - - - -
Observed impairment loss allowances - - - -
IBNO(3) 24
Total impairment loss allowances 24
------------------------------------- --------------- ----------- -------------- -------
(1) Includes committed facilities and derivatives. We define
'enhanced monitoring' and 'proactive management' in the 'Risk
monitoring' section in the 2015 Annual Report.
(2) Non-performing exposure includes committed facilities and
derivative exposures. So it can exceed the NPLs in the table on
page 14 which only include drawn balances.
(3) Allowance for incurred but not observed (IBNO) losses as
described in Note 1 to the Consolidated Financial Statements in the
2015 Annual Report.
30 June 2016 compared to 31 December 2015
In our Large Corporate portfolio, exposures subject to proactive
management increased to GBP212m at 30 June 2016 (2015: GBP54m)
driven by a single customer in our mining portfolio which was moved
from enhanced monitoring. Exposures subject to enhanced monitoring
decreased by 32% to GBP792m at 30 June 2016 (2015: GBP1,159m)
driven by this customer as well as some customers returning to
performing status due to improved trading.
In our Financial Institutions portfolio, exposures subject to
enhanced monitoring increased to GBP442m (2015: GBP4m) due to a
secured loan transaction to an existing Watchlist customer. This
loan was over-collateralised with high quality assets and is
puttable on a quarterly basis.
In our Sovereign and Supranational portfolio, no exposures were
subject to proactive management or enhanced monitoring.
Non-performing exposures increased to GBP54m (2015: GBPnil) due
to the movement of a single exposure to non-performing in our Large
Corporate portfolio.
Global Corporate Banking - forbearance
At 30 June 2016, there was one forborne case for GBP9m (2015:
GBPnil), none of which was classified as NPL.
CORPORATE CENTRE - CREDIT RISK REVIEW
In Corporate Centre, credit risk arises on assets in the balance
sheet and in off-balance sheet transactions such as credit
facilities or guarantees. As a result, committed exposures are
typically higher than asset balances. It also excludes Sovereign
exposures managed by Short Term Markets in Global Corporate
Banking.
Corporate Centre - committed exposures
Rating distribution
These tables show our credit risk exposure according to our
internal rating scale (see the 'Credit quality' section in the 2015
Annual Report) for each portfolio. On this scale, the higher the
rating, the better the quality of the counterparty.
Sovereign Structured Social
and Supranational Products Derivatives Housing Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm
------------- ------------------- ----------- ------------ --------- -------
9 4,596 - - 3,222 7,818
8 - 40 465 3,335 3,840
7 - - - 675 675
6 - - - 45 45
4,596 40 465 7,277 12,378
------------- ------------------- ----------- ------------ --------- -------
31 December 2015
----------------- ------ --- ---- ------ -------
9 3,611 13 - 3,423 7,047
8 - 40 484 2,940 3,464
7 - 37 - 1,072 1,109
6 - - - 213 213
3,611 90 484 7,648 11,833
----------------- ------ --- ---- ------ -------
At 30 June 2016 and 31 December 2015, there were no credit risk
exposures with internal ratings of 1 to 5.
Geographical distribution
We classify geographical location according to country of risk -
in other words, the country where each counterparty has its main
business activity or assets unless there is a full risk transfer
guarantee in place, in which case we use the guarantor's country of
domicile instead. If our clients have operations in many countries,
we use their country of incorporation.
Sovereign Social
and Structured Housing
Supranational Products Derivatives GBPm Total
30 June 2016 GBPm GBPm GBPm GBPm
--------------------- --------------- ----------- ------------ --------- -------
UK 934 23 - 7,277 8,234
Peripheral eurozone - - - - -
Rest of Europe - 17 145 - 162
US 3,574 - 320 - 3,894
Rest of world 88 - - - 88
4,596 40 465 7,277 12,378
--------------------- --------------- ----------- ------------ --------- -------
31 December 2015
--------------------- ------ --- ---- ------ -------
UK 1,190 34 - 7,648 8,872
Peripheral eurozone - - - - -
Rest of Europe - 6 194 - 200
US 2,334 50 290 - 2,674
Rest of world 87 - - - 87
3,611 90 484 7,648 11,833
--------------------- ------ --- ---- ------ -------
30 June 2016 compared to 31 December 2015
In H116, committed exposures increased by 5% to GBP12.4bn (2015:
GBP11.8bn) mainly in our Sovereign and Supranational portfolio.
Exposures in our Sovereign and Supranational portfolio are
mainly cash at central banks and highly-rated liquid assets we hold
as part of normal liquid asset portfolio management. The increase
of 27% in the overall exposure to GBP4.6bn (2015: GBP3.6bn) was
driven by an increase in US deposits as part of normal liquidity
management.
Social Housing exposures reduced in H116 as we continued to
refinance longer-dated loans onto shorter maturities (and on
current market terms) that are then managed in Commercial
Banking.
Corporate Centre - credit risk mitigation
We reduce credit risk in derivatives with netting agreements,
collateralisation and the use of CCPs. For details of our approach
to credit risk mitigation, see the 'Global Corporate Banking -
credit risk management' section in the 2015 Annual Report.
Corporate Centre - credit performance
We monitor exposures that show potentially higher risk
characteristics using our Watchlist process (described in 'Risk
monitoring' in the 'Credit risk management' section in the 2015
Annual Report). The table below shows the exposures we monitor, and
those we classify as non-performing by portfolio at 30 June 2016
and 31 December 2015.
Sovereign and
Supranational Structured Products Derivatives Social Housing Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm
--------------------------- --------------------------- -------------------- ------------ --------------- -------
Total committed exposure
of which:(1) 4,596 40 465 7,277 12,378
- Performing
(Non-Watchlist) 4,596 40 465 7,099 12,200
- Watchlist: Enhanced
monitoring - - - 178 178
--------------------------- --------------------------- -------------------- ------------ --------------- -------
31 December 2015
--------------------------- --------------------------- -------------------- ------------ --------------- -------
Total committed exposure
of which:(1) 3,611 90 484 7,648 11,833
- Performing
(Non-Watchlist) 3,611 90 484 7,574 11,759
- Watchlist: Enhanced
monitoring - - - 74 74
--------------------------- --------------------------- -------------------- ------------ --------------- -------
(1) Includes committed facilities and derivatives. We define
'enhanced monitoring' in the 'Risk monitoring' section in the 2015
Annual Report.
At 30 June 2016 and 31 December 2015, there were no impairment
loss allowances.
30 June 2016 compared to 31 December 2015
Watchlist exposures increased by GBP104m to GBP178m at 30 June
2016 (2015: GBP74m). The increase was driven by a single Social
Housing group added to enhanced monitoring due to governance
issues.
Corporate Centre - forbearance
At 30 June 2016 and 31 December 2015, there was no forbearance
activity in Corporate Centre.
MARKET RISK
Market risk management
In H116, there were no significant changes in the way we manage
market risk as described in the 2015 Annual Report.
Market risk review
We analyse below our key trading and banking market risk
metrics.
TRADING MARKET RISK REVIEW
This table shows our Internal VaR for 30 June 2016 and 31
December 2015, as defined in the 'Trading market risk' section of
the 2015 Annual Report. There are figures for exposure to each of
the main classes of risk. And for each period, we show the highest
figures, the lowest, the average, and those at the period-end.
The VaR figures show how much the fair values of all our
tradeable instruments (like shares or bonds) could have changed.
Since trading instruments are recorded at fair value, these are
also the amounts by which they could have increased or reduced our
income.
Period-end Average Highest Lowest
exposure exposure exposure exposure
------------------------ ------------------- ------------------ ------------------ ------------------
30 31 30 31 30 31 30 31
June December June December June December June December
2016 2015 2016 2015 2016 2015 2016 2015
Trading instruments GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ----------- ------ ---------- ------ ---------- ------ ----------
Interest rate risks(1) 2.4 2.0 2.3 2.8 2.9 4.6 1.7 1.7
Equity risks(2) 0.4 0.3 0.4 0.4 1.0 0.9 0.3 0.3
Credit (spread) - - - - - 0.2 - -
risks(3)
Foreign exchange
risks 2.1 0.1 1.0 0.1 2.1 0.1 0.1 -
------------------------ ------ ----------- ------ ---------- ------ ---------- ------ ----------
Correlation offsets(4) (2.1) (0.5) (1.2) (0.5) - - - -
------------------------ ------ ----------- ------ ---------- ------ ---------- ------ ----------
Total correlated
one-day VaR 2.8 1.9 2.5 2.8 3.0 4.5 1.8 1.8
------------------------ ------ ----------- ------ ---------- ------ ---------- ------ ----------
(1) This measures the effect of changes in interest rates and
how volatile they are. The effects are on cash instruments,
securities and derivatives. This includes swap spread risk (the
difference between swap rates and government bond rates), basis
risk (changes in interest rate tenor basis) and inflation risk
(changes in inflation rates).
(2) This measures the effect of equity prices, volatility and
dividends on stock and derivatives.
(3) This measures the effect of changes in the credit spread of
corporate bonds or credit derivatives.
(4) The highest and lowest exposures for each risk type did not
necessarily happen on the same day as the highest and lowest total
correlated one-day VaR. It is impossible to calculate a
corresponding correlation offset effect, so we have not included
it in the table.
BANKING MARKET RISK REVIEW
Interest rate risk
Yield curve risk
The table below shows how the Santander UK group (including
ANTS) base case income and valuation would be affected by a 50
basis point parallel shift (both upwards and downwards) applied
instantaneously to the yield curve at 30 June 2016 and 31 December
2015. Sensitivity to parallel shifts represents the amount of risk
in a way that we think is both simple and scalable. 50 basis points
is the stress we typically focus on for banking market risk
controls, although we also monitor sensitivities to other parallel
shifts.
30 June 2016 31 December 2015
---------------- -------------------
+50bps -50bps +50bps -50bps
GBPm GBPm GBPm GBPm
NIM sensitivity 43 (40) 131 39
Economic Value
of Equity (EVE)
sensitivity 145 (78) 86 (54)
------------------ ------- ------- --------- --------
The movement in NIM sensitivities in H116 was largely due to
further margin compression as a result of lower levels of the yield
curve and changes in the underlying management assumptions we used
for risk measurement purposes. We updated our assumptions to better
reflect the continued low rate environment. This was partially
offset by an increased volume of net fixed rate assets left
unhedged.
We are also taking actions to be prepared for the possibility of
negative interest rates in the UK, including a review of our
systems and models, and to ensure any potential impact on our
customers is appropriately managed.
Basis risk
We measure basis risk using various risk measures, including
VaR. The VaR measure uses the same VaR methodology as our trading
book. The basis risk VaR for the Santander UK group (including
ANTS) at 30 June 2016 was GBP3m (2015: GBP1m). It reflects our
basis risk exposure between the Bank of England Bank Rate (Base
Rate), reserve rate linked assets deposited with central banks, the
Sterling Overnight Index Average (SONIA) rate and between London
Interbank Offered Rates (LIBOR) of different terms. The increase in
H116 was largely due to underlying net basis position changes as a
result of the continued reduction in SVR mortgages and growth in
bank account liability volumes.
Inflation and spread risks
The VaR of the portfolios of securities the Santander UK group
(including ANTS) held for liquidity and investment purposes at 30
June 2016 was GBP5m (2015: GBP3m). The main risk factors remain the
inflation and spread risk exposures of these positions. The
increase in H116 was due to an increase in spread risk driven by
changes in the composition of our bond portfolio as part of normal
liquidity management activities and due to an increase in market
volatility at the start of H116 and following the EU
referendum.
