TIDMCVBP
RNS Number : 1660U
Coventry Building Society
29 July 2022
News release
29 July 2022
Robust performance for Coventry Building Society allows it to
continue long-term support for members, colleagues, brokers and
communities
Commenting on these results, Steve Hughes, Chief Executive
Coventry Building Society, said:
"This is a robust performance in a challenging environment. We
continue to balance the needs of savers and borrowers by offering
long term value, strengthening our capital base and investing in
the Society's future. This investment is delivering improved
resilience, better member and broker services and ensuring that we
remain relevant for the future as we digitise the business whilst
keeping our human touch. We're doing more to support colleagues and
those who need it most in the communities where we live and work.
It's during tough times that organisations like ours remain true to
their purpose and we're able to do this because of the strength of
our business model that focuses on the long-term."
A robust financial performance
-- Profit before tax of GBP158m (H1 2021: GBP124m). Increase in
profits underpinned by the rising interest rate environment which
provides a platform for growth and investment ensuring our capital
position remains strong and resilient in these uncertain times.
-- Net Interest Margin of 1.11% (H1 2021: 0.88%). The
improvement in margin has helped the Society take a balanced view,
supporting savers and protecting mortgage customers in a rising
interest rate environment.
-- Common Equity Tier 1 (CET 1) ratio remains well above
statutory requirements at 29.9% despite changes to regulatory risk
weighted asset requirements (FY 2021: 36.2(1) %). The Society's
Leverage Ratio increased to 5.0% (FY 2021: 4.8%), with the
Liquidity Coverage Ratio increasing to 206% (FY 2021: 187%).
A balanced trading performance
-- Gross mortgage lending of GBP3.8bn enabled overall balances
to be maintained. The Society has taken a deliberately cautious
approach to lending to ensure it remains safe and secure for
members in an uncertain economic environment and very competitive
market.
-- Savings balances grew by GBP0.4bn to GBP40.3bn supporting
savings members with an average savings rate of 0.85(2) % (H1 2021:
0.86(2) %), that is 0.54(2) % (H1 2021: 0.56(2) ) higher than the
market average, whilst launching a new range of loyalty savings
bonds benefitting tens of thousands of loyal members.
Delivering consistently excellent service while investing to
meet the changing needs of members and stakeholders
-- Outstanding customer service increasing the Experience Net
Promoter Score(3) from +73 (H1 2021) to +77 (H1 2022).
-- Invested GBP47m in H1 2022 in technology infrastructure,
digital transformation and the branch network, whilst maintaining a
cost to mean asset ratio(4) of 0.50% amongst the lowest of any UK
building society. The cost/income ratio(5) improved to 46%
reflecting the increase in margin performance.
More community support, a member-approved climate plan and a
Great Place to Work
-- GBP0.7m direct funding to address issues of homelessness,
social isolation and equipping young people with financial and
career skills. Colleagues volunteered more than 3,000 hours to
support local community initiatives, including working with primary
and secondary school students on numeracy, literacy and skills
programmes.
-- Responding to climate change Members approved the Society's
Climate Action Plan at the 2022 AGM, including the ambition to
achieve net zero by 2040.
-- Ranked Top Twenty overall in first Great Place to Work league
table of super-large organisations , as well as one of the best
places to work for Women in large UK companies.
Chief Executive review
We have taken a balanced approach to managing the Society, which
has increased profitability and investment in the near term, and
maintained our strong capital position.
The economic conditions have led The Bank of England to increase
Bank Rate four times in the first half of 2022 from 0.25% to 1.25%.
We are expecting further increases during 2022 as the rate of
inflation continues to present a significant challenge to the
economy.
We have taken a deliberately cautious approach to lending that
reflects both the uncertain market conditions, and competitive
margin pressures. Redemptions are also running higher than in
previous years with more borrowers choosing to pay early redemption
charges in order to lock into lower mortgage rates ahead of
anticipated increases in the Bank of England Bank Rate.
Collectively this has meant mortgage balances have been maintained
at GBP46.6 billion.
