Annual Report
& Accounts 2023
Annual Report
& Accounts
We are a building society, owned
by our members. We provide
savings to individual savers and
mortgages on homes to borrowers
across the UK. We put our
members first in everything we do,
and we're as committed today to
remaining a mutual organisation,
as when we were founded in 1884.
Strategic Report
Our performance highlights
04
A statement from your Society’s Chair
06
Your Chief Executive's review of the year
08
Our strategy
12
Our business model
14
Our stakeholders
15
Building a sustainable Society
17
Our external environment and top and
emerging risks
21
Chief Financial Officer's review
24
Risk Management Report
30
Information about our capital, liquidity
and funding position and how we manage
key risks relating to our operations
Our approach to climate change
55
This section outlines how the Society is
responding to climate change including
its climate related financial disclosures
Governance
65
Our Board of directors and a review of
our governance, including the Directors'
Report and annual report on
remuneration
Financial Statements
106
Our audited financial statements and
related notes, including the Independent
Auditors' Report
Other information
Annual Business Statement
172
Glossary
174
Coventry Building Society | Annual Report & Accounts 2023 2
Visit us here www.thecoventry.co.uk
The photography in this Annual Report & Accounts features some of our amazing colleagues and members, and our home in the City of Coventry. The
term ‘Society’ is used in this Annual Report & Accounts to refer to the activities of the Society and its subsidiaries, except where the context indicates
otherwise. Coventry Building Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority
(www.fca.org.uk) and the Prudential Regulation Authority (firm reference number 150892). Principal Office: Coventry House, Harry Weston Road, Binley,
Coventry CV3 2TQ.
Strategic Report
Coventry Building Society | Annual Report & Accounts 2023 3
Strategic Report
An overview of strategy
and our financial
and non-financial
performance in the year.
Our performance highlights 04
A statement from your Society's Chair 06
Your Chief Executive's review of the year 08
Our strategy 12
Our business model 14
Our stakeholders 15
Building a sustainable Society 17
Our external environment and top and
emerging risks 21
Chief Financial Officer's review 24
Other information 29
Strategic Report
All together, better
From the little things to the life-changing, we make it all add up.
Coventry Building Society | Annual Report & Accounts 2023 4
12.5%
Savings balance
growth
(2022: 6.0%)
£342m
Value returned to
members
1
(2022: £230m)
4.7%
Mortgage balance
growth
(2022: 3.0%)
We helped
6,300
customers buy their
first home
(2022: 5,400)
Delivering value to members
Our commitment to service
+76
Net Promoter Score
2
(2022: +75)
105
Seconds average call
waiting time
3
(2022: 207 seconds)
Engaging colleagues and supporting our communities
£3.1m
Total community
investment
4
(2022: £3.2m)
81%
Great Places to Work
Trust Index® score
5
(2022: 77%)
2023
Which?
Recommended Provider
for Savings Accounts
2023
Fairer Finance
Number 1 for
Customer Experience -
Mortgages
2023
Fairer Finance
Number 1 for
Customer Experience -
Savings
2023
Great Place to Work
Best Workplaces in Financial
Services & Insurance
Performance highlights
Strategic Report
Coventry Building Society | Annual Report & Accounts 2023 5
Strategic Report
Capital ratios
Sustainable financial performance
29.1%
Common Equity
Tier 1
(2022: 27.4%)
5.4%
UK leverage ratio
(2022: 5.2%)
1.26%
Net interest margin
(2022: 1.16%)
39.4%
Cost to income ratio
(2022: 43.2%)
227%
Liquidity Coverage
Ratio
(2022: 195%)
Low risk
Profitability
£474m
Profit before tax
(2022: £371m)
0.51%
Cost as a percentage
of average assets
(2022: 0.52%)
0.26%
of mortgages more
than 3 months in
arrears
(2022: 0.17%)
Efficiency
1. Based on the Society’s average month
end savings rate compared to the CACI
Ltd's Current Account and Savings
Database rest of market average rate
for savings accounts, excluding
current accounts and offset savings,
for the 12 months of the year.
2. A measure of customer advocacy that
ranges between -100 and +100
representing how likely a customer is
to recommend our products and
services.
3. Based on average call waiting times
between 1 January 2023 and 31
December 2023.
4. Total community investment made by
the Society has been determined in
line with the Business for Societal
Impact (B4SI) framework.
5. A measure indicating a trust-based
people first workplace based on
positive responses to the annual Great
Place to Work survey.
Performance highlights continued
Welcome to our 2023 Annual Report and
Accounts.
2024 will be the Society’s 140th
anniversary. Since it was launched by a
small group of Coventry citizens in 1884, it
has borne witness to many world changing
events. Something I like to reflect on as we
face today’s challenges.
The Society has been successful over all
these years because it prioritises the needs
of members and works hard to safeguard
their interests. In taking a long-term view,
it has adapted its products and services to
stay relevant to its current and future
members.
In 2023, the Society maintained this record.
A strong performance that rewarded
members, an enhanced financial position
that will support future growth, and real
progress in our goal of becoming the
‘digital first, human always’ Society in the
eyes of our members, colleagues and
business stakeholders.
2023 was defined by the Bank of England's actions to bring
down the UK’s rate of inflation. The UK base rate rose to
5.25%, the highest in 15 years, and a rise of more than 5%
in just two years, delivered through a remarkable 14
consecutive increases to base rate.
The implications of this quick and sustained increase in
the price of borrowing have been clear in reducing
consumer demand generally, but especially in the
mortgage and buy to let markets.
Savers have, by and large, welcomed the changes to
rates, despite the impact of inflation. However it has
created some difficulties for them in keeping up as the
market moved so quickly. This is in marked contrast to
the previous fifteen years.
Greater focus has understandably been on the housing
market as borrowers had to pay substantially more on
reaching the end of low fixed rate mortgages. The impact
on confidence, on transaction levels and on the type of
borrowing being undertaken were all to be expected given
the Bank of England’s inflation objective, but have been
challenging for homeowners, landlords and tenants, as
well as lenders.
2023 was also notable for the failure of Credit Suisse and
Silicon Valley Bank. The impact of these high profile
failures underlines the importance of prudence, resilience
and sustainability.
Supporting our members
Our priority has been to balance the contrasting impact of
this extraordinary change in the interest rate environment
on our savers and borrowers, while doing what we can to
safeguard those borrowers most at risk. The Board has
also been very aware of the need to maintain the
Society’s financial strength. All whilst investing in its
technology foundations and future services, that will
ensure we remain relevant and resilient in a fast-
developing sector.
Steve Hughes, the Society’s Chief Executive, will talk
more in his review about the decisions we made to
achieve this and deliver the value, service, and security
that our members expect, as well as the performance
highlights of the year.
We have a strong story to tell of above market growth,
high levels of member satisfaction and colleague
engagement, as well as significant investment and
progress in our technology transformation and
sustainability agenda. While delivering great member
value, we have also enhanced profitability and capital in
anticipation of greater economic headwinds and a
reducing interest rate environment. We have tried hard to
strike the right balance between all these different
priorities.
This encouraging performance is built on the strength of a
mutual business model which is particularly relevant in
times of volatility and change as it enables us to keep our
focus on the long-term interests of our customers and
members.
It is something my fellow Board members and I, care
about very much, particularly as we feel that the
advantages of the mutual model are not well understood
or appreciated outside of the sector. There is a clear line
of sight between the needs and expectations of members,
who own the Society, and our strategic ambitions and
performance priorities. We believe this supports an
approach which is sustainable in its broadest
consideration, from the consistent value and service we
provide to members, to the support and opportunities we
offer colleagues, and the benefits we bring to suppliers
and other stakeholders, including the wider communities
we serve.
It is not a coincidence that we consistently achieve a high
level of customer and member satisfaction and are
independently recognised through many different awards
Coventry Building Society | Annual Report & Accounts 2023 6
A statement from our Chair
Strategic Report
for the service and products we offer. It is because we
prioritise these matters. As an example, in 2023 we again
offered savings rates well above the average in the
market, delivering a higher member premium than in
2022. I mentioned earlier that the fast-moving market was
proving challenging for some savers, and we made it a
priority to inform members quickly of changes to our rates
following each new Bank of England announcement. We
offer savings products that support those who feel, quite
rightly, that they shouldn’t need to continually change
provider to find a competitive rate, and products to help
people save for their first home. We have striven to treat
savers fairly and our savings balance growth is ahead of
the market as a result.
In a tough year for borrowers, we also outperformed the
mortgage market. Steve will talk more about our
approach to the Mortgage Charter and the actions we take
to support borrowers and brokers alike, but there is no
doubt in my mind that the culture and values we offer as
a mutual building society provided much-needed stability
and reassurance to customers and helped underpin this
growth.
In this context I should say that we’re well on track to
meet the Consumer Duty regulations. Although I believe
we have always put our members first, we’re not
complacent about our ability to meet these requirements.
We have appropriate Board oversight in place and have
invested significant time and resources in making sure we
meet any new obligations. Doing the right thing for
customers and members is at the core of our strategy and
purpose.
Further proof of this, is that the Society became the first
building society, and one of a very few UK financial
services organisations, to become a Certified B
Corporation, or B Corp, this year. We see clear parallels in
B Corp's objective to make business a force for good and
our own purpose-led strategy and values. Certification is
not the end-goal, of course, but a milestone in an
organisation’s development. The Board is committed to
building on the foundations we’ve established so far.
More information on this is contained in our third annual
Sustainability Report, which will shortly be published on
our website. I recommend reading it as way of
understanding the Society, our commitment to sustainable
ways of working and the tangible difference we’re
making.
To do this, we must remain relevant and resilient for our
current and future members. To this end, we continue to
invest significantly in the technological transformation
and digitisation of the Society, as well as bringing in new
capabilities appropriate to our growth and scale.
Changes to the Board
Following the retirement of Catherine Doran and Peter
Frost from the Board in April 2023, we welcomed Vanessa
Murden, who joined us as a non-executive director during
the year.