We regularly stress test these portfolios against historical and
hypothetical scenarios. Using the possible losses we estimate from
the stress tests, we establish limits that complement our VaR-based
limits. At 30 June 2016, using historic deterministic stress tests,
we estimated the worst three month stressed loss for these
portfolios to be GBP286m (2015: GBP259m). The increase in at 30
June 2016 was due to an increase in spread risk from changes in the
composition of our bond portfolio.
LIQUIDITY RISK
Liquidity risk management
In H116, there were no significant changes in the way we manage
liquidity risk as described in the 2015 Annual Report.
Liquidity risk review
We analyse below our eligible liquidity pool and our wholesale
funding.
One of the functions provided by ANTS is treasury support for
the Santander UK group. In this regard, ANTS's role is to provide
access to certain financial markets and central bank facilities in
order to meet the Santander UK group's liquidity, funding and
balance sheet management requirements.
Liquidity and funding risk is managed on a Santander UK group
basis and it is therefore not appropriate to consider these risks
separately at an ANTS group level. In addition, under the PRA's
regulatory liquidity regime, Santander UK plc, Abbey National
Treasury Services plc, and Cater Allen Limited form the Domestic
Liquidity Sub-group (DoLSub) under the PRA's regulatory liquidity
rules. Each member of the DoLSub is required to support the others
by transferring surplus liquidity in times of stress. In
considering the liquidity resources available to the ANTS group,
both its own liquid assets and also those of the rest of the
Santander UK group have been separately presented below.
LIQUIDITY RISK MANAGEMENT
Santander UK manages liquidity risk on a consolidated basis. It
created its governance, oversight and control frameworks, and its
liquidity risk appetite (LRA), on the same basis.
OUR LIQUIDITY POOL
To minimise our liquidity risk Santander UK (including ANTS)
holds a portfolio of unencumbered liquid assets at all times.
Santander UK's LRA and regulatory requirements determine the
size and composition of this portfolio.
LCR eligible liquidity pool
This table shows the carrying value of the assets in our
eligible liquidity pool and additional liquid assets held by the
rest of the Santander UK group (to which ANTS has access through
the intercompany guarantee and DoLSub arrangements described above)
at 30 June 2016 and 31 December 2015:
30 June 2016 31 December 2015
-------------------------------------------- ---------------------------------------
Held by ANTS Held elsewhere Held by Held elsewhere
GBPbn in Santander UK Total ANTS in Santander UK Total
GBPbn GBPbn GBPbn GBPbn GBPbn
------------------------------- -------------- ------------------ -------- --------- ------------------ --------
Cash and balances at central
banks 3.5 10.5 14.0 2.2 13.7 15.9
Government bonds 19.0 4.2 23.2 12.8 5.3 18.1
Supranational and multilateral
development banks - 1.4 1.4 - 1.2 1.2
Covered bonds - 2.7 2.7 - 2.1 2.1
Asset-backed securities 0.1 0.7 0.8 - 0.7 0.7
Corporate bonds - - - - 0.1 0.1
Equities 0.2 - 0.2 0.6 - 0.6
22.8 19.5 42.3 15.6 23.1 38.7
------------------------------- -------------- ------------------ -------- --------- ------------------ --------
30 June 2016 compared to 31 December 2015
Santander UK's LCR eligible liquidity pool significantly
exceeded wholesale funding of less than one year.
OUR FUNDING STRATEGY AND STRUCTURE
Santander UK's funding strategy continues to be based on
maintaining a conservatively structured balance sheet and diverse
sources of funding.
DEPOSIT FUNDING
Santander UK's Retail Banking and Commercial Banking activities
are mostly funded by customer deposits. The rest is funded by
long-term debt and equity (including funding secured against its
customer loans and advances).
WHOLESALE FUNDING
Composition of wholesale funding
30 June 2016 compared with 31 December 2015
In the first half of the year, Santander UK began repositioning
the structure of its funding vehicles in preparation for
ring-fencing. On 1 June 2016, Santander UK plc became the issuer of
all existing medium-term wholesale securities previously issued by
the Company. Specifically, Santander UK plc became the issuer in
respect of all Existing Senior Medium Term Wholesale Securities
issued by ANTS up to that date. The Existing Senior Medium Term
Wholesale Securities comprise EUR60m Guaranteed Step-Down Fixed /
Inverse Floating Rate Notes due 2019 and GBP166,995,000 Zero Coupon
Amortising Guaranteed Notes due 2038. This change is part of the
Santander UK group ring-fence planning pursuant to the requirements
of the Financial Services (Banking Reform) Act 2013, for which we
have commenced realigning the funding structure of the operating
companies ANTS and Santander UK plc. Going forward, Santander UK
plc will be the issuer under each of the Wholesale Funding
Programmes. The Wholesale Funding Programmes comprise the US$30bn
Euro Medium Term Note Programme (EMTN), the EUR35bn Global Covered
Bond Programme and the US SEC-Registered Debt Shelf Programme. ANTS
does not guarantee the notes transferred to Santander UK plc by
ANTS nor will it guarantee the notes issued by Santander UK plc in
the future.
Except for the covered bonds, which will continue to have the
secured guarantee of Abbey Covered Bonds LLP, all notes transferred
to Santander UK plc by Abbey National Treasury Services plc and all
notes issued by Santander UK plc in the future under these
programmes will be the sole liability of Santander UK plc and will
not be guaranteed by any other entity.
Reconciliation of wholesale funding to the balance sheet
This table reconciles our wholesale funding to our balance sheet
at 30 June 2016 and 31 December 2015.
Balance sheet line item
--------------------------------------------------
Financial
liabilities
designated
Deposits at Debt
Funding by Trading fair securities
analysis banks liabilities value in issue
30 June 2016 GBPbn GBPbn GBPbn GBPbn GBPbn
-------------------------------- --------- -------- ------------ ------------- -----------
Deposits by banks (non-customer
deposits) 0.6 - 0.6 - -
CDs and commercial
paper 5.3 - - - 5.3
Senior unsecured -
privately placed 1.1 - - 1.1 -
Securitisation and
structured issuance 1.9 1.9 - - -
Total wholesale funding 8.9 1.9 0.6 1.1 5.3
Repos 7.4 0.4 7.0 - -
Foreign exchange and
hedge accounting (0.1) - - - (0.1)
Other 39.0 31.4(1) 7.1(2) 0.5 -
-------------------------------- --------- -------- ------------ ------------- -----------
Balance sheet total 55.2 33.7 14.7 1.6 5.2
-------------------------------- --------- -------- ------------ ------------- -----------
31 December 2015 76.8 21.3 12.7 2.0 40.8
-------------------------------- --------- -------- ------------ ------------- -----------
(1) Mainly amounts due to Santander UK subsidiaries and other
deposits. See Note 11 to the Condensed Consolidated Interim
Financial Statements.
(2) Short positions in securities and unsettled trades, cash
collateral and short-term deposits. See Note 12 to the Condensed
Consolidated Interim Financial Statements.
30 June 2016 compared to 31 December 2015
Together with our parent, Santander UK plc and its parent
Santander UK Group Holdings plc, our overall funding strategy
remains to develop and sustain a diversified funding base. We also
need to fulfil regulatory requirements as well as to support our
credit ratings. As in H115, the majority of Santander UK's new
issuance in H116 was in the unsecured markets.
H116 presented a challenging market for issuance with
macro-economic headlines driving heightened volatility. Oil price
fluctuations, weaker equity markets and the EU referendum all
contributed to credit spreads drifting wider throughout H116.
Authorities however continued to provide support through further
rounds of monetary stimulus and maintaining the low interest rate
environment. The wholesale funding markets continued to offer us an
economically viable source of funding. Taking advantage of the
constructive market conditions at the beginning of the year and
capitalising on stable windows through H116, we remained active and
consequently ahead of our funding requirement.
CAPITAL RISK
Capital risk management
In H116, there were no significant changes to the way we manage
capital risk as described in the 2015 Annual Report.
THE SCOPE OF OUR CAPITAL ADEQUACY
Regulatory supervision
Abbey National Treasury Services plc is incorporated in the UK.
For capital purposes, we are subject to prudential supervision by
the following regulators:
- PRA: as we are a UK authorised banking group
- ECB: as we are a member of Banco Santander. The ECB supervises
Banco Santander as part of the Single Supervisory Mechanism.
Although we (and Santander UK plc and Santander UK Group Holding
plc) are part of Banco Santander, we do not have any guarantees
from our ultimate parent Banco Santander SA and we operate as an
autonomous subsidiary. As we are regulated by the PRA, we have to
meet the PRA capital requirements on a standalone basis. We also
have to show the PRA that we can withstand capital stress tests
without the support of our parent. Reinforcing our corporate
governance framework, the PRA exercises oversight through its rules
and regulations on the Board and senior management
appointments.
Our approach to CRD IV
We apply Banco Santander SA's approach to capital measurement
and risk management for CRD IV. As a result, Abbey National
Treasury Services plc is classified as a significant subsidiary of
Banco Santander SA. For more on the CRD IV risk measurement of our
exposures, see Banco Santander SA's Pillar 3 report.
30 June 2016 compared to 31 December 2015
In December 2015, the Financial Policy Committee (FPC) published
its view on the calibration of the capital framework for the UK
banking system at an end point in 2019. This reflected an aggregate
level of Tier 1 equity in the system of 11% RWA, with CET 1
comprising 9.5% of RWAs, plus time-varying elements including the
countercyclical buffer. The RWA measures considered for this
assessment assumed that the perceived shortcomings of the current
RWA measures under CRD IV are corrected. Overall, the FPC expected
the UK banking system would only have a little more capital to
build, although the required increase could be more significant for
some individual banks.
The Basel Committee on Banking Supervision (BCBS) is developing
revised standards for the calculation of minimum capital
requirements and RWAs for market risk, operational risk and credit
risk to address perceived shortcomings. In January 2016, the BCBS
published the revised market risk framework and is consulting on
proposals for significant revisions to the operational risk and
credit risk frameworks. It is also considering setting capital
floors based on standardised approaches. These revised standards,
once written into EU law, could significantly impact the
measurement of RWAs over the medium term and have a negative impact
on our capital ratios.
In addition, the Financial Stability Board finalised proposals
on Total Loss Absorbing Capacity (TLAC) in November 2015. These set
out the minimum level of loss absorbency required by globally
systemic important banks from 2019. They are expected to apply to
us as we are a subsidiary of the globally significant Banco
Santander. In the EU, loss absorbency requirements have been
established under the Bank Recovery and Resolution Directive, under
which institutions will be required to maintain an MREL. The Bank
of England has consulted on the approach to setting MREL for UK
institutions, and it has proposed that MREL requirements could be
set at levels equivalent to two times the minimum capital
requirements (Pillar 1 minimum plus Pillar 2A) from 2020. It plans
to set MREL as necessary to implement the TLAC standard. We will
need to ensure that we have enough capital and loss absorbing
eligible liabilities to meet this level by the implementation
date.
CAPITAL RESOURCES
During H116 and FY15, we held capital over and above our
regulatory requirements, and managed internal capital allocations
and targets in accordance with our capital and risk management
policies.