As we look ahead to the next six months, it is likely that
demand for mortgage borrowing will continue to focus more on
re-mortgages as home-owners seek certainty in what has become a
very uncertain world. Ensuring that we remain a safe and secure
place to save and borrow remains our priority, as is our focus on
exceptional service and investing in the Society's future.
Our profit before tax of GBP158 million for the six months to 30
June 2022 compares with GBP124 million reported in the same period
of 2021. This has been supported by the increases in Bank of
England Bank Rate which have improved our margin and income
performance. This has ensured our capital position remains strong
despite changes to the regulatory environment and provides
resilience in uncertain times.
A higher cost of living may limit people's ability to save and
we will always work hard to provide the best value savings we can
afford whilst ensuring we maintain our financial resilience.
We have supported savings members as interest rates have risen.
Our average savings rates(6) increased by 0.35% to 1.12% in the
first half of 2022, maintaining our very strong competitive
position. This kept our average savings rate 0.54% higher than the
market average meaning we paid an additional GBP99 million(7) of
interest to our members than if we'd simply matched the average
rates paid in the market (30 June 2021: 0.56%, GBP100 million)(7)
.
This helped grow our savings balances by GBP0.4 billion (30 June
2021: GBP0.9 billion), with overall balances exceeding GBP40
billion for the first time.
We also matched the average increase on our variable rate
savings of 0.60% with the same average increase on our flexible
variable mortgage rates. This together with limiting increases to
our Standard Variable Rate linked mortgages to 0.40% shows our
balanced and member-focussed approach to a rising interest rate
environment.
We were able to offer higher rate savings bonds, including new
loyalty bonds too. These products have been popular in the first
six months of this year with members welcoming these additional
options demonstrated by 70,000 members taking advantage of these
great products at the time of writing.
While it is a challenging time for both savers and borrowers we
have taken a balanced view for the whole of the Society. This means
paying the best savings rates we can afford to our members, whilst
maintaining our focus on financial resilience and protecting our
mortgage customers too.
Our members and intermediary partners tell us how much they
value the exceptional service my colleagues provide, which
continues to differentiate us from other organisations.
We use a Net Promoter Score(3) to measure satisfaction. Our
overall score currently stands at an outstanding +77, an increase
of +4 from 30 June 2021. It is unsurprising, given this
performance, that we have been re-awarded Gold Ribbons for customer
experience for both savings and mortgages by Fairer Finance.
A simple example of this is the average time we take to answer
the phone which stands at 97 seconds(8) on average so far this year
(30 June 2021: 51 seconds). It's been a busy time, with customers
contacting us more often and with more complex queries as interest
rates have risen. I am really proud of the way our colleagues
continue to offer such a brilliant and quick response to our
members needs.
Our ability to deliver exceptional service as we grow will
depend on our continued delivery of digital enhancements to both
the savings and mortgage sides of the business.
We are maintaining this service focus with new capabilities
coming on stream throughout the year, increasing the ability of
members and brokers to self-serve whilst improving efficiency in
the process. Notable enhancements during the first half of the year
include digitising product switch capability for residential
mortgages plus elements of our savings maturity process, as well as
launching a webchat service for brokers and members. These are all
examples of investing in making our services easier to access and
scalable in support of our long term growth ambitions.
We talk about digital with a human touch, and our commitment to
the personal service delivered through branches and contact centres
is undiminished. During the last six months we have almost
completed our branch investment programme, which will see all
branches refurbished in a modern, warm and welcoming style. They
are at the heart of their local communities, and the feedback we
have received from members and colleagues alike has been fantastic.
Fittingly, the final branch to be completed will be a new site in
the heart of Coventry city centre, which is on track to open this
autumn.
The 'customer-facing' investment is matched by ongoing delivery
behind the scenes of improvements to operational resilience,
information security and the transformation of our financial
planning, controls and reporting. Again, these are significant
investments in the long-term security and efficiency of the Society
and we are increasingly seeing the benefit as we deliver these
complex but critical programmes.
It is important that we invest wisely and during the six months
to 30 June 2022 we kept our cost to mean assets ratio of 0.50%(4)
which remains one of the lowest in the building society sector.
This has been achieved despite the pressures of very high inflation
and the need to support, attract and retain colleagues in the
context of a tight employment market and cost of living
challenges.