We have also introduced the new Board Technology
Oversight Committee, which is proving an excellent
addition to our governance structure, ensuring we have
the appropriate level of oversight of this key strategic
area of investment. More information on this along with
Board priorities and progress can be found in the
governance section of this report. In 2023, we achieved a
number of significant milestones in moving our systems
towards cloud managed services, adding operational
resilience and agility to our core services. We're on track
with digitising more of our mortgage and savings processes
and delivered a well-received mobile app for its final
member test before launch. In addition to providing more
resilient services, these represent greater convenience
and ease of use for our members and business partners
and are key to achieving our strategic goals as we grow. It
is a multi-year journey, but we’re making good progress
towards delivering the ‘digital first, human always’
service that will enable us to operate at scale and still
provide the service and warmth our members expect.
Board priorities for the year ahead
It would be wrong to complete this review without
acknowledging our announcement at the end of the year
regarding a potential acquisition of The Co-operative
Bank. I cannot say much at this stage, but anything of this
nature will only be pursued if it is in the best interests of
our members.
In the coming year, we expect the Bank of England to
maintain its focus on reducing inflation to its target
range, a challenge that external shocks from the ongoing
conflicts in Ukraine and the Middle East, and elections in
both the US and UK, may make harder. The interest rate
environment is likely to remain volatile and the housing
market subdued. We will continue to prioritise our
customers and members and they can be confident that
we’ll offer the same security and value that have been
the hallmark of Coventry Building Society over the last
140 years.
In closing, I am pleased to say that the Society is in a good
place – performing well, financially strong, and delivering
on our ambitious and sustainable strategic plan. We are
committed to the mutual building society model, with our
members at the forefront of our decision-making.
David Thorburn
Chair of the Board
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 7
"The Society is focused
on consistently
meeting the needs
of its customers and
members."
A statement from our Chair continued
Strategic Report
The Society delivered a strong and
balanced performance in 2023,
outperforming both the savings and
mortgage markets through a combination of
outstanding service and highly competitive
products that offered members great value
and rewarded their loyalty.
We used the opportunities presented by a
rising interest rate environment to return
more value to members, as well as further
improve our capital position and
profitability. This ensures the Society’s
long-term resilience. And we maintained
our support for borrowers and brokers at a
time of increased volatility and
uncertainty.
We continue to invest in the Society’s
technology and digital foundations, as well
as the capability of our people, to stay
relevant and resilient now and in the
future. The outcome was a year of strong
progress across all elements of our
strategic plan and delivery on the things
that matter most to members - value,
service, security and strong social purpose.
2023 was dominated by the rising interest rate
environment with the Bank of England increasing UK base
rate from 3.50% at the start of the year to 5.25%. Whilst
inflation dropped sharply towards the end of 2023, it
remains above the Bank of England target and further
inflationary pressure is possible amid ongoing conflicts in
the Middle East and Ukraine.
The impact of high inflation and high interest rates on
people’s lives and the UK economy are clear to see. The
cost of living challenge continues, and we see the day-to-
day results of food and fuel poverty in the community
programmes we support. We know the impact of
significantly higher borrowing costs is making things
harder for homeowners and tenants alike. Whilst
unemployment rates are relatively stable, there is ongoing
economic uncertainty and both consumer and business
confidence were notably lower as the year closed. In this
context, our mutual business model continues to be
reassuringly resilient as we plan for all eventualities.
The impact on the housing market has been significant.
Transaction levels have declined and house price inflation
has stalled, with price reductions being recorded in many
parts of the country. Borrowers coming to the end of low
fixed rate mortgages are experiencing significantly higher
monthly payments. The full implications of which remain
uncertain with many more homeowners coming off such
deals in 2024.
The rising interest rate environment has also presented
challenges to lenders, as well as borrowers. Maintaining
stable pricing and propositions has been incredibly
difficult given the speed at which interest rates have risen
and general levels of market volatility. However we have
maintained our two day pledge to brokers in providing
notice of product and pricing changes.
Higher interest rates have, of course, been helpful to
savers in mitigating the impacts of high inflation, and it
has been a noticeably more active market as consumers
have taken action to maximise the returns available to
them. In this context, we have worked hard to encourage
financial awareness, whilst also providing the fair returns
our members deserve. I believe this is a clear benefit of
our mutual business model with its consistent focus on the
needs and expectations of members. Added to this is our
inherent security and resilience to external stresses which
means we can take a long-term view despite the
immediate challenges of a fast-changing environment. In
this way, we have been able to return additional value to
members and reward their loyalty, whilst continuing to
grow, invest for the future and enhance our capital
strength.
As I’ve said before, it is not for our members to make the
connection between mutual ownership and long-term
stability and security. Our responsibility to them is to
deliver the great value, service and support that they and
their families need, particularly during times when
household incomes and spending are under great strain.
This is how we judge our success.
Delivering value to members
Savers and borrowers have very different perspectives,
particularly in a rising interest rate environment. Our
responsibility is to balance their contrasting priorities and
ensure we provide fair and competitive value to both over
the long-term.
Coventry Building Society | Annual Report & Accounts 2023 8
Your Chief Executive's review of
the year
Strategic Report
We demonstrate our value to savers by consistently paying
above the market average and in 2023 we maintained this
record by paying an additional £342 million of interest
than if we’d simply matched the average rates paid in the
market. This was £112 million higher than in 2022 (£230
million)
1
and £141 million higher than in 2021 (£201
million). The increase clearly shows our commitment to
savers in a rising interest rate environment, and I am
proud that we increased the interest paid on every
variable savings product every time the Bank of England
increased base rate during the year.
I have mentioned loyalty several times. I think rewarding
loyalty is really important, both in demonstrating the
value and difference of a mutual organisation, but also
encouraging savers who trust us to do the right thing.
During the year, over 145,000 loyalty product accounts
were opened with us, and we know that our members
appreciate being recognised and rewarded for their
continued support of the Society.
Our loyalty products were just one part of a savings
portfolio that focuses on the needs of members. Our ISA
range continues to be extremely competitive and
increasingly important as more people become liable for
tax on savings interest. We introduced a new children’s
saving proposition and launched our relationship with
Salary Finance, who work with organisations to encourage
saving through payroll. We want to encourage good
savings habits and greater personal financial resilience
across all ages by increasing understanding and making
saving as easy as possible. We have also had great success
in linking savings campaigns with our new charitable
partnership with Centrepoint. An idea that gets to the
heart of our purpose-led strategy.
Our strong savings franchise has been recognised
independently too, including by consumer champion,
Fairer Finance, who have awarded us a Gold Ribbon for
savings every year since 2015. We also received awards
from Savings Champion (‘Best Building Society’),
Moneynet, (‘Best Building Society Savings Provider’), and
The Times Money Mentor (‘Best Savings Account’) amongst
others.
It’s not surprising that our savings balances have grown
considerably during the year, as we’ve attracted new
members, and existing members have trusted us with
more of their savings. Balances were up 12.5% or £5.3
billion (31 December 2022: £2.4 billion) with the overall
savings held at the Society reaching £47.6 billion. It
represents a significant outperformance of the savings
market, which increased by 1.1%
2
during the year. An
outperformance which has delivered value for members
and contributed to our profitability in 2023.
A very successful year for savings has been matched by an
equally strong mortgage performance. In a relatively flat
market we grew mortgage balances by 4.7% or £2.3
billion, (31 December 2022: 3.0%, £1.4 billion). As with
savings, this growth represents a significant
outperformance of the overall market, which remained
broadly flat
2
in 2023. In doing so, we increased our share
of both owner-occupied and buy to let lending. Although
the impact of new regulations has changed the buy to let
market, it remains a priority for the Society, and we
intend to protect and enhance our leading position. We
also launched our Green Further Advance Product in
support of our broader sustainability ambitions to help
members improve the energy efficiency of their
properties.
This strong lending performance was achieved in a year
which has been tough for new and existing borrowers
faced with significantly higher mortgage costs. In July, we
signed up to the Government’s Mortgage Charter initiative
and fully supported the options to temporarily switch to
interest-only arrangements or extend the mortgage term.
But in many ways the real difference is being made by our
colleagues working tirelessly to support borrowers through
their proactive and caring approach. They have
established ways of identifying those borrowers most in
need of support and call them even before payments are
missed. We have strong ties with our free debt advice
partners and provided support and training to our teams
to help them identify financial vulnerability as early as
possible. We also took practical steps like removing all
arrears related fees. This proactive approach, and the
quality of our underwriting capability, kept arrears levels
low at 0.26%
3
(31 December 2022: 0.17%), well below the
market average of 0.91%
3
.
Our confidence in the support we provide means we have
stayed open for business, benefitting borrowers, brokers
and the industry as a whole. In 2023 we helped over
14,000 people buy a home. This includes more first time
buyers than in 2022, something which reflects our
commitment to helping people take that first step on the
property ladder.
Delivering on our service promise
In last year’s report I talked about the increased demand
for our services, not just because of popular products, but
because people wanted more help in making the right
decisions as interest rates changed. This continued in
2023 with the level of customer contact nearly 40% higher
than in 2022. However, as we invested significantly in
recruiting and training more colleagues, as well as
focusing on the way we do things, we have been able to
provide the same brilliant service throughout the year. We
have taken more than 200,000 additional calls and
reduced our call waiting time in the process.
The outcome has been outstanding levels of customer
satisfaction. In a year where members are contacting us
more than ever, we have improved our Net Promoter
4
Score (NPS) from +75 to +76 for the Society as a whole.
The importance of delivering the right customer outcomes
has come into greater focus with the introduction of the
Consumer Duty regulations. I believe that although our
purpose, culture and values give us a headstart in
delivering our Consumer Duty responsibilities, we will
continue to work hard to meet the expectations of our
members.
Coventry Building Society | Annual Report & Accounts 2023 9
Chief Executive's review continued
1. Based on the Society’s average month end savings rate compared to the CACI Ltd's Current Account and Savings Database rest of market average rate for savings accounts, excluding
current accounts and offset savings, for the 12 months of the year.
2. Source: Bank of England.
3. Percentage of mortgages with more than three months of arrears. Source: UK Finance.
4. Net Promoter Score (NPS) is a measure of customer advocacy that ranges between -100 and +100, which represents how likely a customer is to recommend our products and services.
Strategic Report
Investing in our future
We're aiming for a service that is ‘digital first, human
always’. Our investment in digitising savings and mortgage
services is starting to bear fruit, with savers, borrowers
and brokers increasingly enjoying the convenience of
carrying out transactions at a time and place that works
for them. When they need more help, they get a fantastic
service from my colleagues working in the customer
contact centres and branches. In a year in which we saw
online services logins increase by 50% and live chat
starting to make an impact, we also dealt with record
numbers of calls and over 2.2 million branch transactions.