Group capital
31 December
30 June 2016 2015
GBPm GBPm
---------------------------------------- ------------- ------------
Common Equity Tier 1 (CET 1)
capital before regulatory adjustments 3,630 3,649
Regulatory adjustments to CET
1 capital (323) (263)
---------------------------------------- ------------- ------------
CET 1 capital 3,307 3,386
Total regulatory capital 3,307 3,386
---------------------------------------- ------------- ------------
Other key risks and areas of focus
Other key risks
In H116, there were no significant changes to the way we manage
and monitor other key risks, as described in the 2015 Annual
Report, except as set out below.
Areas of focus
In this section, we discuss our country risk exposures, and
analyse our on and off-balance sheet exposures, with a focus on the
eurozone. We show our 'Balances with other Santander UK group
companies' and 'Balances with other Banco Santander companies
outside the Santander UK group' separately.
OPERATIONAL RISK
30 June 2016 compared to 31 December 2015
Cyber risk
In H116, in common with other large UK financial institutions,
we continued to be subject to cyber attack. This included an
incident that resulted in a temporary disruption to the service
offered via our digital channels and was caused by a denial of
service attack, launched by an unknown external third party.
We continued to improve our systems, processes, controls and
staff training to reduce cyber risk and enhance our data security.
This included adding the key findings from the Bank of England led
programme to improve and test resilience to cyber attacks in the
financial industry into our cyber security IT systems plan for
2016.
Our Cyber Safe awareness campaign continued across the business,
including mandatory training and internal phishing exercises. We
continued to improve access controls and monitoring for users who
have access to sensitive information.
Operational Risk Transformation Programme
We continued to invest in the delivery of our Operational Risk
Transformation Programme, which will help us to achieve market best
practice in operational risk management.
FINANCIAL CRIME RISK
30 June 2016 compared to 31 December 2015
In H116, as part of our Financial Crime Transformation Programme
and our financial crime agenda, we continued to improve our
controls, culture and awareness. We:
- Further increased the visibility and governance for our
accountable executives. We did this in a time of political and
media focus, and ahead of expected changes to the UK's anti-money
laundering and terrorist finance regime
- Intensified our work with the UK Home Office, the Joint Money
Laundering Intelligence Taskforce and other law enforcement
agencies. We placed a special focus on financial crime policy,
which allowed us to give better advice on key emerging
geo-political changes
- Enhanced our financial crime compliance operating model. We
put in place dedicated first line governance and operations, and
hired skilled staff to support a more intelligence led second line
approach
- Further improved our internal data. As part of this, we
introduced key risk indicators to track performance against our
financial crime risk appetite
- Continued to invest in our transformation. We improved our
screening and monitoring functions. We also enhanced our controls
to support growth plans (such as trade finance) and innovative
client propositions, such as using blockchain technology for
international payments
- Further automated our Suspicious Activity Reporting (SAR)
process. This built on positive feedback from the National Crime
Agency on the quality of our SAR submissions and improved our
ability to provide high quality data.
MODEL RISK
30 June 2016 compared to 31 December 2015
In H116 we updated our model risk policy to align it to the
framework that was approved in 2015. We continued to embed these
across the business, and prioritised our focus on models in
Finance, as well as key model deployments for IFRS 9, stress
testing and valuation methodologies. We are reviewing our models to
ensure that we are prepared for the possibility of negative
interest rates in the UK. We also introduced an executive model
owner role that will enhance the year-end attestation process.
COUNTRY RISK EXPOSURES
The tables below show our exposures at 30 June 2016 and 31
December 2015. The tables exclude balances with other Santander UK
group companies and other Banco Santander companies. We show them
separately in the 'Balances with other Santander UK group
companies' and 'Balances with other Banco Santander companies
outside the Santander UK group' sections.
Central and local Government Other financial
governments guaranteed Banks(1) institutions Corporate Total(2)
30 June 2016 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
Peripheral
eurozone
countries:
Italy 1.0 - - - - 1.0
Ireland - - 0.2 0.1 0.5 0.8
Spain (excluding
Banco Santander) - - 0.3 - - 0.3
Portugal - - 0.1 - - 0.1
Other eurozone
countries:
France - 0.3 1.9 0.3 0.4 2.9
Germany - - 3.0 - 0.3 3.3
All other
eurozone(3) - - 0.6 1.8 1.1 3.5
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
1.0 0.3 6.1 2.2 2.3 11.9
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
All other
countries:
UK 1.9 0.4 10.0 14.1 29.0 55.4
US 3.6 0.3 12.3 1.4 0.1 17.7
Japan 2.9 - 1.8 0.3 2.1 7.1
All others(4) - - 1.1 0.5 0.9 2.5
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
8.4 0.7 25.2 16.3 32.1 82.7
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
Total 9.4 1.0 31.3 18.5 34.4 94.6
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
Central and local Government Other financial
governments guaranteed Banks(1) institutions Corporate Total(2)
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
Peripheral
eurozone
countries:
Italy 0.8 - 0.1 - - 0.9
Ireland - - - 0.1 0.5 0.6
Spain (excluding
Banco Santander) - - 0.2 - - 0.2
Portugal - - 0.1 - - 0.1
Other eurozone
countries:
France - 0.3 1.8 - 1.6 3.7
Germany - - 1.3 - 0.4 1.7
All other
eurozone(3) 0.3 - 0.3 - 1.0 1.6
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
1.1 0.3 3.8 0.1 3.5 8.8
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
All other
countries:
UK 1.7 0.4 7.4 5.4 33.5 48.4
US 2.3 0.2 7.9 3.2 0.2 13.8
Japan 2.7 - 1.0 0.1 1.7 5.5
All others(4) 0.1 - 0.7 0.4 0.8 2.0
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
6.8 0.6 17.0 9.1 36.2 69.7
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
Total 7.9 0.9 20.8 9.2 39.7 78.5
------------------- ------------------ ------------------- --------- ------------------ ------------ -----------
(1) Excludes balances with central banks.
(2) Credit exposures exclude cash at hand, macro hedge of
interest rate risk, intangible assets, property, plant and
equipment, deferred tax assets and other assets. Loans and advances
to
customers are included gross of impairment loss allowances.
(3) Includes Luxembourg of GBP1.7bn (2015: GBP0.2bn), The
Netherlands of GBP1.1bn (2015: GBP0.8bn), Cyprus of GBPnil (2015:
GBPnil), Greece of GBPnil (2015: GBPnil), Belgium and Finland.
(4) Includes Ukraine of GBPnil (2015: GBPnil).
30 June 2016 compared to 31 December 2015
Key changes in sovereign and other country risk exposures in
H116 were:
- An increase of GBP7.0bn in exposure to the UK to GBP55.4bn
(2015: GBP48.4bn). This was mainly due to greater assets held at
fair value with other financial institutions, partially offset by
decreases in corporate bonds held and loans and advances to
corporate customers.
- An increase of GBP3.9bn in exposure to the US to GBP17.7bn
(2015: GBP13.8bn). This was primarily driven due to an increase in
trading assets held at fair value with banks and increased holding
of US treasury bills.
- An increase of GBP1.6bn in exposure to Japan to GBP7.1bn
(2015: GBP5.5bn). This was primarily due to the additional purchase
of equity instruments listed in Japan as part of increased activity
by Short Term Markets, and additional reverse repos with Japanese
banks. The equity instrument risk exposures are hedged using
derivative instruments and the additional reverse repos are fully
collateralised.
- An increase of GBP1.6bn in exposure to Germany to GBP3.3bn
(2015: GBP1.7bn). This was due to increased derivative asset
balances entered into with banks.
- A decrease of GBP0.8bn in exposure to France to GBP2.9bn
(2015: GBP3.7bn). This was principally due to decreased trading
assets held at fair value with corporate customers.
- Movements in the other country risk exposures were
minimal.
Redenomination risk
We consider the total dissolution of the eurozone to be
extremely unlikely. We also believe widespread redenomination of
our euro-denominated assets and liabilities is highly improbable,
despite the result of the recent referendum in the UK to leave the
EU. However, we have analysed the redenomination risk that might
arise from an exit of a member state from the euro or a total
dissolution of the euro and how that would be implemented. It is
not possible to predict what the total financial impact on us might
be of this.
Determining which balances would be legally redenominated is
complex and depends on a number of factors. These factors include
the precise exit scenario. This is because the effects on contracts
of a disorderly exit or one sanctioned under EU law may differ. We
monitor these risks and have taken steps to mitigate them and/or
reduce our overall exposure to losses that might arise in the event
of a redenomination. We have done this by reducing our balances and
funding mismatches. As part of maintaining a diverse funding base,
we raise funding in a number of currencies, including euro, and
convert it into sterling through currency swaps to fund our
commercial assets which are largely sterling denominated.
Our net asset position denominated in euro, reflecting assets,
liabilities and related swaps (which are mainly cross-currency
derivatives entered into to swap funding raised in euro into
sterling for reasons set out above) in connection with contracts
denominated in euro, was net assets of GBP0.3bn at 30 June 2016
(2015: net assets of GBP2.1bn). This was debt securities of
GBP0.6bn (2015: GBP22.5bn) we issued as part of our medium-term
funding activities, net loans and advances to other Santander UK
group companies of GBP1.9bn (2015: GBP18.7bn) (principally
representing the on lending of these net funds to other Santander
UK group companies), net repo assets of GBP2.4bn (2015: liabilities
of GBP1.9bn), other deposits of GBP1.7bn (2015: GBP13.9bn), other
loans and securities of GBPnil (2015: GBP4.9bn), and related swap
liabilities of GBP1.7bn (2015: assets of GBP16.8bn) which swap the
euro exposures into sterling to ensure our assets and liabilities
are currency matched in sterling.
Our exposures to individual eurozone countries and total
exposures to eurozone counterparties, including any
euro-denominated contracts, are set out earlier in this
section.
Balances with other Santander UK group companies
We enter into transactions with other Santander UK group
companies in the ordinary course of business. We provide corporate,
wholesale banking and treasury services to the wider Santander UK
group, of which we are a significant part. We also provide certain
treasury support functions for the Santander UK group. In this
regard, our role is to provide access to certain financial markets
and central bank facilities in order to meet the Santander UK
group's liquidity, funding and balance sheet management
requirements. Excluding the Upstream Guarantee, at 30 June 2016 and
31 December 2015 we had gross balances with other Santander UK
group companies as follows:
30 June 2016 31 December 2015
-------------- --------------------------------- ---------------------------------
Other Other
financial Total Banks financial
Banks institutions GBPbn GBPbn institutions Total
GBPbn GBPbn GBPbn GBPbn
-------------- ------- -------------- -------- -------- -------------- -------
Assets:
- UK 12.9 0.6 13.5 22.3 19.0 41.3
12.9 0.6 13.5 22.3 19.0 41.3
-------------- ------- -------------- -------- -------- -------------- -------
Liabilities:
- UK 37.0 3.2 40.2 22.7 1.3 24.0
37.0 3.2 40.2 22.7 1.3 24.0
-------------- ------- -------------- -------- -------- -------------- -------
The above balances with other Santander UK group companies at 30
June 2016 and 31 December 2015 mainly arose from ANTS providing
treasury support functions for the Santander UK group.
In the first half of the year, Santander UK began repositioning
the structure of its funding vehicles in preparation for
ring-fencing. On 1 June 2016, Santander UK plc became the issuer of
all existing medium-term wholesale securities previously issued by
the Company. For more on this, see the Notes to the Condensed
Consolidated Interim Financial Statements.