We do not take our colleagues' commitment to the Society lightly
and continue to work really hard to reward their contribution as
well as create a fantastic environment for them to develop and
succeed.
It was great to be publicly recognised as one of the best places
in the UK to work following our first entry to the Great Place to
Work survey.
To achieve a top 20 position in our first entry was fantastic,
and we are really keen to take this further by listening to our
colleagues and hearing examples of best practice. One of our
priorities is to adapt to hybrid working - a way of doing things
that brings many benefits of increased flexibility but presents
challenges too. Ensuring we're investing in our people and giving
opportunities to engage, collaborate and connect with each other is
key to maintaining a successful culture, and attracting and
retaining talent at the Society.
Nowhere is this more important than building an inclusive and
diverse workforce. I've talked in previous reports about our
ambition to reflect the diversity of our city and the communities
we serve. Following last year's submission, Great Place to Work
also recently recognised us as one of the best places to work for
women, ranking us 14th amongst the top 39 super large companies in
this regard. One of our targets is for 50% of management roles to
be held by women by 2025 and we are making real progress towards
this, with women in 45% of management positions. We have a similar
ambition for 25% of our manager and above roles to be held by
colleagues with a Black, Asian or Minority Ethnic background by
2025. Progress against this metric is slower and so this year we've
launched a talent programme specifically for colleagues from Black,
Asian or Minority Ethnic backgrounds and are reviewing our hiring
practices too. We are determined to make a difference.
We continue to make good progress in pursuit of our climate
change objectives, being the first large building society to
position sustainability within the Society's rules, an approach
agreed by the FCA, as well as presenting our Climate Action Plan to
a membership vote at our 2022 AGM.
The support was overwhelming, and we continue to press ahead. In
the last six months we have signed The Climate Pledge(9) , having
demonstrated our transparency of reporting, our commitment to net
zero plans, and our progress in already achieving net zero for
Scope 1 and carbon neutrality for Scope 2 emissions. We incentivise
and support work that improves the energy efficiency of existing
housing stock and plan to do more in this area. We have joined the
Science Based Targets Initiative and applied for BCorp(10) status
and will update on both in future reports.
Investing in the governance of our sustainability strategy,
whether through engaging members or applying independent scrutiny
to our activities shows we are doing the right things in the right
way. It extends to our social impact too, where we are supporting a
trial with the leading global framework for measuring social impact
(B4SI(11) ) to evaluate the difference organisations are making
through their community activities.
At a time when cost of living increases are being felt by
members and non-members alike, we understand that many people's
priorities are simply to make ends meet. We work really hard to
help members who find themselves in financial difficulties. And we
have extended the support we offer in partnership with national and
local charities to provide a safety net to many families struggling
in the current environment.
This builds upon our community strategy by which we are
targeting issues of financial education and aspiration, access to
housing and isolation and vulnerability.
I am really pleased with the progress we are making in building
long term partnerships with public, third sector and business
organisations. A particular highlight for me was the Seeing is
Believing event, co-organised with the charity, Business in the
Community, which demonstrated the fantastic work being done by
charities in our most deprived areas. It really brought home to me
the challenges our communities face but also the immense
contribution businesses can make by applying their skills,
knowledge and resources to the problems being faced by so many
today. And I really appreciate that our branches play a vital role
in sustaining and supporting local communities across the country.
We will continue to report our social impact through our annual
sustainability report which can be found on our website.
This review also comes as Coventry's time as the UK City of
Culture officially comes to an end. Although altered by the
pandemic I am proud to have supported something that has showcased
the best of the city whilst helping to transform many aspects of
it. The legacy of this investment will be felt for years to come
and help change many people's perception of this young, diverse and
energetic city.
We are looking to change perceptions too. Coventry Building
Society will grow and succeed by being better known and this is why
we continue to invest in increasing brand awareness. The
sponsorship of the Coventry Building Society Arena has put us on
the map, with great visibility from the sporting, entertainment and
business events it holds. We are starting to see the impact in
terms of increased awareness of the Society, and it is proving the
focal point we hoped for in our community and colleague
engagement.