It is a multi-channel approach which meets the
expectations of members and supports the Society’s
strategic ambitions.
A key development for our savings members has been the
launch of our mobile app which, at the end of December,
was going through final tests with a pilot group of 1,000
members and colleagues. The feedback has been
extremely positive, with savers enjoying the added
convenience and ease of use of this new service and we've
successfully opened it to all members in early 2024. The
app will help us manage the Society’s growth and scale,
and is a very visible example of the technological
transformation taking place as we complete the digital
backbone that supports such services and applications.
The digitisation of our mortgage processes is also
delivering real benefits to customers and brokers. In 2023,
building on earlier implementations, we are now taking
direct new business for the first time. We also made
significant progress with our financial transformation
programme, with a new general ledger finance system
successfully in place, and are rolling out significant
enhancements to the way we work through our Modern
Workplace Programme.
The breadth and cadence of delivery is enhancing
operational resilience, information security and data
protection, as well as improving customer experience and
business efficiency. Members and other stakeholders
expect us to keep their data and funds safe and secure
and we will continue to invest to do so.
The investment we’re making is significant. In 2023 our
capital and revenue investment expenditure totalled £92
million (31 December 2022: £94 million). Our cost to
income ratio has improved to 39% as a result of our strong
income performance, whilst our cost to mean asset ratio
and total management expenses were 0.51% (31 December
2022: 0.52%) and £312 million (31 December 2022: £295
million) respectively.
Supporting our communities
A theme of this review has been the balanced nature of
the Society’s performance. Members expect great value
and service, but they also expect us to make a positive
contribution to the broader issues faced by society. We
work hard to meet their expectations and I wanted to pull
out a few highlights from 2023 here.
Being the first building society to gain B Corp certification
is something the whole Society is proud of. It emphasises
the central tenet of sustainability which is to benefit all
stakeholders, not just the few. It covers our approach to
savings and mortgages, how we support colleagues,
suppliers, investors, and communities as well as manage
our impact on the environment. We were delighted to be
certified at our first attempt and I believe it will be the
foundation of our progress for years to come.
We remain on track with the Climate Action Plan, as
endorsed by members at the 2022 AGM. This year we’ve
taken steps to reduce our carbon footprint through the
use of solar panels and heat pumps at our head offices
and expanding our support for electric vehicles. We
continue to encourage and support members and
colleagues through green lending products, access to
energy-saving information and tools and a whole raft of
initiatives from reducing power usage to tree planting.
The cost of living challenges and concerns about the cost
of housing make our new partnership with Centrepoint
even more relevant. Centrepoint has the ambitious aim to
end youth homelessness, and we have committed to
donating £1 million per year to this cause as well as
raising awareness and supporting young people in building
independent lives. In addition to the financial support, we
are supporting the expansion of youth services in Coventry
and Warwickshire, working in partnership with local
councils and other charities. This theme extends into our
other community priorities that are encouraging student
aspiration and achievement, and reducing isolation
amongst vulnerable sections of society. I'd like to thank
my colleagues for their enthusiasm and support. They're
doing more volunteering and fundraising than ever and we
couldn't do it without them.
Coventry Building Society | Annual Report & Accounts 2023 10
1. Net Promoter Score (NPS) is a measure of customer advocacy that ranges between -100
and +100, which represents how likely a customer is to recommend our products and services.
2. Total community investment made by the Society has been determined in line with the
Business for Societal Impact (B4SI) framework.
Chief Executive's review continued
+76 Net
Promoter
Score
Our measure of
excellent service
1
(2022: +75)
£3.1m
Total community
investment
2
(2022: £3.2m)
Strategic Report
The Society’s financial strength brings opportunities to do
more to help and, as we did last year, we donated £1
million to provide emergency funding plus support for
ongoing services in our local community. I am extremely
proud that the Society is making such a tangible
difference both locally and nationally.
Engaging colleagues
We now have over 3,000 colleagues at the Society –
another tangible impact of our success as we grow and
provide new and exciting career opportunities to more
people.
Ensuring that we attract and retain great talent is key to
achieving our strategic ambition, and key to this is putting
in place the right environment for all colleagues to thrive.
We invest in getting this right through a combination of
support, challenge, development and reward.
The Great Place to Work survey offers a proxy for our
performance across all these elements, and I was
delighted that we again increased our Trust Index score
which now stands at +81 (31 December 2022: +77). This
puts us amongst the best in our ‘super large company’
category and shows a level of engagement that
differentiates us. I firmly believe that it is key to the
brilliant service and products we offer, the pace of
change we are delivering and the great member
satisfaction I talked about earlier.
One of the most important aspects of this is to create a
diverse, inclusive and collaborative environment that
attracts the brightest, most capable people who are
representative of the communities we serve, something I
feel is more relevant than ever.
In 2023, we were recognised as one of the best
workplaces for women and have won awards for the
wellbeing support we offer too. Our Executive team has a
50:50 male:female split, and we’re only 1% off our 40%
female target for all senior leader roles.
We have achieved an initial goal for 10% of senior
leadership roles being undertaken by people from ethnic
minority backgrounds and although we have more to do
across all leadership roles, we are making progress. I am
encouraged by the high levels of engagement of
colleagues from ethnic minority backgrounds and their
strong representation in our talent and development
programmes.
One new initiative we launched this year was the
Colleague Regular Saver. Recognising that financial
resilience is a key contributor to personal wellbeing, each
colleague who opened an account received £100 to
encourage starting a new savings habit. It also gave them
an invaluable opportunity to walk in the shoes of our
members. This is something I am sure will lead to new
ideas and even better ways of doing things. Nearly 2,000
eligible colleagues have taken up this opportunity, which
is very much in keeping with our culture and values.
A strong and balanced performance
I used these words in my introduction to describe a
performance which delivered great security, value and
service to our members, but also an increased pace of
change, brilliant colleague engagement and real progress
on our sustainability agenda.
We also took decisions to ensure the Society’s financial
strength and stability, recognising the economic
uncertainty through the year, and the likelihood of
increased economic headwinds and a lower interest rate
environment to come.
In 2023, our profit before tax of £474 million was higher
than in 2022 (31 December 2022: £371 million.) This was
supported by the increases in Bank of England Base Rate
during the first part of the year, which benefitted margin
and income, and strong levels of lending, notwithstanding
the additional value paid to members.
As in 2022, we also took prudent decisions to protect
current and future members by strengthening our capital
position. Our leverage ratio increased to 5.4% (31
December 2022: 5.2%) and our Common Equity Tier ratio
of 29.1% (31 December 2022: 27.4%) remains well above
regulatory requirements. Our Liquidity Coverage Ratio was
227% (31 December 2022: 195%). The strength of our
capital and liquidity position offers reassurance to
members now, and in the future, as well as providing the
foundations for future growth and investment.
Looking to the future with confidence
What will happen to the UK economy and housing market
next year is difficult to forecast. Markets are predicting
the Bank of England Base Rate will fall but not to the
historic lows of the previous decade. It is anticipated the
UK housing market will remain subdued, albeit with some
recovery from the lows of 2023. It is clear profitability
and earnings levels have peaked but we will continue to
make balanced judgements on growth, capital and value
to members.
As I have said, our mutual business model is robust and we
will adapt to continue providing the security, value and
service our members expect. We will also continue with
our investment plans to remain relevant and resilient in
the future. Our strong financial performance in 2023 and
previous years, means we are well capitalised, and
members and investors alike can be reassured by this.
David has mentioned our interest in acquiring The
Co-operative Bank. There is little I can add to his brief
comments, other than to say thorough and detailed due
diligence is being undertaken and we will only pursue this
if we believe it is in the best interest of current and
future members.
It has been a strong year for the Society. I would like to
thank my colleagues for their hard work and dedication,
and our members for their loyalty and trust.
Stephen Hughes
Chief Executive
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 11
Chief Executive's review continued
£474m
Profit before tax
(2022: £371m)
Strategic Report
A people and purpose-led building society responding to the needs of all
stakeholders.
We review our strategic priorities each year to ensure we continue to meet the expectations of our members and other
stakeholders.
Our strategic compass provides the direction for the business we aspire to be in the longer-term.
Coventry Building Society | Annual Report & Accounts 2023 12
Our strategy
Our Purpose
We exist to make people better
off through life.
Our responsibility is to balance the needs
of different stakeholder groups,
empowering our customers, colleagues and
others to be better off through life.
At the same time, creating a wider society
that is fair, confident and resilient.
Our Belief
Putting Members First
We believe in remaining an independent,
customer-owned building society.
Putting Members First means considering
the impact of our decisions and strategy
on our current and future membership,
and has consistently led us to ‘do the right
thing’ and to outperform the markets in
which we operate over the long-term.
Our CARES Values
Our values are to be Caring, Ambitious,
Responsible, Empowering and
Straightforward.
These are reflected in our behaviours
with each other, with members and
customers, and with other stakeholders
as a key driver of trust and to sustain
a strong culture.
Strategic Report
Our strategic priorities support our focus and direction for the business with members, customers and people at the core.
They guide our activities and are also aligned to our performance measures and targets.
Coventry Building Society | Annual Report & Accounts 2023 13
Our strategy continued
Making people better off through life
A purpose-led approach to
business, the environment
and wider society
A responsible business supporting sustainable growth and employment, and whilst doing
so, reducing our carbon footprint and use of natural resources. We are also supporting
customers to reduce the carbon footprint of their homes through education and products.
Our purpose extends to our support to our local communities, changing our city for the
better through increasing financial literacy and career aspirations, improving access to
quality housing and reducing loneliness. Our purpose also drives us to be open, honest and
transparent in our dealings with our members, employees, partners and regulators, and in
reporting our performance.
An inclusive and inspiring
workplace for everyone
We are creating an inspiring place to work which better reflects the diversity of our city,
communities and membership. We provide a safe and engaging workplace for our
employees, supporting their health and wellbeing.
Offering the best value products and services we can
Making home ownership a
reality and building a
society of savers
Empowering customers to make better financial decisions and helping them achieve their
financial and life goals through simple mortgage and savings propositions that offer good
long-term value.
Market-leading 'digital first,
human always' customer
service
We want customers to feel confident they have chosen the right provider for their
mortgage and savings by:
• Offering better digital capabilities that offer an improved choice of product options,
better servicing and better technology for our colleagues.