Balances with other Banco Santander companies outside the
Santander UK group
We deal with other Banco Santander companies outside the
Santander UK group in the ordinary course of business. We do this
where we have a particular business advantage or expertise and
where they can offer us commercial opportunities. This is done
substantially on the same terms as for similar transactions with
third parties. These transactions also arise where we support the
activities of, or with, larger multinational corporate clients and
financial institutions which may deal with other Banco Santander
companies. We conduct these activities in a way that manages the
credit risk within limits acceptable to the PRA. At 30 June 2016
and 31 December 2015, we had gross balances with other Banco
Santander companies outside the Santander UK group as follows:
30 June 2016 31 December 2015
------------------ --------------------------------- ---------------------------------
Other Other
financial Total Banks financial
Banks institutions GBPbn GBPbn institutions Total
GBPbn GBPbn GBPbn GBPbn
------------------ ------- -------------- -------- -------- -------------- -------
Assets:
- Spain 2.1 - 2.1 1.4 - 1.4
- UK - 0.5 0.5 - 0.5 0.5
- Chile 0.6 - 0.6 0.3 - 0.3
- Other <GBP100m 0.2 - 0.2 0.3 - 0.3
------------------ ------- -------------- -------- -------- -------------- -------
2.9 0.5 3.4 2.0 0.5 2.5
------------------ ------- -------------- -------- -------- -------------- -------
Liabilities:
- Spain 2.6 - 2.6 1.9 - 1.9
- Chile 0.6 - 0.6 0.3 - 0.3
- Other <GBP100m 0.2 - 0.2 0.2 0.1 0.3
------------------ ------- -------------- -------- -------- -------------- -------
3.4 - 3.4 2.4 0.1 2.5
------------------ ------- -------------- -------- -------- -------------- -------
Governance
BOARD OF DIRECTORS
The Directors of Abbey National Treasury Services plc are listed
in the 2015 Annual Report. In addition to those listed, Simon Lloyd
was appointed Non-Executive Director and Chairman on 11 August 2016
and Juan Garrido Otaola was appointed as an Executive Director and
Chief Executive Officer of the Company on 23 May 2016. Biographical
details of Simon Lloyd and Juan Garrido Otaola are shown below.
Marcelo Castro Zappa resigned as Chief Executive Officer on 23 May
2016 and stepped down as an Executive Director on 27 June 2016.
NON-EXECUTIVE DIRECTORS
Simon Lloyd
Chairman
Timothy 'Simon' Lloyd (55) was appointed Chairman of Abbey
National Treasury Services plc on 11 August 2016. Simon has
extensive experience as a Company Secretary and General Counsel in
the financial services industry and is currently the Chief
Administration Officer of Santander UK plc. Previously he has
occupied the role of Chief People Officer (2008 - 2015) at
Santander UK plc and Company Secretary for Alliance & Leicester
plc (2003 - 2007). Prior to this, he was Company Secretary and
General Counsel at Bristol & West plc (1999 - 2003) and between
1990 and 1999 occupied a number of roles at Lloyds Bank plc,
including Head of Legal for UK Retail Banking. Simon worked in
legal private practice between 1983 and 1990. In a non-executive
capacity, Simon is currently a non-executive director of Milton
Keynes University Hospital NHS Foundation Trust (and a member of
its Audit and Workforce Committee), and has been Governor of the
IFS School of Finance since 2010.
EXECUTIVE DIRECTORS
Juan Garrido Otaola
Chief Executive Officer
Juan Garrido Otaola (45) was appointed as Chief Executive
Officer of the Company on 23 May 2016. Juan has extensive
experience in financial markets related business in both trading
and sales. He was appointed Head of Global Banking and Markets for
Banco Santander, Mexico in 2012, with the responsibility of leading
an Investment Banking team with a top three footprint in Equity and
Debt Capital Markets, Mergers & Acquisitions, Project Finance,
Trade Finance and Treasury Products. Prior to this, he headed a
variety of departments for Banco Santander in Madrid and London,
including Head of Spain Corporate Sales (2005-2008) and later Head
of European Corporate Sales (2009-2011). Juan began his career at
JP Morgan-Chase in London and Madrid after joining their graduate
programme in 1995.
CORPORATE GOVERNANCE DEVELOPMENTS
Following the introduction of the Prudential Regulation
Authority's Senior Managers Regime (SMR), effective from 7 March
2016, the Board of the Company established an Audit Committee, a
Risk Committee and a Nomination Committee. Each Committee is
chaired by Simon Lloyd.
AUDITORS
Deloitte LLP stepped down from their office as auditor at the
Annual General Meeting on 31 March 2016 and the members appointed
PricewaterhouseCoopers LLP from the conclusion of that meeting.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors listed below (being all the Directors of Abbey
National Treasury Services plc) confirm that to the best of their
knowledge these condensed consolidated interim financial statements
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union, and that the half-year management report herein
includes a fair review of the information required by Disclosure
and Transparency Rules 4.2.7R and 4.2.8R, namely:
- An indication of important events that have occurred during
the six months ended 30 June 2016 and their impact on the condensed
consolidated half-year financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year, and
- Material related party transactions in the six months ended 30
June 2016 and any material changes in the related party
transactions described in the last Annual Report.
Signed on behalf of the Board by
Chris Sullivan
Director
17 August 2016
Abbey National Treasury Services plc Board of Directors:
Non-Executive Directors
Simon Lloyd
Chris Sullivan
Executive Directors
Juan Garrido Otaola
Karim Hajjaji
Antonio Roman
Financial statements
34 Independent review report
35 Primary financial statements
35 Condensed Consolidated Income Statement for H116
and H115
35 Condensed Consolidated Statement of Comprehensive
Income for H116 and H115
36 Condensed Consolidated Balance Sheet at 30 June
2016 and 31 December 2015
37 Condensed Consolidated Cash Flow Statement for
H116 and H115
37 Condensed Consolidated Statement of Changes in
Equity for H116 and H115
38 Notes to the financial statements
Independent review report to Abbey National Treasury Services
plc
Report on the Condensed Consolidated Interim Financial
Statements
Our conclusion
We have reviewed the Condensed Consolidated Interim Financial
Statements, defined below, in the Half Yearly Financial Report of
Abbey National Treasury Services plc for the six month period ended
30 June 2016. Based on our review, nothing has come to our
attention that causes us to believe that the Condensed Consolidated
Interim Financial Statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The Condensed Consolidated Interim Financial Statements
comprise:
- the Condensed Consolidated Income Statement for the six months
ended 30 June 2016;
- the Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2016;
- the Condensed Consolidated Balance Sheet as at 30 June
2016;
- the Condensed Consolidated Cash Flow Statement for the six
months ended 30 June 2016;
- the Condensed Consolidated Statement of Changes in Equity for
the six months ended 30 June 2016; and
- the explanatory notes to the Condensed Consolidated Interim
Financial Statements.
The Condensed Consolidated Interim Financial Statements have
been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 1 to the Condensed Consolidated Interim
Financial Statements, the financial reporting framework that has
been applied in the preparation of the full annual financial
statements of the Group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union.
Responsibilities for the Condensed Consolidated Interim
Financial Statements and the review
Our responsibilities and those of the directors
The Half Yearly Financial Report, including the Condensed
Consolidated Interim Financial Statements, are the responsibility
of, and have been approved by, the directors. The directors are
responsible for preparing the Half Yearly Financial Report in
accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the Condensed
Consolidated Interim Financial Statements in the Half Yearly
Financial Report based on our review. This report, including the
conclusion, has been prepared for and only for the company for the
purpose of complying with the Disclosure and Transparency Rules of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of the Condensed Consolidated Interim Financial
Statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Half Yearly
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the Condensed Consolidated Interim Financial Statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
17 August 2016
Condensed Consolidated Income Statement (unaudited)
For the half year to 30 June 2016 and the half year to 30 June
2015
Half year Half
Notes to year
30 June to
2016 30 June
GBPm 2015
GBPm
----------------------------------------------- -------- ---------- ---------
Interest and similar income 678 755
Interest expense and similar
charges (572) (578)
----------------------------------------------- -------- ---------- ---------
Net interest income 106 177
----------------------------------------------- -------- ---------- ---------
Net fee and commission income 64 68
Net trading and other income 3 71 114
----------------------------------------------- -------- ---------- ---------
Total operating income 241 359
----------------------------------------------- -------- ---------- ---------
Operating expenses before impairment
losses, provisions and charges (129) (130)
----------------------------------------------- -------- ---------- ---------
Impairment (losses)/releases
on loans and advances 4 (25) 4
Total operating impairment (losses)/releases,
provisions and charges (25) 4
----------------------------------------------- -------- ---------- ---------
Profit before tax 87 233
Tax on profit 5 (27) (48)
----------------------------------------------- -------- ---------- ---------
Profit after tax for the period 60 185
----------------------------------------------- -------- ---------- ---------
Attributable to:
Equity holders of the parent 60 185
----------------------------------------------- -------- ---------- ---------
Condensed Consolidated Statement of Comprehensive Income
(unaudited)
For the half year to 30 June 2016 and the half year to 30 June
2015
Half Half
year year
to to
30 June 30 June
2016 2015
GBPm GBPm
-------------------------------------------- --------- ---------
Profit for the period 60 185
-------------------------------------------- --------- ---------
Other comprehensive income/(expense):
Other comprehensive income that may
be reclassified to profit or loss
subsequently:
Available-for-sale securities
- Net gains on available-for-sale
securities 11 5
- Net losses/(gains) on available-for-sale
securities transferred to profit
or loss 1 (5)
- Tax on above items (2) -
-------------------------------------------- --------- ---------
10 -
-------------------------------------------- --------- ---------
Cash flow hedges
- Net gains/(losses) on cash flow
hedges 604 (762)
- Net (gains)/losses on cash flow
hedges transferred to profit or loss (713) 692
- Tax on above items 28 14
-------------------------------------------- --------- ---------
(81) (56)
-------------------------------------------- --------- ---------
Exchange differences on translation (2)
of foreign operations -
-------------------------------------------- --------- ---------
Net other comprehensive expense that
may be reclassified to profit or
loss subsequently (73) (56)
-------------------------------------------- --------- ---------
Total other comprehensive expense
for the period net of tax (73) (56)
-------------------------------------------- --------- ---------
Total comprehensive (expense)/income
for the period (13) 129
-------------------------------------------- --------- ---------
Attributable to:
Equity holders of the parent (13) 129
-------------------------------------------- --------- ---------
Condensed Consolidated Balance Sheet (unaudited)
At 30 June 2016 and 31 December 2015
30 June 31 December
Notes 2016 2015
GBPm GBPm
------------------------------------ -------- -------- ------------
Assets
Cash and balances at central banks 3,499 2,279
Trading assets 7 28,949 23,649
Derivative financial instruments 8 32,918 24,875
Financial assets designated at
fair value 2,238 2,130
Loans and advances to banks 9 11,968 21,544