Taking the long-term view lies at the heart of our
performance.
I have said many times that the strength of the mutual business
model is our ability to take the long-term view, working in the
interests of members, colleagues, investors, business partners and
local communities. Profit and capital provide resilience and a
platform for investment. Our members see the benefit of the model
through the value we offer, the service we provide and the impact
we can have on them and their communities. We also invest for the
future to ensure a thriving and relevant business for current and
future members. All of this underpinned by investment in our
colleagues , their careers and development.
In April, we said goodbye to Gary Hoffman, our Chair since 2018
and a fantastic advocate of the Society and what we do. I want to
take this opportunity to thank him for his support to me personally
and all that he has done for the Society during a period of great
change.
At the same time, I would like to welcome David Thorburn our new
Chair. David brings great experience and credibility to the role,
but just as importantly shares the Values and ambition of a Society
that continues to strive to improve. I am very much looking forward
to working with him over the coming years.
Outlook
It is a challenging time. The economic fallout from the
pandemic, exacerbated by the tragic events in Ukraine, will be the
key influence on the lives of our members, colleagues and
communities in the immediate future. It is likely there will be a
period of retrenchment, if not recession, with implications for the
type and level of activity we'll see in both the savings and
mortgage markets.
At the same time, the rising interest rate environment will be
welcomed by many of our members who rely on savings interest to
bolster their income.
As I mentioned earlier, one of the strengths of the Society's
business model is our ability to manage through tough times. Our
priority is to protect the interests of our members over the long
term, and we remain focused on doing so.
This means we will continue to deliver value and exceptional
service, whilst investing for the future. It requires a sustainable
financial performance and strong capital position, and we continue
to deliver both. The Society is well placed to support our members,
colleagues and communities delivering security and stability in an
uncertain world, whilst proactively engaging with all stakeholders
in line with our brand promise, All Together, Better.
I'd like to finish by thanking my colleagues across the Society
who through their hard work make all this possible, and our members
for the loyalty and trust they give us.
1. From the 1 January 2022 the Society applied a new calculation
methodology in order to comply with new regulatory changes. A
comparative ratio for 31 December 2021 under this new methodology
would have been 26.6%.
2. Based on the Society's average month end savings rate
compared to the CACI market average rate for savings accounts and
excluding current accounts, for the latest available data for the
five months ended 31 May 2022. Comparative numbers have been
updated to reflect a consistent basis with those used at 31
December 2021, previously disclosed number was 0.53% higher than
the average market rate.
3. A measure of customer advocacy that ranges between -100 and
+100 which represents how likely a customer is to recommend our
products and services.
4. Administrative expenses, depreciation and
amortisation/Average total assets.
5. Administrative expenses, depreciation and amortisation/Total
income.
6. Based on the average month end rate across the Society's mix
of products for savings accounts, excluding current accounts and
offset savings for the first six months of the year.
7. Based on the Society's average month end savings rate
compared to the CACI market average rate for savings accounts and
excluding current accounts, for the latest available data for the
five months ended 31 May 2022. Comparative numbers have been
updated to reflect a consistent basis with those used at 31
December 2021, previously disclosed numbers 0.53% and GBP100
million respectively.
8. Based on average call waiting times between 1 January 2022
and 30 June 2022.
9. Companies and organisations that sign the Pledge agree to
measure and report greenhouse gas emissions on a regular basis and
implement decarbonisation strategies in line with the Paris
Agreement with an overall goal to achieve net-zero annual carbon
emissions by 2040.
10. B Corp status is the highest sustainability accolade awarded
to organisations by the Science Based Targets Initiative.
11. The B4SI Framework is a robust measurement standard that any
company can apply to understand the difference their contributions
make to their business and society.