• Backed up by friendly, caring and well-trained employees in our branches and UK
contact centres offering support and guidance to customers when they need it most.
All delivered in a resilient way
Protecting our members'
money and operational
resilience
Keeping money safe and accessible for our customers, and their information and data
secure through investment in resilient technology, processes and infrastructure.
A resilient and sustainable
financial performance
Our strategy is to deliver a sustainable and resilient financial performance, consistent
with supporting UK economic growth and employment, whilst ensuring good outcomes for
our customers.
To achieve this, we stress test our capital and liquidity resources to ensure we can
continue to grow and remain profitable under severe but plausible scenarios. We are also
careful to spend our members’ money efficiently as an enabler of growth, long-term
value and service, continuing to invest to meet stakeholders' and regulatory expectations.
Strategic Report
As a building society, we are owned by
our members. We have a simple
focused business model that enables us
to deliver our products, services and
long-term performance.
Inputs Outputs
Infrastructure
Our critical technology systems were available 99% of
the time during 2023. These systems supported the
distribution of our products via our 64 branches, our
telephone channels and digital self-service options.
Suppliers and intermediaries
We distribute over 90% of our mortgage products via
mortgage brokers and intermediaries.
Our business is supported by over 600 suppliers of
which 90 provide critical services.
Our simple business model
We receive interest and fee income from mortgage customers. We
then pay interest to savings members and investors who have
placed deposits with us or bought our debt securities. The
difference between these two provides the net interest income to
pay our colleagues and suppliers, to cover potential losses on our
mortgage loans, and to invest in improved technology, products
and services. Any remaining profit is retained as capital to fund
future growth and provide financial resilience in the event of an
economic downturn or other shock.
We have a lower risk approach to lending than the average UK
mortgage provider which also supports this financial resilience.
This is reflected in our financial performance, low arrears rates
and low repossession rates relative to others.
We believe this mutual business model is consistent with the value
and ethos of those who founded the Society nearly 140 years ago.
Financial
We use the retained profits from 139 years of trading,
plus other forms of financial capital and funding from
outside investors, together with the savings of our
members, to fund mortgage loans to customers.
Natural
We are investing and changing to eliminate fossil fuels
from our operations and supply chain. We are
committed to reducing the carbon footprint of both
our own business activities and our financed emissions
on the homes that we provide mortgages on.
Our customers
We provide residential mortgages and savings accounts to personal
customers based in the UK. We believe in Putting Members First,
treating all our customers fairly and giving them choice and
flexibility in how they interact with us. We provide extra help to
customers in vulnerable situations and those in financial difficulty.
This means keeping savers' deposits and all data safe and secure,
offering good long-term value and ensuring good conduct
outcomes for both savers and borrowers.
We also support landlords who provide homes to those who use
the private rental sector. Our buy to let business diversifies our
lending and helps create value for our wider membership, through
better savings rates and services than we could otherwise provide.
Colleagues
We depend on an engaged and diverse workforce of
over 3,000 UK-based colleagues who deliver our
services to 2 million customers across every region of
the UK.
We support flexible and hybrid working where
possible, allowing our people to work from home and
to balance their family and other responsibilities.
Our products and services
We provide residential mortgages to individuals to enable them to
buy their own home or to let property as an investment. We
provide cash savings accounts and our product range supports
those of all ages wanting to save for their future, whether thats
for the shorter- or longer-term.
We choose not to provide investment advice, insurance products
or to lend on anything except secured residential property.
We serve our customers through our network of branches and
agencies, online, via the telephone, through our intermediary
partners and through savings platforms.
Coventry Building Society | Annual Report & Accounts 2023 14
Our business model
Strategic Report
As directors, we work to promote the success of the Society for the benefit of all of its stakeholders. In doing so, we
voluntarily comply with Section 172 of the Companies Act 2006. More information on who our stakeholders are and how we,
as a Society, engage with them is set out below and in the Governance section.
Stakeholder
group
Customers Colleagues Suppliers
This group includes our
members, other mortgage and
savings customers, and
mortgage brokers.
This group includes all of the
Society’s employees.
This group includes third-party
organisations and contractors
who provide goods and services
to us.
Stakeholder
needs – what
do they
expect from
us?
• Great value savings and
mortgage products.
• Excellent human service
through whatever channel they
use to interact with us.
• A business model which is
resilient, so we are safe and
secure over the long term.
• High availability of IT systems
with data kept secure.
• Simple and clear
communications.
• An inclusive and inspiring
workplace for everyone.
• A great place to build and
develop their careers.
• An approach to reward which
is fair and consistent.
• Support for career
development and training.
• A culture which promotes
wellbeing, supported by
straightforward policies and
processes.
• To do business with us on
terms which are commercially
beneficial.
• To be paid promptly.
• To work with consistent and
understandable procurement
processes (and proportionate
for local SME suppliers).
• Decisions that are made in a
consistent, ethical and fair
way.
How do we
engage with
them?
• Our Member Panel, an online
forum of 10,000 members.
• Regular research with
customers, prospects and
intermediaries.
• Complaints monitoring.
• Online Video Member Talkback
sessions for executives and
Board members to meet and
discuss specific topics with
customers.
• Our AGM where members vote
on key matters to the Society
and interact with the Board.
• ‘My Society’, our employee
forum.
• The annual Great Place to
Work survey and surveys on
specific issues.
• Structured meetings with the
Chief Executive and other
executives.
• Online internal
communications tools and
networks, including the launch
of our new intranet.
• Through our recognised union,
Unite.
• Regular governance meetings
with key suppliers. Suppliers
are provided with feedback on
sourcing activities they are
involved in, including
debriefing unsuccessful
suppliers.
• Supplier relationship
management processes.
• Annual supplier surveys to gain
an understanding of the views
of our suppliers.
• Supplier strategy events.
What’s been
important
for them in
2023?
• Products that reward loyalty
and offer good long-term
value.
• The ability to access our online
services in an easier way whilst
maintaining security standards.
• Maintaining a consistent
presence in the mortgage
market.
• Less paper and a mobile
savings app.
• Our remuneration strategy and
focus on financial wellbeing.
• Supporting flexibility in ways
of working.
• Our response to the broader
diversity and inclusion agenda.
• Maintaining positive wellbeing,
including mental health
support.
• Improving opportunities for
career development.
• Understanding more about our
strategy.
• Prompt payment.
• Finding out about
opportunities that might be
available to local suppliers.
Our response
and key
decisions
taken by the
Board
• The Board approved a multi-
year digital strategy and
roadmap, backed by customer
research.
• We significantly improved our
digital and self-service
capabilities.
• We introduced loyalty
products, and enhanced our
mortgage proposition for first
time buyers and Green
Together Reward product.
• The Board engaged in two-way
discussions with the My Society
forum focusing on diversity
and inclusion, ESG, reward,
and the Society's people
strategy.
• The Board supported the
launch of the Colleague
Regular Saver to help build
financial resilience and
encourage colleagues to save.
• The Board approved the 2023
ESG Plan to align our
procurement practices to the
international standards for
sustainable procurement.
• In 2023, the Society was the
first building society in the UK
to be awarded the ISO 20400
sustainable procurement
standard.
Coventry Building Society | Annual Report & Accounts 2023 15
Our stakeholders
Strategic Report
Stakeholder
group
Investors Communities Environment
This group includes wholesale
investors and ratings agencies.
This group includes those
supporting the communities we
serve.
Our direct and indirect impact
on the world around us.
What do they
expect from
us?
• A stable and sustainable
performance, with resilient
capital and liquidity levels.
• An organisation that is focused
on the mortgage and savings
markets, that is well governed
and manages risks effectively.
• Clear disclosures to enable
informed investment decisions
to be made.
• Focus on environmental, social
and governance impacts.
• Support – financial and in kind
– and to benefit from our skills
and knowledge.
• Help to raise awareness of key
issues and signposting those in
need.
• A community strategy which
makes clear what we support
and how this can be accessed.
• Funding commitment across
the medium term.
• To contribute towards tackling
climate change.
• Measurement and reporting of
our emissions.
• The reduction of our own
emissions and broader
environmental impacts.
• Helping members make the
transition to housing which
reduces greenhouse gas (GHG)
emissions.
How do we
engage with
them?
• A programme of investor and
analyst meetings.
• Public updates on our
performance or other material
matters for disclosure.
• Information about our funding
programmes and the Annual
Report & Accounts published
on our website.
• Engaging regularly with our
strategic partnerships,
charities, public sector and
schools.
• Key points of contact
established and maintained in
each of the organisations we
work with.
• Established a long-term
partnership with new
charitable partner.
• Working with a range of
external bodies and suppliers
to monitor, manage and
reduce our environmental
impacts.
• Working with third parties for
assurance to conform with ISO
14064-1 standards to validate
our GHG emissions data.
What’s been
important for
them in
2023?
• The Society's roadmap to
achieving Net Zero ambitions.
• Product propositions aimed at
helping members improve the
energy efficiency of their
homes.
• Our plans for a green or social
bond.
• Building successful
partnerships which bring value
to community organisations.
• Certainty of funding as well as
responding to changing
external events, by providing
additional funding to support
services.
• Creating access to
opportunities and raising
aspirations.
• Our Climate Action Plan,
outlining our progress towards
improving our impact on the
environment.
• Detailing our approach to a
Net Zero future.
Our response
and key
decisions
taken by the
Board
• Feedback used to develop the
Annual Report and
Sustainability Report to ensure
the emerging needs of
investors are met.
• The Board discussed the
feedback from rating agencies
and their assessment of our
performance.
• £1 million support to local
communities.
• The Board considered our
ongoing investment in the
Society's community strategy.
• Approved the partnership with
a new corporate charity,
Centrepoint, working together
with partners to support
campaigning to end youth
homelessness by 2037.
• The Board considered the
impact of climate change on
both the Society, its customers
and wider stakeholders and
approved the multi-year
Climate Action Plan published
on our website.
• The Board considered the
results of the annual
materiality assessment giving
a greater understanding of the
material issues to our
stakeholders, helping to
inform our sustainability
agenda throughout 2023.