Loans and advances to customers 10 16,506 32,455
Loans and receivables securities 165 15
Available-for-sale securities 561 1,168
Macro hedge of interest rate risk 823 521
Intangible assets 27 25
Property, plant and equipment 10 12
Deferred tax assets 12 -
Other assets 253 194
------------------------------------ -------- -------- ------------
Total assets 97,929 108,867
------------------------------------ -------- -------- ------------
Liabilities
Deposits by banks 11 33,737 21,333
Deposits by customers 2,736 2,838
Trading liabilities 12 14,674 12,722
Derivative financial instruments 8 36,033 25,178
Financial liabilities designated
at fair value 13 1,604 2,016
Debt securities in issue 14 5,195 40,811
Other liabilities 144 163
Provisions 44 44
Current tax liabilities 132 104
Deferred tax liabilities - 15
------------------------------------ -------- -------- ------------
Total liabilities 94,299 105,224
------------------------------------ -------- -------- ------------
Equity
Share capital 2,549 2,549
Retained earnings 1,087 1,027
Other reserves (6) 67
Total shareholders' equity 3,630 3,643
Total liabilities and equity 97,929 108,867
------------------------------------ -------- -------- ------------
Condensed Consolidated Cash Flow Statement (unaudited)
For the half year to 30 June 2016 and the half year to 30 June
2015
Half year Half
to year
30 June to
2016 30 June
GBPm 2015
Notes GBPm
------------------------------------------- ------ ---------- ---------
Cash flows from/(used in) operating
activities
Profit for the period 60 185
Adjustments for:
Non-cash items included in profit (300) 212
Change in operating assets 16,061 4,499
Change in operating liabilities 22,531 (541)
Corporation taxes paid - (55)
Effects of exchange rate differences 1,103 (2,087)
------------------------------------------- ------ ---------- ---------
Net cash flow from operating activities 39,455 2,213
------------------------------------------- ------ ---------- ---------
Cash flows from/(used in) investing
activities
Purchase of property, plant and
equipment and intangible assets (6) (9)
Proceeds from sale and redemption
of available-for-sale securities 612 410
Net cash flow from investing activities 606 401
------------------------------------------- ------ ---------- ---------
Cash flows from/(used in) financing
activities
Issue of debt securities 3,645 6,556
Issuance costs of debt securities (5) (13)
Repayment of debt securities (38,582) (4,402)
Net cash flow (used in)/from financing
activities (34,942) 2,141
------------------------------------------- ------ ---------- ---------
Net increase in cash and cash equivalents 5,119 4,755
Cash and cash equivalents at beginning
of the period 10,192 18,436
Effects of exchange rate changes
on cash and cash equivalents 948 (499)
------------------------------------------- ------ ---------- ---------
Cash and cash equivalents at the
end of the period 17 16,259 22,692
------------------------------------------- ------ ---------- ---------
Condensed Consolidated Statement of Changes in Equity
(unaudited)
For the half year to 30 June 2016 and the half year to 30 June
2015
Other reserves
----------------------------------
Available Cash Foreign
Share for flow currency Retained
capital sale hedging translation earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ -------- ---------- -------- ------------ --------- ---------------
1 January 2016 2,549 (20) 81 6 1,027 3,643
Total comprehensive income
for the period:
* Profit for the period - - - - 60 60
Other comprehensive income/(expense)
for the period:
* Net gains on available-for-sale securities - 11 - - - 11
* Net losses on available-for-sale securities
transferred to profit or loss - 1 - - - 1
* Net gains on cash flow hedges - - 604 - - 604
* Net gains on cash flow hedges transferred to profit
or loss - - (713) - - (713)
* Exchange differences on translation of foreign
operations - - - (2) - (2)
* Tax on other comprehensive income/ (expense) - (2) 28 - - 26
Other comprehensive income/(expense)
for the period, net of
tax - 10 (81) (2) - (73)
------------------------------------------------------------ -------- ---------- -------- ------------ --------- ---------------
30 June 2016 2,549 (10) - 4 1,087 3,630
------------------------------------------------------------ -------- ---------- -------- ------------ --------- ---------------
1 January 2015 2,549 (25) 84 12 761 3,381
Total comprehensive income
for the period:
* Profit for the period - - - - 185 185
Other comprehensive income/(expense)
for the period:
* Net gains on available-for-sale securities - 5 - - - 5
* Net gains on available-for-sale securities
transferred to profit or loss - (5) - - - (5)
* Net losses on cash flow hedges - - (762) - - (762)
* Net losses on cash flow hedges transferred to profit
or loss - - 692 - - 692
* Tax on other comprehensive income/(expense) - - 14 - - 14
Other comprehensive expense
for the period, net of
tax - - (56) - - (56)
------------------------------------------------------------ -------- ---------- -------- ------------ --------- ---------------
30 June 2015 2,549 (25) 28 12 946 3,510
------------------------------------------------------------ -------- ---------- -------- ------------ --------- ---------------
1. Accounting policies
Basis of preparation
The financial information in these Condensed Consolidated
Interim Financial Statements does not constitute statutory accounts
as defined in section 434 of the UK Companies Act 2006. Statutory
accounts for the year ended 31 December 2015 have been delivered to
the Registrar of Companies. The auditor's report on those accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) of
the UK Companies Act 2006.
The Condensed Consolidated Interim Financial Statements reflect
all adjustments that, in the opinion of management, are necessary
for a fair presentation of the results of operations for the
interim period. All such adjustments to the financial information
are of a normal, recurring nature. Because the results from common
banking activities are so closely related and responsive to changes
in market conditions, the results for any interim period are not
necessarily indicative of the results that can be expected for the
year.
The Condensed Consolidated Interim Financial Statements have
been prepared in accordance with International Accounting Standard
(IAS) 34 'Interim Financial Reporting', as issued by the
International Accounting Standards Board (IASB) and adopted by the
European Union, and the Disclosure and Transparency Rules of the
Financial Conduct Authority (FCA). They do not include all the
information and disclosures normally required for full annual
financial statements and should be read in conjunction with the
Consolidated Financial Statements of the ANTS group for the year
ended 31 December 2015 which were prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. Those Consolidated Financial Statements were also
prepared in accordance with International Financial Reporting
Standards as issued by the IASB including interpretations issued by
the IFRS Interpretations Committee (IFRIC) of the IASB (together
IFRS). The ANTS group has also complied with its legal obligation
to comply with International Financial Reporting Standards as
adopted by the European Union as there are no applicable
differences between the two frameworks for the periods
presented.
The same accounting policies, presentation and methods of
computation are followed in these Condensed Consolidated Interim
Financial Statements as were applied in the presentation of the
ANTS group's 2015 Annual Report. Copies of the ANTS group's 2015
Annual Report are available on the Santander UK group's website or
upon request from Investor Relations, Santander UK plc, 2 Triton
Square, Regent's Place, London NW1 3AN.
Future accounting developments
The ANTS group has not yet adopted the following significant new
or revised standards and interpretations, and amendments thereto,
which have been issued but which are not yet effective for the ANTS
group:
a) IFRS 9 'Financial Instruments' (IFRS 9) - In July
2014, the IASB issued the final version of IFRS
9 which replaces IAS 39 'Financial Instruments:
Recognition and Measurement'. The key areas of
the standard are discussed below.
Classification and measurement of financial assets and financial
liabilities. Under IFRS 9, financial assets are classified on the
basis of the business model within which they are held and their
contractual cash flow characteristics. These factors determine
whether the financial assets are measured at amortised cost, fair
value through other comprehensive income or fair value through
profit or loss. For many financial assets, the classification and
measurement outcomes will be similar to IAS 39. However, under IFRS
9, embedded derivatives are not separated from host financial
assets and equity securities are measured at fair value either
through profit or loss or, in certain circumstances, an irrevocable
election may be made to present fair value movements in other
comprehensive income. The requirements for the classification and
measurement of financial liabilities were carried forward unchanged
from IAS 39, however, the requirements relating to the fair value
option for financial liabilities were changed to address own credit
risk and, in particular, the presentation of gains and losses
within other comprehensive income. Based on the analysis performed
to date, Santander UK generally expects:
- The vast majority of financial assets which
are classified as loans and receivables under
IAS 39 will be continue to be measured at amortised
cost under IFRS 9;
- Most debt securities classified as available-for-sale
financial assets will be measured at amortised
cost or fair value through other comprehensive
income, with some being measured at fair value
through profit or loss; and
- Treasury and other eligible bills classified
as available-for-sale financial assets will
be measured at amortised cost or fair value
through other comprehensive income depending
upon the business model in which they are held.
Impairment. IFRS 9 makes fundamental changes to the impairment
of financial assets measured at amortised cost or at fair value
through other comprehensive income, lease receivables and certain
commitments to extend credit and financial guarantee contracts. It
is no longer necessary for a credit event to have occurred before
credit losses are recognised. Instead, under IFRS 9, an entity
always accounts for expected credit losses (ECLs), and any changes
in those ECLs. IFRS 9 introduces a number of new concepts and
changes to the approach to provisioning. The main features are set
out below:
- ECLs are based on an assessment of the probability
of default, loss given default and exposure
at default, discounted to give a net present
value. The estimation of ECL should be unbiased
and probability-weighted, taking into account
all reasonable and supportable information,
including forward looking economic assumptions
and a range of possible outcomes.
- On initial recognition, and for financial assets
where there has not been a significant increase
in credit risk since the initial recognition
date, IFRS 9 provisions will be made for expected
credit default events within the next 12 months.
- Where there has been a significant increase
in credit risk since the initial recognition
date, provisions will be made for those assets
expected to default at any point over their
lifetime reflecting the asset's full expected
loss.
- For assets where there is evidence of credit
impairment, provisions will be made under IFRS
9 on the basis of lifetime expected credit losses.
Hedge accounting. The general hedge accounting requirements
align hedge accounting more closely with risk management practices
and establish a more principle-based approach to hedge accounting
thereby allowing hedge accounting to be applied to a wider variety
of hedging instruments and risks. Macro hedge accounting is being
dealt with as a separate project. Until such time as that project
is complete, and to remove any potential conflict between any
existing macro hedge accounting undertaken under IAS 39 and the new
general hedge accounting requirements of IFRS 9, entities can
choose to continue to apply the existing hedge accounting
requirements in IAS 39. Based on the analysis performed to date,
ANTS expects to continue IAS 39 hedge accounting. No changes are
currently being implemented to hedge accounting policies and
practices.