Financial Review
Income Statement
Period to Period to Year ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
(Unaudited) (Unaudited)
GBPm GBPm (Audited)
GBPm
------------------------------------ -------------- ------------- ---------------
Interest receivable 547.5 406.9 833.9
------------------------------------ -------------- ------------- ---------------
Interest payable (243.3) (179.2) (357.7)
------------------------------------ -------------- ------------- ---------------
Net interest income 304.2 227.7 476.2
------------------------------------ -------------- ------------- ---------------
Other income 0.4 (0.8) (1.4)
------------------------------------ -------------- ------------- ---------------
(Losses)/gains on derivatives and
hedge accounting (4.9) 4.6 (6.6)
------------------------------------ -------------- ------------- ---------------
Total income 299.7 231.5 468.2
------------------------------------ -------------- ------------- ---------------
Management expenses (138.8) (123.9) (263.5)
------------------------------------ -------------- ------------- ---------------
Impairment (charge)/release (2.3) 17.1 28.7
------------------------------------ -------------- ------------- ---------------
Provisions - - -
------------------------------------ -------------- ------------- ---------------
Charitable donation to Poppy Appeal (0.3) (0.3) (0.6)
------------------------------------ -------------- ------------- ---------------
Profit before tax 158.3 124.4 232.8
------------------------------------ -------------- ------------- ---------------
Net interest income for the period was GBP304 million (30 June
2021: GBP228 million). The increase in net interest income of GBP76
million includes the impact of the charge recognised in the prior
year due to changes made to the estimations within our Effective
Interest Rate (EIR) calculation of GBP27 million explained below.
The increase is due to improved performance in our savings
portfolio as a result a lower cost of variable savings balances
where we have passed on 52% of the 1.15% increase in the Bank of
England Bank Rate, the benefit of lending growth in our book from
prior year, offset by a reduction in our mortgage returns following
the recent competitive pressure in the secured lending market. This
improved performance delivered a Net Interest Margin (NIM) of 1.11%
(30 June 2021: 0.88%).
Net interest income in the prior year included a charge of GBP27
million relating to a change to the future assumptions on mortgage
redemption behaviour as customers spend less time on SVR, a trend
that has continued to be observed into 2022. More information is
included in note 3 to the accounts.
Losses on derivatives and hedge accounting of GBP5 million (30
June 2021: GBP5 million gain). The Society uses derivative
financial instruments to manage interest rate and currency risks
arising from its mortgage and savings activity and from wholesale
funding, including non-sterling issuances.
The loss in the first half of the year represents fair value
movements on savings derivatives which were not yet designated into
hedge relationships.
Management expenses including depreciation and amortisation for
the period were GBP139 million (30 June 2021: GBP124 million). The
increase in costs of GBP15 million was primarily driven by an
increase of GBP8 million in spending related to the Society's
strategic investment programme as well as an increase in day to day
running costs of GBP7 million due to additional employee costs,
inflationary impacts and investment in our brand including the
Coventry Building Society Arena.
The total spend on investment programmes including capital
expenditure of GBP47 million (30 June 2021: GBP44 million) has been
focused on activity to modernise our services which has included
the ongoing redesign of the branch network, the implementation of a
new mortgage platform and investment to improve our digital
capability. In addition, we continue to focus on improving the
resilience of services for members, whilst maintaining our strong
focus on cost efficiency.
The cost to mean assets ratio of 0.50%(1) is broadly in line
with the first six months of 2021 and is expected to remain among
the lowest in the building society sector(2) . The cost to income
ratio has improved to 46%(3) (30 June 2021: 54%) reflecting the
growth in income relative to our cost base in the period.
Expected credit losses
The performance of our mortgage book has improved with the
overall economic outlook being better in certain key metrics than
anticipated as at 31 December 2021 with the continued growth in
house prices and observed lower unemployment levels. Despite these
measures improving, with rising inflation and a cost of living
crisis the Society has incorporated a 5th economic scenario into
its models to account for a period of heightened inflation and the
subsequent impact to the economy and in turn Expected Credit Losses
(ECLs). As well as incorporating a new scenario we have introduced
a new post model adjustment (PMA) to reflect the potential risk
associated to the increase in cost of living for borrowers, and
potential for increased levels of arrears which have not yet been
identified within the Society's impairment models, despite the
current low levels being observed and strong affordability lending
measures used by the Society. As a result of this the ECL provision
has increased to GBP21 million (31 December 2021: GBP19 million)
reflecting a reduction of GBP2.5 million due to improved
performance and economic scenarios offset by a GBP4.5 million post
model adjustment for cost of living resulting in a net charge of
GBP2 million being recognised in the Income Statement (30 June
2021: release of GBP17 million).