Coventry Building Society | Annual Report & Accounts 2023 16
Our stakeholders continued
Strategic Report
Our achievements in 2023
External associations include:
Coventry Building Society | Annual Report & Accounts 2023 17
B Corp
first building society
to be B Corp
certified
Over
8,000
hours of colleague
volunteering
Building a sustainable Society
ISO 20400
Sustainable
Procurement
certification
achieved
Carbon
neutral
since 2021 for our
own operations
New charitable
partnership with
Centrepoint
in place
ISO
14064-1
emission
certification
retained
We are signatories of:
The Climate Pledge, UN Global Compact, UN Sustainable Development
Goals, UN Principles for Responsible Banking, Task Force for Climate-related
Financial Disclosures, Bankers for Net Zero, UK Sustainable Investment and
Finance Association, Race at Work Charter, Women in Finance Charter.
We have been recognised:
Certified B Corp - A growing global community of businesses that
demonstrate their commitment to people and the planet and which spans 89
countries and over 160 industries. Becoming B Corp certified is the
beginning of a journey of continuous improvement and involves the
organisation making a commitment to use their business as a force for good
and to be the change they want to see in the world.
Fair Tax Mark - Fair Tax is at the heart of a fair society, a strong economy
and a functioning democracy. Its aim is to help those people who believe in
a fair society and playing by the rules to say so publicly.
ISO 14064-1 certification - an international standard that quantifies the
reporting of greenhouse gas (GHG) emissions and the verification.
81%
Employee
engagement
Strategic Report
Our sustainability strategy
Sustainability is at the core of the Society’s strategy and aligns with our purpose and
values. This sustainability strategy is framed by the three key external United Nations
(UN) benchmarks which we have committed to. Delivering against these external
benchmarks forms the core of the Society’s sustainability strategy.
Our sustainability strategy is embedded within the
Society’s people and purpose-led Strategic Plan. This is
approved by our Board annually and guides decision
making for a five year period. More detailed decision
making on this topic, including identifying specific actions
and accountabilities, is considered by the Board twice
annually.
The Plan's objective of the Society being a 'people and
purpose-led mutual' and being made a reality is achieved
by the strategic goals as outlined on page 13:
1. Having a purpose-led approach to business, the
environment and wider society.
2. Creating an inclusive and inspiring workplace for
everyone.
The term sustainability covers all three areas of
Environmental, Social and Governance (ESG) and the
Society considers them as follows:
Environmental
We believe that climate change is a
critical issue for the UK and the wider
world. We are committed to making a
positive contribution to the challenge of
climate change by reducing the
environmental impact of our business
activities. At the heart of this is
progressing our decarbonisation strategy
which aims to deliver on ambitious Net
Zero targets.
Social
As a people and purpose-led organisation,
we aim to meet the needs of multiple
stakeholders. For members, offering long-
term value, good customer outcomes and
superior customer service. For colleagues,
providing work that supports, engages and
enables them to unlock their full
potential. And we support local
communities and national causes, creating
opportunities for the most disadvantaged
in society.
Governance
Maintaining the highest standards of
governance is integral to the successful
delivery of the Society's sustainability
strategy. Our governance framework
ensures that the Board is effective in
making decisions and maintaining
oversight, whilst keeping to our well-
established purpose and values.
The Society's commitment to sustainability
Since 2021, the Society has been committed to the UN
Global Compact corporate responsibility initiative and its
principles in the areas of human rights, labour, the
environment and anti-corruption.
The Society is also a signatory of the UN Principles for
Responsible Banking and has identified four of the 17 UN
Sustainable Development Goals (UN SDGs) to prioritise as
our areas of focus. The priority goals are:
• UN SDG 4: Quality education;
• UN SDG 8: Decent work and economic growth;
• UN SDG 11: Sustainable cities and communities; and
• UN SDG 13: Climate Action
For each of these priority goals, we have agreed ambitions
and specific targets, which are outlined on the following
page. These measures help to define, measure and report
on our broader sustainability activities.
More information on the Society’s approach is provided on
our website at www.thecoventry.co.uk and in our annual
Sustainability Report published.
Coventry Building Society | Annual Report & Accounts 2023 18
Building a sustainable Society continued
Strategic Report
Progress with our sustainability priority goal
Why we make
a difference
• We are a leading local employer,
wanting to provide employment
opportunities for our local communities.
• We are committed to enhancing the
skills of our employees.
• We have the resources to make a
positive impact on education in
Coventry.
Our targets
and ambitions
• 250 apprenticeships over five years
from 2021.
• 50% of senior management roles from
internal recruits by 2025.
• 10,000 children and young people
in Coventry supported via education
programmes over three years
from 2021.
In 2023, we
delivered:
• 180 apprentices since 2021.
• 56% of senior managers recruited internally in 2023.
• Over 29,000 children and young people supported since 2021.
Why we make
a difference
• We provide financing for housing and
can help first time buyers onto the
housing ladder.
• We can help homeowners with the
transition to Net Zero.
• Our community programme focuses on
access to housing.
Our targets
and ambitions
• Number of people supported through
'Access to Housing' is 1,000 between
2021 and 2025.
• Double first time buyer numbers in 2021
(3,200 to 7,500) and move to supporting
10,000 first time buyers annually
by 2023.
In 2023, we
delivered:
• 3,586 people supported through Access to Housing.
• We supported 6,300 first time buyers and we are working on new build propositions
to help them.
Why we make
a difference
• Our own operations
emit GHG emissions.
• Our borrowing members
will need help to deal
with the transition to
Net Zero.
Our targets
and ambitions
• Become carbon neutral for our own operations in 2021.
• Ambition to become net zero for our Scope 1, 2 and
partial 3 emissions in 2030.
• Ambition to be entirely net zero by 2040.
• 50% reduction in paper by 2023, compared to 2017
levels.
In 2023, we
delivered:
• Remained carbon neutral for Scope 1 and 2 emissions (since 2021).
• Reduced our Scope 1 and 2 emissions.
• 50% reduction in paper consumption since 2017.
Why we make
a difference
• We provide career opportunities
at differing levels of seniority.
• We spend over £172 million
annually with our supply chain,
enabling us to drive positive
changes with our suppliers.
• We can offer underrepresented
groups career pathways.
Our targets
and ambitions
• Offer career development to enable colleagues
to achieve their potential.
• Progress the sustainability agenda with our
suppliers.
• 40% of all senior manager and above roles held
by women by 2025.
• 25% of manager roles and above held by
colleagues from ethic minority groups by 2025.
• All key suppliers have committed to the Society
Supplier Code of Conduct by 2023.
In 2023, we
delivered:
• 43% of roles filled by internal candidates.
• Sustainability features in supplier due diligence questionnaires and request for proposal
documents.
• 39% of all senior manager and above roles held by women (2022: 38%).
• 14% of manager and above roles held by colleagues from ethnic minority groups
(2022: 12%).
• 100% of our suppliers committed to the Society Supplier Code of Conduct.
Coventry Building Society | Annual Report & Accounts 2023 19
Building a sustainable Society continued
Sustainable Development Goal - Quality education
Sustainable Development Goal - Sustainable cities and communities
Sustainable Development Goal - Climate action
Sustainable Development Goal - Decent work and economic growth
Strategic Report
Part of creating a more sustainable society is continuing to apply high standards of
corporate governance. Our key activities and policies in this area are set out below.
Information on how the Society performed across a range of Environmental, Social and Governance activities in 2023 is
included in our Sustainability Report which will be available on our website at www.thecoventry.co.uk.
Climate
More information on our activity to meet our
environmental targets is included in the 'Our approach to
climate change' section of this report.
Diversity and inclusion
We understand there are challenges faced by different
communities and we aim to address those challenges and
support diversity, inclusion and belonging in every way
we can. The Society's General Counsel chairs both the
Diversity & Inclusion Council (made up of senior leaders
from across the Society) and the Diversity & Inclusion
Thinktank (made up of a cross-section of colleagues at all
levels), which provide challenge, leadership and practical
support to our approach and progress on the topic.
We believe in treating people fairly and recognise that
different individuals bring different skills to our Society.
We also believe that having an inclusive culture helps us
to attract, develop, engage and retain the best, diverse
talent, ultimately allowing us to serve our members in
the best possible way.
Ethical behaviour
Our belief of Putting Members First is deeply embedded
in the organisation and brings with it a commitment to
the highest possible standards of ethical behaviour and
conduct. To ensure we uphold these standards, we use a
number of resources, campaigns and policies relating to
topics such as: Code of Conduct, Money Laundering,
Bribery and Corruption, Personal Responsibilities and
Fraud Awareness. All our people complete regular
mandatory training and tests in each of these areas. Our
Whistleblowing Committee consists of members of the
senior leadership team who are responsible for
reviewing, investigating, monitoring and reporting any
incidences of whistleblowing. The committee report to
our Whistleblowers’ Champion, Iraj Amiri, one of our
non-executive directors, who has overall responsibility
for overseeing the integrity, independence and
effectiveness of the Society’s whistleblowing policies and
procedures.
Tax strategy
We conduct all of our business activities in the UK and
are fully committed to meeting all of our UK tax
responsibilities. We have also been awarded the Fair Tax
Mark. More information is included in our tax strategy
which is published at www.thecoventry.co.uk.
Privacy and data security
Our operations are based in the UK, and we undertake
the requirements set out by our regulators, the Financial
Conduct Authority and Prudential Regulation Authority,
alongside relevant data security and privacy legislation.
We disclose information to HMRC and other government
bodies when we are required or permitted to do so. We
partner with experienced cyber security firms to help
manage our risks and strengthen our capability, and we
have comprehensive cyber insurance. The Board receives
regular updates with regards the Society's compliance
with data protection legislation from the Data Protection
Officer, who reports directly to the General Counsel. All
employees undertake regular mandatory data protection
and information security training as a minimum, and
there is a wealth of experience in our data and security
teams that support the business. Further information on
how we use and store data is in our Privacy Notice, which
can be found on our website at www.thecoventry.co.uk.
This all means we can provide an informative and safe
service to our members.
Human trafficking and modern slavery
We have zero tolerance of slavery and human trafficking
in any of our own operations or in our supply chain. Due
to the nature of the Society’s business, the chance that
slavery or human trafficking will occur is low; however,
we are not complacent on these issues. More information
is in our Modern Slavery and Human Trafficking
statement at www.thecoventry.co.uk.