Transition. The effective date of IFRS 9 is 1 January 2018. The
classification and measurement and impairment requirements are
applied retrospectively by adjusting the opening balance sheet at
the date of initial application. There is no requirement to restate
comparative information. For annual periods beginning before 1
January 2018, an entity may elect to early apply only the
requirements for the presentation of gains and losses on financial
liabilities designated at fair value through profit or loss. At the
date of publication of these Condensed Consolidated Interim
Financial Statements the standard is awaiting EU endorsement. EU
endorsement is expected later in 2016. ANTS intends to revise the
presentation of fair value gains and losses relating to its own
credit risk on certain liabilities as soon as IFRS 9 has been
endorsed and is able to be applied. ANTS is currently assessing the
impact that the financial asset classification and impairment
requirements will have. While it is expected that the measurement
basis for the majority of financial assets will be unchanged upon
applying IFRS 9, it is not yet practicable to quantify the effect
of IFRS 9 on these Condensed Consolidated Interim Financial
Statements.
b) IFRS 15 'Revenue from Contracts with Customers'
(IFRS 15) - In May 2014, the IASB issued IFRS
15. The effective date of IFRS 15 is 1 January
2018. The standard establishes the principles
that shall be applied in connection with revenue
from contracts with customers including the core
principle that the recognition of revenue must
depict the transfer of promised goods or services
to customers in an amount that reflects the entitlement
to consideration in exchange for those goods and
services. IFRS 15 applies to all contracts with
customers but does not apply to lease contracts,
insurance contracts, financial instruments and
certain non-monetary exchanges. At the date of
publication of these Condensed Consolidated Interim
Financial Statements the standard is awaiting
EU endorsement. Whilst it is expected that a significant
proportion of the ANTS group's revenue will be
outside the scope of IFRS 15, the impact of the
standard is currently being assessed. It is not
yet practicable to quantify the effect of IFRS
15 on these Condensed Consolidated Interim Financial
Statements.
c) IFRS 16 'Leases' (IFRS 16) - In January 2016,
the IASB issued IFRS 16. The standard is effective
for annual periods beginning on or after 1 January
2019. Earlier adoption is permitted for entities
that apply IFRS 15 at or before the date of initial
application of IFRS 16. IFRS 16 sets out the principles
for the recognition, measurement, presentation
and disclosure for both lessees and lessors. For
lessee accounting, IFRS 16 introduces a single
lessee accounting model and requires a lessee
to recognise a right-of-use asset representing
its right to use the underlying leased asset and
a lease liability representing its obligation
to make lease payments for all leases with a term
of more than 12 months, unless the underlying
asset is of low value. For lessor accounting,
IFRS 16 substantially carries forward the lessor
accounting requirements from the existing leasing
standard (IAS 17) and a lessor continues to classify
its leases as operating leases or finance leases
and to account for those two types of leases differently.
At the date of publication of these Condensed
Consolidated Interim Financial Statements the
standard is awaiting EU endorsement. The impact
of the standard is currently being assessed, however,
it is not yet practicable to quantify the effect
of IFRS 16 on these Condensed Consolidated Interim
Financial Statements.
Going concern
The ANTS group's objectives, policies and processes for managing
its capital are described in Note 40 to the Consolidated Financial
Statements in the 2015 Annual Report. Details of the ANTS group's
financial risk management objectives, its financial instruments and
hedging activities; and its exposures to credit risk, interest rate
risk, liquidity risk, operational risk and other risks are set out
in the Risk review on pages 12 to 30.
The ANTS group is reliant on Santander UK plc and other
companies in the Santander UK group of companies for a proportion
of its funding. The Santander UK Board has confirmed that Santander
UK plc is a going concern, and that it will provide funding to the
ANTS group for the foreseeable future. In giving this commitment to
provide funding to the ANTS group, the Santander UK Board has
considered the uncertainties that affect the ANTS group when
preparing the forecasts and budgets of the combined business of
Santander UK.
The Company guarantees any unsubordinated liabilities of
Santander UK plc, which are not debt securities, incurred prior to
30 June 2017 under a deed poll guarantee entered into by the
Company on 5 June 2015, as amended (the Upstream Guarantee).
Santander UK plc guarantees all the unsubordinated liabilities of
the Company incurred prior to 30 June 2017 (the Downstream
Guarantee).
The Company, Santander UK plc, and Cater Allen Limited, which
are the three PRA-regulated entities within the Santander UK group,
are party to a capital support deed dated 23 December 2015 (the
Capital Support Deed) with certain other non-regulated subsidiaries
of Santander UK plc and Santander UK Group Holdings plc. The
parties to the Capital Support Deed constitute a core UK group as
defined in the PRA Rulebook. Exposures of each of the three
regulated entities to other members of the core UK group are exempt
from large exposure limits that would otherwise apply. The purpose
of the Capital Support Deed is to facilitate the prompt transfer of
available capital resources from, or repayment of liabilities by,
the non-regulated parties to any of the regulated parties in the
event that one of the regulated parties has breached or is at risk
of breaching its capital resources requirements or risk
concentrations requirements. The core UK group permission expires
on 31 December 2018.
The Company, Santander UK plc, and Cater Allen Limited form the
Domestic Liquidity Sub-group (DoLSub) under the PRA's regulatory
liquidity rules. Each member of the DoLSub is required to support
the others by transferring surplus liquidity in times of stress.
The same arrangement existed before October 2015 under the Defined
Liquidity Group rules of the PRA in place until that date.
After making enquiries, the Directors have a reasonable
expectation that the ANTS group has adequate resources to continue
in operational existence for at least twelve months from the date
that the balance sheet is signed. For this reason, they continue to
adopt the 'going concern' basis of accounting for preparing the
Condensed Consolidated Interim Financial Statements.
Critical accounting policies and areas of significant management
judgement
The preparation of the Condensed Consolidated Interim Financial
Statements requires management to make estimates and judgements
that affect the reported amount of assets and liabilities at the
date of the Condensed Consolidated Interim Financial Statements and
the reported amount of income and expenses during the reporting
period. Management evaluates its estimates and judgements on an
ongoing basis. Management bases its estimates and judgements on
historical experience and on various other factors that are
believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or
conditions.
There have been no significant changes in the basis upon which
estimates have been determined, compared to that applied in the
2015 Annual Report.
2. Segments
The ANTS group's business is managed and reported on the basis
of the following segments: Commercial Banking, Global Corporate
Banking and Corporate Centre. The ANTS group's segments are
strategic business units that offer different products and
services. They are managed separately because each business
requires different technology and marketing strategies. There has
been no change to the descriptions of these segments and segmental
accounting as provided in Note 2 in the Consolidated Financial
Statements of the 2015 Annual Report.
Global
Commercial Corporate Corporate
Banking Banking Centre Total
Half year to 30 June 2016 GBPm GBPm GBPm GBPm
---------------------------------- ----------- ----------- ---------- --------
Net interest income 41 36 29 106
Non-interest income/(expense) 13 160 (38) 135
---------------------------------- ----------- ----------- ---------- --------
Total operating income/(expense) 54 196 (9) 241
---------------------------------- ----------- ----------- ---------- --------
Operating expenses before
impairment losses, provisions
and charges (12) (104) (13) (129)
---------------------------------- ----------- ----------- ---------- --------
Impairment losses on loans
and advances (3) (22) - (25)
Total operating impairment
losses, provisions and
charges (3) (22) - (25)
Profit/(loss) before tax 39 70 (22) 87
---------------------------------- ----------- ----------- ---------- --------
Total assets 6,673 44,699 46,557 97,929
---------------------------------- ----------- ----------- ---------- --------
Average number of staff(1) 207 768 - 975
---------------------------------- ----------- ----------- ---------- --------
Half year to 30 June 2015
---------------------------------- ----------- ----------- ---------- --------
Net interest income 37 38 102 177
Non-interest income 22 138 22 182
---------------------------------- ----------- ----------- ---------- --------
Total operating income 59 176 124 359
---------------------------------- ----------- ----------- ---------- --------
Operating expenses before
impairment losses, provisions
and charges (11) (101) (18) (130)
---------------------------------- ----------- ----------- ---------- --------
Impairment releases on
loans and advances 4 - - 4
Total operating impairment
releases, provisions and
charges 4 - - 4
Profit before tax 52 75 106 233
---------------------------------- ----------- ----------- ---------- --------
31 December 2015
---------------------------------- ----------- ----------- ---------- --------
Total assets 6,886 36,593 65,388 108,867
---------------------------------- ----------- ----------- ---------- --------
Average number of staff(1) 217 760 - 977
---------------------------------- ----------- ----------- ---------- --------
(1) Full-time equivalents
3. Net trading and other income
Half
year
to Half year
30 to
June 30 June
2016 2015
GBPm GBPm
------------------------------------------------- ------ ----------
Net trading and funding of other items
by the trading book 63 103
Net gains on assets designated at fair
value through profit or loss 186 10
Net gains/(losses) on liabilities designated
at fair value through profit or loss 8 (27)
Net (losses)/gains on derivatives managed
with assets/liabilities held at fair
value through profit or loss (174) 22
Net (loss)/profit on sale of available-for-sale
assets (4) 5
Hedge ineffectiveness and other (8) 1
------------------------------------------------- ------
71 114
------------------------------------------------- ------
In H116, as part of a liability management exercise, certain
debt instruments were purchased pursuant to a tender offer. This
had no significant impact on the income statement.
4. Impairment losses AND PROVISIONS
Half year to Half year to
30 June 2016 30 June 2015
GBPm GBPm
Impairment losses/(releases) on loans and advances:
- loans and advances to customers (Note 10) 25 (4)
Total impairment losses/(releases) and provisions charged to the income statement 25 (4)
In H116 and H115, there were no recoveries of loans and
advances, and no provisions for other liabilities and charges.
5. Taxation
Half year to Half year
30 June 2016 to
GBPm 30 June
2015
GBPm
----------
Current tax:
UK corporation tax on profit for the period 28 46
Adjustments in respect of prior periods - 1
----------
Total current tax charge 28 47
----------
Deferred tax:
Origination and reversal of temporary differences (1) 1
Total deferred tax (credit)/charge (1) 1
Tax charge on profit for the period 27 48
Interim period corporation tax is accrued based on the estimated
average annual effective corporation tax rate for the year of 31.0%
(2015: 20.1%). The standard rate of UK corporation tax was 28% for
banking entities and 20% for non-banking entities (2015: 20.25%).
The standard rate of UK corporation tax was reduced from 21% to 20%
with effect from 1 April 2015 and an 8% surcharge is applied to
banking companies from 1 January 2016. Taxation for other
jurisdictions is calculated at the rates prevailing in the relevant
jurisdictions. The Finance (No.2) Act 2015, which was substantively
enacted on 26 October 2015, introduces further reductions in the
corporation tax rate from 20% to 19% by 2017 and to 18% by
2020.
The UK Government has announced that it will enact a further
reduction in the main rate of tax of 1%, down to 17% at 1 April
2020 (instead of 18%) in the Finance Bill 2016, which is expected
to be enacted later in the year. Since the proposed change was not
substantively enacted as at the balance sheet date, the effect has
not been reflected in these financial statements.
The tax on profit before tax differs from the theoretical amount
that would arise using the basic corporation tax rate of the
Company as follows:
Half year to Half year to
30 June 2016 30 June 2015
GBPm GBPm
Profit before tax 87 233
Tax calculated at a tax rate of 20% (H115: 20.25%) 17 47
Bank surcharge on profits 7 -
Non-deductible UK Bank Levy 4 3
Other non-equalised items (1) (3)
Adjustment to prior period provisions - 1
Tax charge 27 48
6. Dividends
No dividends on the Company's ordinary shares were declared
during H116 and H115.
7. Trading assets
30 June 2016 31 December
GBPm 2015
GBPm
------------
Loans and advances to banks - securities purchased under resale agreements 1,784 992
- other(1) 5,690 4,441
Loans and advances to customers - securities purchased under resale agreements 7,147 4,352
- other(1) 2,405 1,608
Debt securities 6,523 5,462
Equity securities 5,400 6,794
28,949 23,649
------------
(1) Total 'other' comprises short-term loans of GBP1,088m (2015:
GBP665m) and cash collateral of GBP7,007m (2015: GBP5,384m).
Included in the above balances are amounts due from Banco
Santander SA of GBP413m (2015: GBP126m), fellow subsidiaries of
Banco Santander SA of GBP68m (2015: GBP91m), Santander UK plc of
GBPnil (2015: GBPnil) and subsidiaries of Santander UK group
outside the ANTS group of GBPnil (2015: GBPnil) respectively.