We have continued to remain cautious in our approach to
estimating ECLs and in determining the appropriate provision.
Significant judgement and estimates continue to be required in the
calculation as a result of uncertainty within markets as the
economy continues to recover from the pandemic hindered by the
wider global economic factors resulting in rising costs of
living.
Of the total expected credit loss provision, GBP11 million (31
December 2021: GBP9 million) relates to PMAs where existing models
do not fully reflect the expected credit loss given the market
environment. These adjustments include the new cost of living PMA
noted above, potential for losses as a result of cladding
remediation where fire safety standards have not yet been met and
the continued roll off of those customers who took Covid-19 payment
holidays as well as smaller adjustments for risks that cannot
easily be modelled. More information on the calculation of the PMAs
is included in note 7 to the accounts.
The remaining GBP10 million of provision relates to the modelled
ECL provision across a range of alternative economic scenarios,
including the newly incorporated 5th Stagflation scenario, which
reflect various possible outcomes as the economy recovers from the
pandemic and the current impact of cost of living on
affordability.
As a result of these changes the ECL provision now equates to
0.05% of the overall mortgage book (31 December 2021: 0.04%).
Under IFRS 9 the Society is required to categorise its mortgages
into one of three 'stages'. At 30 June 2022 92.8% of the Society's
loans and advances to customers were within the Stage 1
'performing' category (31 December 2021: 92.7%), 6.8% were in Stage
2 (31 December 2021: 6.9%) reflecting a significant increase in
credit risk since origination and 0.4% were in default or Stage 3
(31 December 2021: 0.4%). This profile has continued to improve
during 2022 with customers' arrears falling with 0.17% of mortgages
3 months or more in arrears (31 December 2021: 0.18%).
More information on the calculation of ECL is included in note 7
and 10 to the accounts.
The Corporation tax charge represents an effective rate of tax
of 20.9% (30 June 2021: 20.4%). The increase in rate is driven by
the increase in profits during the year including the impact of the
8.0% banking surcharge.
Balance Sheet
30 Jun 2021 31 Dec 2021
30 Jun 2022 (Unaudited) (Audited)
(Unaudited) GBPm GBPm
GBPm
---------------------------------------- -------------------- ------------------- ------------------
Assets
---------------------------------------- -------------------- ------------------- ------------------
Loans and advances to customers 46,642.7 45,869.6 46,620.6
---------------------------------------- -------------------- ------------------- ------------------
Liquidity 8,543.2 7,099.3 7,622.0
---------------------------------------- -------------------- ------------------- ------------------
Other 403.9 454.3 287.1
---------------------------------------- -------------------- ------------------- ------------------
Total assets 55,589.8 53,423.2 54,529.7
---------------------------------------- -------------------- ------------------- ------------------
Liabilities
---------------------------------------- -------------------- ------------------- ------------------
Retail savings 40,291.6 39,079.4 39,890.2
---------------------------------------- -------------------- ------------------- ------------------
Wholesale funding 12,422.3 11,564.9 11,907.3
---------------------------------------- -------------------- ------------------- ------------------
Subordinated liabilities and subscribed
capital 56.9 67.1 56.9
---------------------------------------- -------------------- ------------------- ------------------
Other 186.2 399.8 215.7
---------------------------------------- -------------------- ------------------- ------------------
Total liabilities 52,957.0 51,111.2 52,070.1
---------------------------------------- -------------------- ------------------- ------------------
Equity
---------------------------------------- -------------------- ------------------- ------------------
General reserve 2,121.7 1,927.3 2,012.6
---------------------------------------- -------------------- ------------------- ------------------
Other equity instruments 415.0 415.0 415.0
---------------------------------------- -------------------- ------------------- ------------------
Other 96.1 (30.3) 32.0
---------------------------------------- -------------------- ------------------- ------------------
Total equity 2,632.8 2,312.0 2,459.6
---------------------------------------- -------------------- ------------------- ------------------
Total liabilities and equity 55,589.8 53,423.2 54,529.7
---------------------------------------- -------------------- ------------------- ------------------
Loans and advances to customers: The Society's lending strategy
remains focused on high quality, low loan to value owner-occupier
and buy to let lending within the prime residential market,
distributed mainly through mortgage intermediaries giving the
Society a regionally diverse mortgage portfolio in a cost-effective
way.