Anti-corruption and anti-bribery
Our values include being responsible and we expect all
colleagues and individuals acting on the Society’s behalf
to act with integrity in all dealings relating to our
business. As a result, we have no tolerance of bribery
and corruption. Our anti-bribery policy reflects our
internal zero tolerance approach and legal requirements.
All colleagues, contractors, directors and suppliers are
aware of their responsibilities in this area. Annual anti-
bribery training, together with monitoring and
enforcement tools, ensure compliance with our policy is
continuously assessed.
Coventry Building Society | Annual Report & Accounts 2023 20
Doing the right thing
Building a sustainable Society continued
Strategic Report
In order to assess risks to the Society and our future performance, we consider the
following key external environmental factors:
Economic environment
The UK economy remained subdued but avoided recession
in 2023 as high inflation, triggered by global unrest and
domestic political uncertainty, impacted economies
around the world.
Inflation, including housing costs, peaked at 9.6% in
October 2022 falling to 4.2% at the end of 2023 (2022:
9.2%), still significantly above the Bank of England's 2%
target.
Central banks around the world responded to high
inflation by continuing to increase interest rates in order
to reduce demand from consumers and businesses. The
Bank of England increased its own rate five times in 2023
to 5.25% (2022: 3.50%), the highest level since February
2008.
Higher interest rates have led to a slowdown in economic
activity, higher unemployment and lower house prices and
housing market activity. The level of job vacancies is
falling and the unemployment rate increased in the last
12 months to 3.8%
1
(2022: 3.7%).
Housing and mortgage market activity slowed, with house
prices falling
2
by 1.8% in 2023 (2022: growth of 2.8%). The
number of housing market transactions also fell to 0.8
million (2022: 1.0 million). The combined effects of rising
unemployment and higher interest rates led to an 0.21%
increase in arrears from historically low levels in 2022.
Market environment
Savings market
UK household deposits have continued to grow, although
the savings ratio has fallen as the cost of living has
increased and with higher consumer spending following
the pandemic period. Savings rates increased across the
first half of 2023 but with a contraction of new business
rates in the last quarter. The level of deposits in retail
savings and current accounts remained high at £1.8 trillion
(2022: £1.7 trillion), an increase of £347 billion compared
with pre-pandemic levels. The weighted average market
savings
3
rate increased from 0.63% to 2.43%, while
household savings balances in the UK grew by 1.1% (2022:
4.1%).
Mortgage market
Borrowers in the UK mortgage market experienced rising
interest rates throughout 2023. This is likely to lead to
significant increases in monthly payments for those
remortgaging in 2024, and is likely to reduce the amount
borrowers are able and prepared to borrow. This is
contributing to a fall in the level of mortgage market
activity and growth. Overall, the mortgage market
remained broadly flat
4
in 2023 (2022: 4.1% growth).
Rental market
The buy to let market (properties that are privately
rented and owned with an outstanding mortgage),
remained broadly flat in 2023. However the sector
experienced a significant reduction in new lending during
this period due to rising interest rates, lower house prices
and increased costs impacting on landlord returns.
Changes to interest tax relief are seeing an increasing
number of landlords transferring properties to limited
companies.
The UK rental market continues to be tumultuous as
tenants find themselves navigating surging rent prices and
fierce competition for available properties. That said, the
rental growth seen over the last three years, stimulated
by the re-opening of the economy post pandemic, strong
labour market and higher mortgage rates has begun to
plateau in the second half of 2023. Demand is expected to
moderate in the near-term in the face of worsening
affordability and as supply of rental homes improves
slightly.
Regulatory change
Regulatory developments continued to focus on the
resilience of firms to ensure good customer outcomes and
on improving both data protection and security over
financial transactions. The Society has implemented the
FCA's Consumer Duty principles for 'on sale' products and
will be fully compliant for 'off sale' products by July 2024.
Prudential regulators continue to focus on the need for
financial resilience beyond a firm’s standard operational
activities, for example capital resilience through changing
MREL⁵ regulation, Basel 3.1 capital floors.
Technology
Technology continues to change the way that customers
access and interact with their financial services provider.
Events of recent years have accelerated the use of digital
devices and the online service experience is seen as
increasingly important to customers. This acceleration in
digital adoption is expected to be permanent with a
continuing reduction in the use of branches. Data needs to
be kept secure and free from cyber attack. Online
mortgage switching platforms are emerging alongside
digital solutions for both savers, investors and borrowers.
Climate change
As evidence of increased climate change builds,
consumers and regulators remain attentive to
environmental issues. Knowledge of this topic continues to
evolve and grow. Regulatory disclosures on the financial
risks arising from climate change further increase focus in
this area.
Coventry Building Society | Annual Report & Accounts 2023 21
Our external environment
1. Source: UK Government National Statistics
2. Source: Nationwide house price index.
3. Based on the Society’s average month end savings rate compared to the CACI Ltd's Current Account and Savings Database rest of market average rate for savings accounts, excluding
current accounts and offset savings, for the 12 months of the year.
4. Source: Bank of England.
5. Minimum Requirement for Own Funds and Eligible Liabilities.
Strategic Report
In common with other financial institutions, the nature of the Society's business model results in a number of unavoidable
or inherent risks, namely principal risks. These risks are closely monitored by the Board through the Risk Management
Framework and outlined on pages 31 and 32 of the Risk Management Report.
The top and emerging risks outlined below provide information on the current risks, driven by the external environment,
which could impact the Society and how we mitigate them.
Risk Mitigation
Economic and geopolitical uncertainty
Global conflicts and high demand following the
pandemic has increased inflation and interest rates. The
Bank of England Base Rate rose from 0.25% at the
beginning of January 2022 to 5.25% at December 2023.
This has increased the rates borrowers will pay on their
mortgages and impacts affordability and ability to repay
their mortgages.
The UK must hold a general election before the end of
January 2025 and many other democracies are holding
national elections in 2024.
The Society performs regular stress testing considering the
impact of different economic scenarios and confirms that we
expect to withstand severe but plausible stresses. The Society's
lower risk lending approach, for example, using higher
affordability stress rates, means that our arrears level remains
well below industry levels. The Society is proactively contacting
customers who may be most impacted by higher mortgage rates.
In addition, the Society is holding credit loss provisions to
protect against the risks which have yet to emerge in modelled
data.
Housing, mortgage and funding market environment
A continued elevated interest rate environment could
place downward pressure on mortgage activity and
mortgage margins, and restrict opportunities for the
Society to grow. Increased mortgage rates could lead to
a decrease in house prices and further reduce market
activity.
The higher cost of living and ending of the Term Funding
Schemes and quantitative easing measures could lead to
higher funding costs. Disruption to funding markets
could impact the Society's ability to raise wholesale
funding, including that necessary to meet its MREL
requirements.
The Society's simple, lower risk and low cost business model
means that it is well placed to maintain growth flexibility and
resilience through a range of market conditions. The Society
undertakes a detailed strategic planning process which ensures
the needs of savings and borrowing members are balanced with
maintaining the strength and resilience of the Society and
continuing to support the growth of the UK economy and our key
markets. In more extreme scenarios, the Society can moderate
its rate of growth to reduce its funding and capital
requirements.
Changing customer behaviour and expectations
Customer expectations and increased use of digital
channels are changing the way that savings and
mortgage products are designed and delivered. There is
a risk that the Society's products do not keep up with
the pace of change, attract new members, or that the
level of investment to keep pace challenges the
Society's lower cost operating model.
The Society continues to focus on developing products and
services which keep up with these expectations and we have
increased our investment in digital servicing and distribution.
Our plans balance the requirement to deliver short-term
improvements and long-term strategic capabilities. The Society
improved its digital channels during 2023 and continues to
prioritise this in 2024.
Technology and innovation
There is a risk that the level of investment in
technology and innovation does not keep pace with core
market competitors, reducing the Society's relative
attractiveness to customers, or that the change delivery
itself could impact service levels, growth or other
performance measures.
The Society's adoption and embedding of a scaled agile change
model together with ongoing investment continues to improve
the resilience, flexibility and efficiency of delivering technology
and other change. Strong financial performance continues to
enable accelerated investment in cloud strategy and digital
platform investment.
Coventry Building Society | Annual Report & Accounts 2023 22
Top and emerging risks
Strategic Report
Risk Mitigation
Operational resilience
A major operational risk event could result in disruption
to services, leading to customer harm, financial or
regulatory impacts, or reputational damage. Such
events could include the increasing threat of cyber
attacks, loss of data or service outages. The Society may
not be able to attract and retain people with the skills
and knowledge to sustain its operational resilience.
The Society manages and governs a range of operational risk
types in accordance with risk appetite. The Society has
operational resilience capabilities in place (spanning crisis
management, business continuity, technology, data, people,
supply chain and property), which aim to ensure the Society's
key services are resilient to disruptions and stress. From a
people perspective, the Society evolves its proposition in line
with external market changes and colleague feedback, with key
person dependencies identified and mitigation options reviewed.
Regulatory environment
There is a risk that the scope and complexity of regulatory
changes arising from both the PRA and the FCA could
increase the Society's costs and funding requirements.
There is also a risk that regulatory expectations could
increase as the Society grows. The introduction of
Consumer Duty and implementation of Basel 3.1 are two
examples of the increase in regulatory expectations that
the Society is responding to.
The Society conducts horizon scanning and engages with trade
bodies and its regulators to ensure the impact of regulation on
its business model is managed closely. The Society continues to
undertake work to enhance its preparedness for future
regulatory expectations and is in regular dialogue with both the
PRA and the FCA on current and future matters impacting the
organisation.
Climate change
The risks of climate change could create material
disruption to the Society's business as a result of
transition risk as the UK economy transitions to lower
carbon activities. This includes the potential impact of
new regulations in our core markets.
The Society continues to develop its understanding of climate
risk and its impact on the business model. The continued focus
on understanding and planning for the impact of climate change
is recognised in the Society's Sustainability Report and the
Climate section of the Annual Report & Accounts.
Coventry Building Society | Annual Report & Accounts 2023 23
Top and emerging risks continued
Strategic Report
Our financial performance has been very
strong, which enabled the Society to
deliver more value to members than ever
before and further improves our financial
strength.
2023 has seen very high inflation and continued increases
in the Bank of England Base Rate. The rise of inflation in
the first half of the year and the fall in the second half
has caused significant market volatility not helped by the
ongoing geopolitical unrest.