8. Derivative financial instruments
30 June 2016 31 December 2015
Fair value Fair value
Notional amount GBPm Assets Liabilities Notional amount Assets Liabilities
Derivatives held for trading GBPm GBPm GBPm GBPm GBPm
Exchange rate contracts 222,648 9,803 12,972 188,606 6,770 7,111
Interest rate contracts 1,092,378 21,838 20,415 929,449 15,735 15,044
Equity and credit contracts 37,938 1,186 1,539 38,484 1,706 1,668
1,352,964 32,827 34,926 1,156,539 24,211 23,823
Derivatives held for hedging
Derivatives designated as fair
value hedges:
Exchange rate contracts - - - 2,402 115 11
Interest rate contracts 4,839 91 1,107 8,207 109 736
4,839 91 1,107 10,609 224 747
Derivatives designated as cash
flow hedges:
Exchange rate contracts - - - 12,427 361 570
Interest rate contracts - - - 4,402 79 38
- - - 16,829 440 608
4,839 91 1,107 27,438 664 1,355
Total derivatives 1,357,803 32,918 36,033 1,183,977 24,875 25,178
Included in the above balances are amounts due from Banco
Santander SA of GBP1,701m (2015: GBP1,288m), fellow subsidiaries of
Banco Santander SA of GBP762m (2015: GBP458m), Santander UK plc of
GBP3,619m (2015: GBP2,877m), and subsidiaries of Santander UK group
outside the ANTS group of GBP484m (2015: GBP1,645m) respectively
and amounts due to Banco Santander SA of GBP2,137m (2015:
GBP1,487m), fellow subsidiaries of Banco Santander SA of GBP574m
(2015: GBP427m), Santander UK plc of GBP6,202m (2015: GBP3,093m)
and subsidiaries of the Santander UK group outside the ANTS group
of GBP2,356m (2015: GBP792m). The net exposures after collateral to
the ultimate parent undertaking and fellow subsidiaries at 30 June
2016 amounted to GBPnil (2015: GBPnil) and GBPnil (2015: GBPnil)
respectively, with collateral held exceeding the net position.
Derivative assets and liabilities are reported on a gross basis
on the balance sheet unless there is a legally enforceable right to
set off the recognised amounts and there is an intention to settle
on a net basis, or to realise the assets and settle the liabilities
simultaneously.
9. Loans and advances to banks
30 June 2016 31 December 2015
GBPm GBPm
Placements with other banks - securities purchased under resale agreements 1,332 1,247
- other 1,388 949
Amounts due from Banco Santander - other 2 8
Amounts due from Santander UK group undertakings - securities purchased under resale
agreements 2,211 2,321
- other 7,035 17,019
11,968 21,544
The decrease was mainly due to the netting and settlement of
intercompany balances following the transfer of the issuer on a
number of funding programmes from the Company to Santander UK plc,
as described in Notes 13 and 14, as Santander UK began
repositioning the structure of its funding vehicles in preparation
for Banking Reform.
10. Loans and advances to customers
30 June 2016 31 December 2015
GBPm GBPm
Amounts due from Santander UK group undertakings 102 17,432
Amounts due from Banco Santander SA group subsidiaries and joint ventures 498 508
Other loans and advances 15,994 14,578
Loans and advances to customers 16,594 32,518
Less: impairment loss allowances (88) (63)
Loans and advances to customers, net of impairment loss allowances 16,506 32,455
Movement in impairment loss allowances:
30 June 2016 31 December 2015
GBPm GBPm
At 1 January 63 76
Charge/(release) to the income statement 25 (5)
Write offs and other items - (8)
At 30 June/ 31 December 88 63
The decrease was mainly driven by lower intercompany balances
with Abbey Covered Bonds LLP following the transfer of the issuer
on the EUR35bn Global Covered Bond Programme from the Company to
Santander UK plc, as described in Notes 13 and 14.
11. Deposits by banks
30 June 2016 31 December 2015
GBPm GBPm
Amounts due to Santander UK subsidiaries 30,771 17,856
Securities sold under repurchase agreements 1,946 2,321
Amounts due to Banco Santander SA
- securities sold under repurchase
agreements 377 309
- other - 11
Deposits held as collateral 3 2
Other deposits 640 834
33,737 21,333
With effect on and from 1 June 2016, Santander UK plc was
substituted in place of Abbey National Treasury Services plc as
principal obligor under the euro 35bn Global Covered Bond Programme
and the US$30bn Euro Medium Term Note Programme, as described in
Notes 13 and 14. The consideration for this substitution was an
increase in intercompany funding from Santander UK plc.
12. Trading liabilities
30 June 2016 31 December 2015
GBPm GBPm
Deposits by banks - securities sold under repurchase agreements 345 1,148
- other(1) 3,586 1,629
Deposits by customers - securities sold under repurchase agreements 6,689 6,510
- other(1) 1,247 641
Short positions in securities and unsettled trades 2,807 2,794
14,674 12,722
(1) Comprises cash collateral of GBP3,847m (2015: GBP1,559m) and
short-term deposits of GBP986m (2015: GBP711m).
Included in the above balances are amounts due to Banco
Santander SA of GBPnil (2015: GBPnil), fellow subsidiaries of Banco
Santander SA of GBP243m (2015: GBP126m), Santander UK plc of GBPnil
(2015: GBPnil) and subsidiaries of Santander UK group outside the
ANTS group of GBPnil (2015: GBPnil) respectively.
13. Financial liabilities designated at fair value
30 June 2016 31 December 2015
GBPm GBPm
Debt securities in issue 1,596 2,006
Warrants programme 8 10
1,604 2,016
Details of the ANTS group's debt and warrants programmes are set
out in Note 27 to the Consolidated Financial Statements in the 2015
Annual Report. With effect on and from 1 June 2016 Santander UK plc
was substituted in place of Abbey National Treasury Services plc as
principal obligor under the US$30bn Euro Medium Term Note
Programme. This substitution was effected pursuant to a deed of
substitution dated 26 April 2016. On and from 1 June 2016, notes
issued under the US$30bn Euro Medium Term Note Programme are the
sole liability of Santander UK plc and are not guaranteed by any
other entity in the Santander UK group. Santander UK plc also
became the issuer for the following standalone securities: the Euro
60m Guaranteed Step-Down Fixed/ Inverse Floating Rate Notes due
2019, and the GBP166,995,000 Zero Coupon Amortising Guaranteed
Notes due 2038. These steps were taken as Santander UK began
repositioning the structure of its funding vehicles in preparation
for Banking Reform.
Included in the above balances are amounts due to Banco
Santander SA of GBP28m (2015: GBP25m) to fellow subsidiaries of
Banco Santander SA of GBPnil (2015: GBPnil), Santander UK plc
GBPnil (2015: GBPnil) and subsidiaries of the Santander UK group
outside the ANTS group of GBPnil (2015: GBPnil).
Gains and losses arising from changes in the credit spread of
liabilities issued by the ANTS group reverse over the contractual
life of the debt, provided that the debt is not repaid at a premium
or a discount. The net loss during the period attributable to
changes in the ANTS group's own credit risk on the above debt
securities in issue was GBP2m (H115: net gain of GBP20m). The
cumulative net gain attributable to changes in the ANTS group's own
credit risk on the above debt securities in issue at 30 June 2016
was GBP14m (2015: cumulative net gain of GBP16m).
At 30 June 2016, the amount that would be required to be
contractually paid at maturity of the debt securities in issue
above was GBP91m (2015: GBP162m) higher than the carrying
value.
14. Debt securities in issue
30 June 2016 31 December 2015
GBPm GBPm
Bonds and medium term notes 5,195 40,811
Details of the ANTS group's debt and certificates of deposits
programmes are set out in Note 28 to the Consolidated Financial
Statements in the 2015 Annual Report.
With effect on and from 1 June 2016, Santander UK plc was
substituted in place of Abbey National Treasury Services plc as
principal obligor under the euro 35bn Global Covered Bond
Programme, US SEC registered debt shelf and the US$30bn Euro Medium
Term Note Programme. This substitution was effected pursuant to a
deed of substitution, novation and amendment dated 26 April 2016.
On and from 1 June 2016, the Covered Bonds continue to be
guaranteed, in respect of payments of interest and principal, by
Abbey Covered Bonds LLP, but are not guaranteed by any other entity
in the Santander UK group. On and from 1 June 2016, notes issued
under the US$30bn Euro Medium Term Note Programme are the sole
liability of Santander UK plc and are not guaranteed by any other
entity in the Santander UK group. These steps were taken as
Santander UK began repositioning the structure of its funding
vehicles in preparation for Banking Reform.
Included in the above balances are amounts due to Banco
Santander SA of GBP9m (2015: GBP57m), fellow subsidiaries of Banco
Santander SA of GBPnil (2015: GBP60m), Santander UK plc of GBPnil
(2015: GBP1,720m) and subsidiaries of Santander UK outside the ANTS
group of GBPnil (2015: GBPnil) respectively.
15. retirement benefit PLANs
The ANTS group participates in various Santander UK defined
benefit and defined contribution pension schemes in operation.
Details of each scheme required by IAS 19 are disclosed in Note 34
in the 2015 Annual Report of Santander UK plc. There is no
contractual agreement of stated policy for charging the net defined
benefit cost of the Santander UK defined benefit schemes.
Therefore, in accordance with IAS 19, the defined benefit asset or
liability has been recognised in the financial statements of the
sponsoring employer of the scheme and the ANTS group accounts for
its contributions as a defined contribution scheme. The
contribution to be paid by the ANTS group is calculated as the
contributions made by Santander UK plc to the schemes in respect of
the ANTS group's employees. For H116, an expense of GBP0.7m (H115:
GBP0.8m) was recognised for these contributions and is included in
staff costs within administration expenses in the income
statement.
16. Contingent liabilities and commitments
30 June 2016 31 December 2015
GBPm GBPm
Guarantees given on behalf of the Company's immediate UK parent, fellow subsidiaries
and subsidiaries 212,580 170,261
Guarantees given to third parties 305 313
Formal standby facilities, credit lines and other commitments 14,327 14,010
227,212 184,584
Guarantees given on behalf of the Company's immediate UK parent,
fellow subsidiaries and subsidiaries increased due to the transfer
of the issuer on a number of funding programmes from the Company to
Santander UK plc, as Santander UK began repositioning the structure
of its funding vehicles in preparation for Banking Reform.
There have been no significant changes to the contingent
liabilities as set out in Note 32 to the Consolidated Financial
Statements in the 2015 Annual Report.