The Society manages its growth according to economic conditions,
market pricing and funding conditions; as a result, with mortgage
margin pressure within the market the Society has continued to
moderate its growth as seen in the second half of 2021. This
decision has led to the overall loan book being kept broadly stable
at GBP46.6 billion (31 December 2021: GBP46.6 billion) in the first
6 months of the year. During the period, the Society advanced
GBP3.8 billion of mortgages (30 June 2021: GBP5.4 billion) offset
by higher levels of redemptions as customers look for rate
certainty and continue to lock in to longer term fixed products in
response to Bank Rate rises. As at 30 June 2022 there are
indications of improvements within the market with a stablisation
of margins and the Society expects to see growth in H2.
The balance weighted average indexed loan to value of the
mortgage portfolio has reduced to 48.6% at 30 June 2022 (31
December 2021: 50.9%) predominantly as a result of continued growth
in house prices.
Liquidity: On-balance sheet liquid assets have increased to
GBP8.5 billion (31 December 2021: GBP7.6 billion) and the Liquidity
Coverage Ratio (LCR) at 30 June 2022 was 206% (31 December 2021:
187%), significantly in excess of the regulatory minimum.
Retail savings: The Society continues to be predominantly funded
by retail savings, with balances of GBP40.3 billion at 30 June 2022
(31 December 2021: GBP39.9 billion) and growth of GBP0.4 billion in
the first six months of the year.
Wholesale funding : The Society uses wholesale funding(4) to
provide diversification of funding by source and term, supporting
growth and lowering risk by reducing the overall cost of funding.
This benefits saving members through better savings rates and
mortgage customers by enabling us to offer more competitive long
term rates. Wholesale funding in the period has remained stable at
GBP12.4 billion (31 December 2021: GBP11.9 billion).
The Society previously accessed the Bank of England's Term
Funding Schemes with balances of GBP5.25 billion outstanding at 30
June 2022 (31 December 2021: GBP5.25 billion).
Pension benefit surplus (included in Other assets): The pension
benefit surplus has decreased to GBP27 million (31 December 2021:
GBP29 million) as a result of volatility in financial markets which
has impacted the valuation of the scheme assets largely offset by
reductions in the pension obligation.
General reserves: The growth in General reserves of GBP109
million in the first half of the year (30 June 2021: GBP92 million)
reflects retained profit for the period of GBP125 million (30 June
2021: GBP99 million), loss on remeasurement of the defined benefit
pension scheme of GBP2 million (30 June 2021: gain of GBP7 million)
and GBP14 million distribution to Additional Tier 1 capital holders
(30 June 2021: GBP14 million).
Total equity: Total equity has increased by GBP0.1 billion to
GBP2.6 billion (31 December 2021: GBP2.5 billion).
Capital Ratios
The table below provides a summary of the Society's capital
resources and CRD IV ratios on an end-point basis (i.e. assuming
all CRD IV requirements were in force in full with no transitional
provisions permitted).
End-point End-point End-point
30 Jun 2022 30 Jun 2021 31 Dec 2021
GBPm GBPm GBPm
-------------------------------------- ----------------- -------------- --------------
Capital resources:
-------------------------------------- ----------------- -------------- --------------
Common Equity Tier 1 (CET 1) capital 2,000.5 1,853.6 1,921.8
-------------------------------------- ----------------- -------------- --------------
Total Tier 1 capital 2,415.5 2,268.6 2,336.8
-------------------------------------- ----------------- -------------- --------------
Total Tier 2 capital - - -
-------------------------------------- ----------------- -------------- --------------
Total capital 2,415.5 2,268.6 2,336.8
-------------------------------------- ----------------- -------------- --------------
Risk weighted assets 6,680.8 5,265.7 5,303.6
-------------------------------------- ----------------- -------------- --------------
CRD IV ratios: % %%
-------------------------------------- ----------------- -------------- -------------
Common Equity Tier 1 (CET 1) ratio(5) 29.9 35.2 36.2
-------------------------------------- ----------------- -------------- --------------
UK Leverage ratio 5.0 4.7 4.8
-------------------------------------- ----------------- -------------- --------------
The table above shows the capital position at 30 June 2022. The
ratios include additional risk weighted assets (RWAs) held for
regulatory changes that are currently not reflected in the IRB
models, as previously disclosed within the 2021 Annual Report &
Accounts. The Society has submitted updated models but has yet to
receive approval for changes to its calculation of RWAs and as
further work is still required, it is unlikely to be implemented
prior to the end of 2022. When approval is granted, the final model
output may vary from those calculated, impacting the CET 1 ratio,
effectively bringing forward some of the effect of increasing RWAs
envisaged in Basel IV.