Against this challenging macroeconomic backdrop, we
are proud to have delivered a very strong set of financial
results for our members. This has been underpinned by
our belief in delivering value to members and
outstanding levels of service, whilst continuing to
maintain a resilient balance sheet.
Financial Highlights
• Our profit before tax increased to £474 million (2022:
£371 million), an increase of 28% from the prior year
and a 16% increase in income, supported by the rising
base rate.
• Our highest ever distribution in value given to
members of £342 million (2022: £230 million)
1
, with
12.5% growth in savings balances demonstrating the
competitiveness of our savings rates and our approach
to rewarding loyalty.
• Our mortgage balances grew by 4.7% in a flat market
and passed £50 billion. This has been underpinned by
the great products and service for our mortgage
customers and brokers in a challenging market, which
included maintaining our two day broker pledge.
• The Society has continued to invest significant time
and money on improving and modernising services
with £92 million spent on our strategic investment
programme, ensuring we stay relevant and resilient.
• The uncertain economic outlook and the challenges
that brings is a reminder of the importance of
maintaining financial strength and in this context, I’m
pleased to report a further improvement in the
leverage ratio to 5.4% (2022: 5.2%).
Lee Raybould
Chief Financial Officer
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 24
Savings balances (£bn)
47.6
42.3
39.9
38.2
36.2
2023
2022
2021
2020
2019
Net interest margin (%)
1.26
1.16
0.90
0.81
0.83
2023
2022
2021
2020
2019
Value given to members (£m)
342
230
201
196
233
2023
2022
2021
2020
2019
Profit before tax (£m)
474
371
233
124
147
2023
2022
2021
2020
2019
Common Equity Tier 1 ratio
(%)
29.1
27.4
36.2
33.0
32.0
2023
2022
2021
2020
2019
Cost to income ratio (%)
39.4
43.2
56.3
60.2
60.4
2023
2022
2021
2020
2019
Chief Financial Officer's review
Leverage ratio (%)
5.4
5.2
4.8
4.6
4.4
2023
2022
2021
2020
2019
Mortgage balances (£bn)
50.3
48.0
46.6
43.5
42.2
2023
2022
2021
2020
2019
1. Value given to members is based on the Society’s average month end savings rate compared to the CACI Ltd's Current Account and Savings Database rest of market average rate for
savings accounts, excluding current accounts and offset savings, for the 12 months of the year.
Strategic Report
Income Statement
Overview
In 2023, the Society delivered a very strong financial
performance during what has been a challenging year with
further increases in Bank of England Base Rate and
significant market volatility. The following factors
impacted the 2023 financial results:
• Net interest income increased by £110 million, driven
by the rising base rate environment with mortgage
interest receivable rising more quickly than interest
payable on retail deposits in the first half of the year.
With the base rate stabilising in the second half of
2023, we have seen a reduction in net interest income
predominately due to competitive pressure in the
mortgage market and the impact on mortgage and
fixed rate saving repricing.
• Gains on derivatives and hedge accounting of £30
million (2022: £27 million gain) due to market
volatility and changes to customer behaviour.
• Management expenses have increased by £17 million,
driven in the main by inflation across all our activities,
increased service and strategic investment and IT run
costs.
• We have further increased our provisions for future
expected credit losses (ECLs) in light of the continued
uncertainty surrounding the economic outlook and the
evolving cost of living crisis. As a result, £7 million of
ECL provisions were charged in 2023, in addition to the
£17 million charge in 2022.
Taking account of these factors, profit before tax for the
year increased to £474 million (2022: £371 million).
2023
£m
2022
£m
Interest receivable 2,992.5 1,421.1
Interest payable (2,225.3) (763.8)
Net interest income 767.2 657.3
Other income & charges (5.2) (1.6)
Gain on derivatives and hedge
accounting
30.3 26.8
Total income 792.3 682.5
Management expenses (311.9) (294.8)
Impairment charge (6.9) (16.6)
Charitable donation to Poppy Appeal — (0.6)
Profit before tax 473.5 370.5
Tax (122.4) (84.3)
Profit after tax 351.1 286.2
Net interest income
Net interest income increased to £767 million (2022: £657
million).
The Bank of England Base Rate increased five times during
the year, increasing from 3.50% at 31 December 2022 to
5.25% at 31 December 2023.
Interest receivable on mortgages and related hedging
programmes increased by £1,167 million, predominantly
as a result of the impact of base rate increases on our
mortgage book and growth in balances. The Society
consciously improved the competitiveness of the standard
variable rate (SVR) product to protect these customers
from the impact of rising rates.
We also benefitted from an additional £405 million of
interest receivable as a result of increased liquidity
balances within a higher interest rate environment.
Interest payable on retail savings increased by £1,177
million following the five base rate increases during 2023
and the full year impact of the base rate increases in
2022. For each base rate change during 2023, we have
passed through on average 65% to our savings members.
Throughout 2023, the Society continued to pay above
average savings rates, returning £342 million (2022: £230
million) in member value compared to market average
rates
1
, whilst continuing to invest in the Society and
maintain its long-term resilience. This represents 0.81%
above the market average rate.
In addition, we paid an incremental £285 million of
interest on our wholesale funding.
Net interest margin
At 1.26%, our net interest margin increased from the
1.16% reported in 2022, as a result of the movements in
net interest income outlined above relative to our average
total assets. The net interest margin peaked at the end of
the first half of 2023, off the back of 14 consecutive
increases in the base rate before reducing in the second
half of the year as the base rate stabilised and assets and
liabilities repriced.
2023
£m
2022
£m
Net interest income 767 657
Average total assets 60,665 56,698
% %
Net interest margin 1.26 1.16
Derivatives and hedge accounting
The Society uses derivative financial instruments solely
for risk management purposes to manage interest rate and
currency risk arising from its fixed mortgage and savings
activity and from non-sterling and fixed rate wholesale
funding.
The Society applies hedge accounting where possible and
its approach continued to be effective throughout the
period. The gain for the year of £30 million (2022: £27
million gain) predominantly reflects two factors.
Firstly, we have updated our assumptions on mortgage
prepayments to reflect customer behaviour more
accurately. This has had the effect of crystallising fair
value gains on mortgage interest rate swaps and resulted
in a gain of £81 million.
Secondly, with such a significant increase in interest
rates, we have seen members choosing to pay penalty
interest to exit their fixed rate ISA products early. This
has been offset by a loss of £63 million due to the impact
of this customer behaviour on our derivatives portfolio.
Coventry Building Society | Annual Report & Accounts 2023 25
Chief Financial Officer's review continued
1. Based on the Society’s average month end savings rate compared to the CACI Ltd's Current Account and Savings Database rest of market average rate for savings accounts, excluding
current accounts and offset savings, for the 12 months of the year.
Strategic Report
The residual net gain represents hedge ineffectiveness
and fair value movements on derivatives where hedge
accounting was not obtained.
Management expenses
Overall management expenses increased by £17 million.
The increase in costs was driven by salary and cost
inflation, investment in service capability, a further
increase of £3 million in spending related to the Society's
strategic investment programme, and the impact of higher
variable pay in recognition of the strong performance
against our targets.
IT costs have increased by £9 million as a result of
increased licensing costs, as we continue to invest in
business growth, resilience and inflationary pressures.
This has been offset by a reduction in depreciation. We
also maintained our contribution to community and
charitable activities.
Ensuring that we spend our members' money wisely and
maintain our cost efficiency advantage is a key part of the
Society's strategy. The cost to income ratio improved to
39.4%
1
(2022: 43.2%), predominately due to our strong
income performance.
Further details regarding administrative expenses is
included in note 9 to the accounts.
Expected credit losses
The performance of our mortgage book has remained
strong despite the persistent level of inflation, increases
in mortgage payments and decline in House Price Index
(HPI) during the year.
The Society has updated its economic scenarios to account
for the continued expected uncertainty in the economic
outlook, including the latest expectations for inflation,
the slightly more favourable house price index (HPI)
forecast, and in turn, the impact on expected credit
losses (ECLs).
That said, with the full impact of the higher interest
payments not yet seen, due to the volume of five year
mortgages yet to mature, we have continued to refine our
cost of living post model adjustment (PMA) to reflect the
potential risk associated from the continuing increase in
the cost of living and higher mortgage payments for our
borrowers.
Consistent with previous years, we have taken a
deliberately cautious approach to estimating ECLs, given
the structural challenges facing our members as outlined
above. This has resulted in an increase to our provision for
ECLs, and a charge of £7 million (2022: charge of £17
million) being recognised.
At the year end, total provisions were £43 million (2022:
£36 million), of which £24 million (2022: £19 million)
related to PMAs.
£18 million (2022: £16 million) of ECL provision relates to
the core modelled losses, including the impact of
alternative economic scenarios. The alternative scenarios
reflect a range of possible outcomes as the economy
continues to see further periods of uncertainty related to
cost of living affordability pressures and house price
movement.
The post model adjustments cover the following risk
areas:
• Risk relating to the impact of the cost of living on our
members where we have identified behavioural
characteristics which may lead to future difficulties
(£18 million).
• A more granular assessment of house price information
which provides a more accurate view of indexed loan
to values (LTVs) and risks associated with pockets of
negative equity.
• Risks which cannot easily be modelled such as for
fraud or cladding remediation within the portfolio.
IFRS 9 requires loans to be assessed as ‘stage 2’ where
there has been a significant increase in credit risk. Loans
are held in stage 2 until such a time when they are
considered to have 'cured' by performing for a sustained
period of time, typically 12 months from the stage 2
trigger event. In 2023, stage 2 accounts increased to
14.5% (2022: 9.3%) principally due to the cautious cost of
living PMA recognition criteria. 98% of these stage 2
accounts remain up to date with their mortgage
payments. 85.0% of the book remains in stage 1 (2022:
90.3%).
As a result of these changes, the ECL provision now
equates to 0.08% of the overall mortgage book (2022:
0.07%).
More information on ECL is included in note 14 to the
accounts.
Taxation
In 2023, the corporation tax charge was £122 million
(2022: £84 million), reflecting an effective tax rate of
25.9% (2022: 22.8%). During the year, the standard rate of
UK corporation tax has increased from 19% to 25%, with
the incremental charge in the effective tax rate mainly
related to the banking surcharge. Further information is
included in note 15 to the accounts.