17. cash flow statement
Analysis of cash and cash equivalents in the balance sheet
30 June 2016 31 December 2015
GBPm GBPm
Cash and balances at central banks 3,499 2,279
Less: regulatory minimum cash balances (26) (40)
3,473 2,239
Net trading other cash equivalents 5,440 2,068
Net non-trading other cash equivalents 7,346 5,885
Cash and cash equivalents 16,259 10,192
18. Financial instruments
a) Measurement basis of financial assets and liabilities
The ANTS group categorises assets and liabilities measured at
fair value within the fair value hierarchy based on the inputs to
the valuation techniques as described in Note 38(a) in the
Consolidated Financial Statements of the 2015 Annual Report.
b) Fair values of financial instruments carried at amortised
cost
30 June 2016 31 December 2015
Fair value Fair value
Level 2 Level 3 Total Carrying Level 2 Level 3 Total Carrying
value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Loans and advances to banks 4,357 7,464 11,821 11,968 3,979 17,454 21,433 21,544
Loans and advances
to customers Corporate loans 6,507 9,448 15,955 15,906 6,426 7,886 14,312 14,515
Other advances - 601 601 600 - 17,940 17,940 17,940
6,507 10,049 16,556 16,506 6,426 25,826 32,252 32,455
Loans and receivables securities 162 - 162 165 13 - 13 15
Liabilities
Securities sold
under
agreements to
Deposits by banks repurchase 2,331 - 2,331 2,323 2,665 - 2,665 2,630
Other deposits 249 31,174 31,423 31,414 505 18,207 18,712 18,703
2,580 31,174 33,754 33,737 3,170 18,207 21,377 21,333
Deposits by Current and demand
customers accounts - 815 815 815 - 558 558 558
Wholesale funds and deposits - 1,921 1,921 1,921 - 2,280 2,280 2,280
- 2,736 2,736 2,736 - 2,838 2,838 2,838
Debt securities in Bonds and medium
issue term notes 5,195 - 5,195 5,195 42,464 - 42,464 40,811
c) Fair values of financial instruments measured at fair value
on a recurring basis
The following tables summarise the fair values of the financial
assets and liabilities accounted for at fair value at 30 June 2016
and 31 December 2015, analysed by their levels in the fair value
hierarchy - Level 1, Level 2 and Level 3.
Transfers between levels of the fair value hierarchy
During H116, there were no transfers of financial instruments
between Levels in the fair value hierarchy. Transfers relating to
the FY15 are disclosed in Note 38(d) in the Consolidated Financial
Statements of the 2015 Annual Report.
Fair value
Balance sheet category 30 June 2016 31 December 2015
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Valuation
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm technique
Assets
Loans and
advances to
Trading assets banks - 7,474 - 7,474 - 5,433 - 5,433 A
Loans and advances to customers 1,010 8,542 - 9,552 580 5,380 - 5,960 A
Debt securities 6,523 - - 6,523 5,462 - - 5,462 -
Equity securities 5,400 - - 5,400 6,794 - - 6,794 -
Exchange rate
Derivative assets contracts - 9,773 30 9,803 - 7,191 55 7,246 A
Interest rate contracts - 21,912 17 21,929 - 15,905 18 15,923 A & C
Equity and credit contracts 88 739 359 1,186 88 1,275 343 1,706 B & D
Financial assets Loans and
designated at fair advances to
value customers - 1,920 71 1,991 - 1,831 59 1,890 A
Debt securities - 247 - 247 - 240 - 240 A
Available-for-sale Debt
securities securities 561 - - 561 1,168 - - 1,168 -
Total assets at fair value 13,582 50,607 477 64,666 14,092 37,255 475 51,822
Liabilities
Deposits by
Trading liabilities banks - 3,931 - 3,931 - 2,777 - 2,777 A
Deposits by customers - 7,936 - 7,936 - 7,151 - 7,151 A
Short positions 2,807 - - 2,807 2,794 - - 2,794 -
Derivative Exchange rate
liabilities contracts - 12,945 27 12,972 - 7,637 55 7,692 A
Interest rate contracts - 21,512 10 21,522 1 15,807 10 15,818 A & C
Equity and credit contracts - 1,491 48 1,539 2 1,620 46 1,668 B & D
Financial
liabilities Debt
designated at fair securities in
value issue - 1,597 7 1,604 - 2,011 5 2,016 A
Total liabilities at fair value 2,807 49,412 92 52,311 2,797 37,003 116 39,916
d) Valuation techniques
The main valuation techniques employed in internal models to
measure the fair value of the financial instruments are disclosed
in Note 38(e) in the Consolidated Financial Statements of the 2015
Annual Report. The ANTS group did not make any material changes to
the valuation techniques and internal models it used during H116
and FY15.
e) Fair value adjustments
The internal models incorporate assumptions that the ANTS group
believes would be made by a market participant to establish fair
value. Fair value adjustments are adopted when the ANTS group
considers that there are additional factors that would be
considered by a market participant that are not incorporated in the
valuation model.
The ANTS group classifies fair value adjustments as either
'risk-related' or 'model-related'. The fair value adjustments form
part of the portfolio fair value and are included in the balance
sheet values of the product types to which they have been applied.
The majority of these adjustments relate to Global Corporate
Banking. The magnitude and types of fair value adjustment adopted
by Global Corporate Banking are listed in the following table:
30 June 2016 31 December 2015
GBPm GBPm
Risk-related:
- Bid-offer and trade specific adjustments 46 46
- Uncertainty 50 42
- Credit risk adjustment 2 20
98 108
Model-related 4 6
Day One profits 3 1
105 115
Risk-related adjustments
Risk-related adjustments are driven, in part, by the magnitude
of the ANTS group's market or credit risk exposure, and by external
market factors, such as the size of market spreads. For further
details, see the 'Risk-related adjustments' in Note 38(f) to the
Consolidated Financial Statements in the 2015 Annual Report.
f) Internal models based on information other than market data
(Level 3)
Valuation techniques
There have been no significant changes to the valuation
techniques as set out in Note 38(i) to the Consolidated Financial
Statements in the 2015 Annual Report.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
The following table provides a reconciliation of the movement
between opening and closing balances of Level 3 financial
instruments, measured at fair value using a valuation technique
with significant unobservable inputs:
Assets Liabilities
Fair value through
Derivatives Fair value through P&L Total Derivatives P&L Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2016 416 59 475 (111) (5) (116)
Total gains/(losses)
recognised in
profit/(loss):
- Fair value movements 7 12 19 15 (1) 14
- Foreign exchange and
other movements 1 - 1 - (1) (1)
Settlements (18) - (18) 11 - 11
At 30 June 2016 406 71 477 (85) (7) (92)
Gains/(losses)
recognised in
profit/(loss) relating
to assets and
liabilities held at
the
end of the period 8 12 20 15 (2) 13
At 1 January 2015 368 61 429 (56) (13) (69)
Total gains/(losses)
recognised in
profit/(loss):
- Fair value movements 1 2 3 (8) (4) (12)
Transfers in 63 - 63 (61) - (61)
Settlements (16) (4) (20) 14 12 26
At 31 December 2015 416 59 475 (111) (5) (116)
Gains/(losses)
recognised in
profit/(loss) relating
to assets and
liabilities held at
the
end of the period 1 2 3 (8) (4) (12)
Total gains or losses are included in 'Net trading and other
income' (see Note 3).
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives (Level 3)
The fair value of financial instruments are, in certain
circumstances, measured using valuation techniques that incorporate
assumptions that are not evidenced by prices from observable
current market transactions in the same instrument and are not
based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the
inputs to the valuation models to reasonably possible alternative
assumptions would change the fair values significantly. The
following table shows the sensitivity of these fair values to
reasonably possible alternative assumptions.
Favourable and unfavourable changes are determined on the basis
of changes in the value of the instrument as a result of varying
the levels of the unobservable input as described in the table
below. The potential effects do not take into effect any hedged
positions.
30 June 2016 Significant unobservable input Sensitivity
Fair Assumption value Shift
value
GBPm
Range(1) Weighted Favourable Unfavourable
average changes changes
Balance sheet note line item and product Assumption description GBPm GBPm
3. Derivative assets - Interest rate contracts:
- Bermudan swaptions 9 Mean reversion 0%-4% 1% 1% 1 (1)
5. Derivative assets - Equity and credit contracts: 93 HPI Forward growth rate 0%-5% 2.75% 1% 13 (13)
- Reversionary property derivatives HPI Spot rate n/a 729(2) 10% 10 (10)
6. Derivative assets - Credit contracts:
- Credit default swaps 4 Probability of default 0%-2% 0.38% 20% 1 (1)
7. Derivative assets - Equity contracts: 262 HPI Forward growth rate 0%-5% n/a 2.51% 1% 10% 1 (1)
- Options and forwards HPI Spot rate 699(2) 3 (2)
8. FVTPL - Loans and advances to customers:
- Roll-up mortgage portfolio 71 HPI Forward growth rate 0%-5% 2.83% 1% 3 (3)
11. Derivative liabilities - Interest rate
contracts:
- Bermudan swaptions (3) Mean reversion 0%-4% 1% 1% 1 (1)
13. Derivative liabilities - Equity contracts: (48) HPI Forward growth rate 0%-5% 2.51% 1% 10% 5 (5)
- Options and forwards HPI Spot rate n/a 699(2) 10 (10)
31 December 2015
3. Derivative assets - Interest rate contracts:
- Bermudan swaptions 10 Mean reversion 0%-4% 2% 1% 1 (1)
5. Derivative assets - Equity and credit contracts: 81 HPI Forward growth rate 0%-5% 2.65% 1% 11 (11)
- Reversionary property derivatives HPI Spot rate n/a 688(2) 10% 8 (8)
6. Derivative assets - Credit contracts:
- Credit default swaps 4 Probability of default 0%-2% 0.38% 20% 1 (1)
7. Derivative assets - Equity contracts: 258 HPI Forward growth rate 0%-5% 2.09% 1% 1 (1)
- Options and forwards HPI Spot rate n/a 659(2) 10% 2 (1)
8. FVTPL - Loans and advances to customers:
- Roll-up mortgage portfolio 59 HPI Forward growth rate 0%-5% 2.79% 1% 2 (2)
11. Derivative liabilities - Interest rate contracts:
- Bermudan swaptions (4) Mean reversion 0%-4% 2% 1% 1 (1)
13. Derivative liabilities - Equity contracts: (46) HPI Forward growth rate 0%-5% 2.09% 1% 5 (5)
- Options and forwards HPI Spot rate n/a 659(2) 10% 13 (13)
(1) The range of actual assumption values used to calculate the
weighted average disclosure.
(2) Represents the HPI spot rate index level at 30 June 2016 and
31 December 2015.
No sensitivities are presented for Derivative assets -
securitisation cross currency swaps (instrument 2), Derivative
assets - securitisation swaps (instrument 4) and the FVTPL - debt
securities in issue (instrument 14), and related exchange rate and
interest rate derivatives (instruments 1, 10 and 12) as the terms
of these instruments are fully matched. As a result, any changes in
the valuation of the debt securities in issue would be exactly
offset by an equal and opposite change in the valuation of the
exchange rate derivatives.
19. Related party disclosures
The financial position and performance of the ANTS group have
not been materially affected in H116 by any related party
transactions, or changes to related party transactions, except as
disclosed in the other Notes to these Condensed Consolidated
Interim Financial Statements or otherwise described below.
Further information on balances due from/(to) other Banco
Santander group companies is set out in the sections 'Balances with
other Santander UK group companies' and 'Balances with other Banco
Santander group companies outside the Santander UK group' in the
'Country risk exposure' section in the Risk review. Further
information on related party transactions during the period and
balances outstanding at the period-end is described in the other
Notes.
These transactions were made in the ordinary course of business
and substantially on the same terms as for comparable transactions
with third party counterparties and within limits acceptable to the
PRA. Such transactions do not involve more than the normal risk of
collectability or present any unfavourable features.
20. Events after the balance sheet date
There have been no significant events between 30 June 2016 and
the date of approval of these financial statements which would
require a change to or additional disclosure in the financial
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BXGDIGDBBGLR
(END) Dow Jones Newswires
August 17, 2016 09:26 ET (13:26 GMT)
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