RWAs have increased as a result of the application of a post
model adjustment by 36.4%, and by the growth in the mortgage book
of 0.1%. This has been partially offset by improved credit
conditions, predominantly driven by increases in house prices. As a
result, the CET 1 ratio has decreased, mainly due to the regulatory
changes in the IRB models, to 29.9%. Our CET 1 ratio remains
significantly ahead of the Total Capital Requirement for the
Society, which has been updated in H1 2022 and was of 10.8% of risk
weighted assets as at 30 June 2022.
From 2025, Basel IV RWA floors are being phased in and will
reduce the Group's reported CET 1 ratio further, as they do not
give full credit for the Group's very low risk mortgage book.
Applying the Basel IV RWA floors to the 30 June 2022 figures on a
full transition basis would result in a CET 1 ratio of 18.6%. The
projected reduction in reported CET 1 measures has been included
within the Society's financial plans and does not materially reduce
the capital surplus to regulatory requirements, ensuring we remain
safe and secure.
We are not currently bound by regulatory leverage ratios, which
measure Tier 1 capital against total exposures, including
off-balance sheet items. The UK leverage ratio framework will apply
to the Society if retail deposits exceed GBP50 billion. The
Society's UK leverage ratio increased to 5.0% due to the increase
in retained profits, above the current regulatory minima of
3.25%.
The capital disclosures above are on a Group basis, including
all subsidiary entities. For regulatory purposes the Group also
reports on an Individual Consolidated basis, which only includes
those subsidiaries meeting particular criteria contained within CRD
IV. The Individual Consolidated CET 1 ratio on an end-point basis
at 30 June 2022 is 0.3% higher than the Group ratio due to assets
held by entities that sit outside of the Individual Consolidation,
primarily those held by the Group's securitisation and covered bond
entities.
1. Administrative expenses, depreciation and
amortisation/Average total assets.
2. As at 28 July 2022 based on available market data.
3. Administrative expenses, depreciation and amortisation/Total
income.
4. Deposits from banks, Other deposits, Amounts owed to other
customers and Debt securities in issue.
5. From the 1 January 2022 the Society applied a new calculation
methodology in order to comply with new regulatory changes. A
comparative ratio for 31 December 2021 under this new methodology
would have been 26.6%.
Other Information
A copy of the Interim Financial Report is available here:
http://www.rns-pdf.londonstockexchange.com/rns/1660U_1-2022-7-28.pdf
The Interim Financial Report has also been placed on the website
of Coventry Building Society , at
www.coventrybuildingsociety.co.uk
The directors are responsible for the maintenance and integrity
of the information on the Society's website. Information published
on the internet is accessible in many countries with different
legal requirements. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions .
Forward Looking Statements
Certain statements in this Interim Financial Report are forward
looking. The Society, defined in this Interim Financial Report as
Coventry Building Society and its subsidiary undertakings, believes
that the expectations reflected in these forward looking statements
are reasonable based on the information available at the time of
the approval of this report. However, we can give no assurance that
these expectations will prove to be an accurate reflection of
actual results; because these statements involve risks and
uncertainties, actual results may differ materially from those
expressed or implied by these forward looking statements. We
undertake no obligation to update any forward looking statements
whether as a result of new information, future events or
otherwise.
This information is provided by RNS, the news service of the
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END
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