Coventry Building Society | Annual Report & Accounts 2023 26
Chief Financial Officer's review continued
1. Administrative expenses, depreciation and amortisation/Total income.
Strategic Report
Balance Sheet
Overview
Our core trading performance for both mortgage and
savings was strong in the year. We took the conscious
decision to grow savings balances at more than twice the
rate of mortgages which has both supported earnings in
the year and also helped to pre-fund Term Funding
Schemes (TFSME) repayments in the period ahead. The
strong earnings in the year have further increased general
reserves and capital, improving the financial resilience of
the Society.
A summarised Balance Sheet is set out below:
2023
£m
2022
£m
Assets
Loans and advances to customers 50,276.1 48,014.3
Liquidity 10,924.3 10,009.8
Other 1,262.3 843.0
Total assets 62,462.7 58,867.1
Liabilities
Retail funding 47,582.3 42,288.7
Wholesale funding 10,845.5 13,207.2
Subordinated liabilities and
subscribed capital
57.0 57.0
Other 738.3 366.5
Total liabilities 59,223.1 55,919.4
Equity
General reserve 2,573.2 2,250.7
Other equity instruments 415.0 415.0
Other 251.4 282.0
Total equity 3,239.6 2,947.7
Total liabilities and equity 62,462.7 58,867.1
Loans and advances to customers
Our lending strategy remains primarily focused on high
quality, low loan to value (LTV) mortgages within the
prime residential market. These loans are mainly
distributed through third-party intermediaries, giving the
Society a regionally diverse mortgage portfolio in a cost-
effective way.
The Society manages its growth according to the economic
conditions, market pricing and funding conditions. In
2023, we advanced £7.9 billion of mortgages (2022: £8.7
billion) and mortgage balances grew by £2.3 billion (2022:
£1.4 billion). The year on year growth in mortgages of
4.7% compares with a broadly flat UK mortgage market
and our market share remained at 3%
1
(2022: 3%).
This growth was complemented by lower levels of
redemptions following the Bank of England Base Rate rises
in the first half of the year.
New lending on owner-occupier homes accounted for 81%
of total new lending in 2023 (2022: 67%) at an average
LTV of 67.0% (2022: 65.3%). The Society continues to
support first time buyers and increased the number of
loans advanced in 2023 to 6,300 (2022: 5,400).
Total mortgage assets at 31 December 2023 stood at £50.3
billion (2022: £48.0 billion) which comprised £30.9 billion
of owner-occupier loans (2022: £28.5 billion) and £19.4
billion buy to let loans (2022: £19.5 billion). The balance
weighted indexed LTV of the mortgage book at 31
December 2023 increased slightly to 53.8%
2
(2022: 51.0%)
when compared to prior year as a result of reductions in
house prices.
Possessions and forbearance remained low, with 25 cases
in possession at the year end (2022: 27) and forbearance
levels having increased by 5% year on year in value terms
and 2% in number of cases. With the impact of the cost of
living pressures expected to evolve further in 2024, the
Society continues to focus on supporting its members and
has been cautious in estimating expected credit losses. At
31 December 2023, only 0.26% of mortgages were more
than three months in arrears, which remains a very low
number both historically and when compared with the
latest available industry average of 0.91%
3
. Whilst this
represents an increase in the year (31 December 2022:
0.17%), the low actual number of cases more than three
months in arrears of 929 (31 December 2022: 564)
demonstrates the resilience of the portfolio despite
challenging economic conditions. The vast majority of
these accounts have an LTV below 75%. The buy to let
book saw a proportionately larger increase in arrears but
from a very low base.
Liquidity
Liquid assets increased to £10.9 billion (2022: £10.0
billion) as we maintained a prudent liquidity buffer,
demonstrated by our Liquidity Coverage Ratio (LCR)
remaining strong at 227% (2022: 195%), significantly above
the minimum regulatory requirement.
Liquid assets are principally held in deposits at the Bank
of England and in UK Government investment securities.
This means that asset quality remains very high, with 94%
of the portfolio rated Aaa–Aa3 (2022: 93%). 96% of liquid
assets are held in UK sovereign or UK financial institutions
(2022: 98%).
Included in liquid assets are £1.6 billion of assets held at
fair value through other comprehensive income (FVOCI).
As at 31 December 2023, the balance on the FVOCI
reserve was a £1 million gain, net of tax (2022: £5 million
gain, net of tax).
Retail funding
Retail savings increased in the year by £5.3 billion to
£47.6 billion (2022: £42.3 billion), representing growth of
12.5%, compared with market growth of 1.1%. The
Society’s overall savings market share is 2.7%
1
(2022:
2.4%).
The Society continued to support the cash ISA market,
with our market share of 6.5%
1
broadly unchanged from
prior year (2022: 6.7%). Our increase in overall savings
market share reflects the strength of our proposition and
our desire to increase the value we distribute to members
whilst de-risking our future funding plan.
Our mortgage book continues to be predominantly funded
by retail savings, with 95% of mortgage loans funded in
this way (2022: 88%).
Coventry Building Society | Annual Report & Accounts 2023 27
Chief Financial Officer's review continued
1. Source: Bank of England.
2. LTV is calculated using the Nationwide Building Society quarterly regional house price index (HPI).
3. Source: UK Finance.
Strategic Report
Wholesale funding
We use wholesale funding to diversify our sources of
funding, enabling growth and lowering risk, which then
benefits both mortgage and savings members through
better rates.
Wholesale funding reduced by £2.4 billion in the year to
£10.8 billion (2022: £13.2 billion) driven by our strong
savings performance, which supported the repayment of
£1.8 billion of TFSME.
Wholesale issuances during the year, comprised of a £500
million covered bond in March 2023 and a total of £750
million residential mortgage backed securities (RMBS)
issued in January and November 2023. There was £3.45
billion of central bank Term Funding (TFSME) outstanding
as at 31 December 2023 (2022: £5.25 billion).
Equity
The Society’s equity is predominantly made up of 139
years of retained profits in the general reserve and
Additional Tier 1 (AT 1) capital. The Society made post-
tax profits of £351 million in the year and total equity
increased by £0.3 billion to £3.2 billion, inclusive of a £29
million distribution to AT 1 capital holders and a £27
million movement in the cash flow hedge reserve.
Pension fund
The pension scheme assets and liabilities are recorded in
the Society’s financial statements and the overall position
was a surplus of £4 million at the end of 2023 (2022: £3
million). These assets and liabilities are impacted by
market movements. The movements in the year were
driven by the updated valuation of the pension scheme
assets along with changes in the UK corporate bond
market and latest triennial valuation assumptions
impacting the scheme liabilities position. The Society
continues to monitor the pension scheme to ensure that
there is no scheme deficit over the medium-term.
Regulatory capital
We hold capital to protect members against unexpected
future losses. As we grow our mortgage book, the amount
of capital we need to hold to meet the UK Capital
Requirements Directive (CRD) V increases.
The Society’s CRD V capital position as at 31 December
2023 is summarised below. During the year, the capital
resources increased to £2,891 million, primarily through
the increase in Common Equity Tier 1 (CET 1) driven by
profit after tax of £351 million.
We are not currently bound by regulatory leverage ratios,
which measure Tier 1 capital against total exposures,
including off-balance sheet items. The PRA confirmed in
policy statement PS21/21 that the UK leverage ratio
framework only applies to banks and building societies
with either retail deposits of £50 billion or more, or non-
UK assets equal to or greater than £10 billion; neither of
these measures currently applies to the Society. The UK
leverage ratio increased slightly to 5.4% (2022: 5.2%)
driven by the increase in capital resources in the year.
The Society expects leverage will be its binding constraint
in the future once we pass £50 billion in retail deposits.
The increase in risk weighted assets (RWAs) in 2023 was
driven in the main by an update to the IRB modelling
approach and the mortgage book growth seen in the year.
This has been offset by strong profitability contributing to
increased capital resources. The Society's CET 1 and Total
Capital ratios consequently improved to 29.1% (2022:
27.4%) and 34.0% (2022: 32.7%) respectively.
The Society continues to work towards meeting regulatory
changes for IRB models that are impacting firms across the
industry. Updated models have been submitted to the PRA
for approval in the first half of 2023 and we are awaiting
feedback.
Until the updated models are fully approved, and in
common with many other IRB institutions, the Society has
agreed to hold additional risk weighted assets (RWAs) that
represent its best view of the change in capital
requirements that will result from the new models once
they are implemented.
The final model output may vary from this initial
assessment, which may further lower the CET 1 ratio,
effectively bringing forward changes of increasing RWAs
envisaged in Basel 3.1. The Society expects that from
2025, Basel 3.1 changes to capital requirements will be
phased in and, as transition develops, this will reduce the
Society’s reported CET 1 ratio. Applying the Basel 3.1
RWA floors to the year end figures on a full transition
basis would result in a CET 1 ratio of approximately 21.7%.
The Society’s Total Capital Requirement (TCR) at
December 2023 was £905 million, equating to 10.7% of
RWAs (2022: £846 million; 10.7%). We exceed this
requirement using CET 1 capital alone.
End-point
31 Dec
2023
£m
End-point
31 Dec
2022
£m
Capital resources:
Common Equity Tier 1 (CET 1) capital 2,475.5 2,169.0
Total Tier 1 capital 2,890.5 2,584.0
Total capital 2,890.5 2,584.0
Risk weighted assets 8,499.1 7,911.7
Capital and leverage ratios: % %
Common Equity Tier 1 (CET 1) ratio 29.1 27.4
Leverage ratio including central bank
reserves and full AT 1 capital amount
4.6 4.5
UK leverage ratio
1
5.4 5.2
1. The UK leverage ratio includes a restriction on the amount of Additional Tier 1
capital and excludes central bank reserves from the calculation of leverage
exposures.
Additional information
Further analysis on loans and advances to customers,
treasury credit risk, liquidity, wholesale funding and
capital management is set out in the Risk Management
Report.
Coventry Building Society | Annual Report & Accounts 2023 28
Chief Financial Officer's review continued
Strategic Report
Alternative performance measures
The Society reports its results using a number of financial measures which are not driven by accounting standards (non-IFRS
measures). These measures are used to understand our performance and are used internally when assessing the Society's
results. More information on each alternative performance measure and its calculation is set out within the Glossary on
page 174.
Non-financial information
The Society has voluntarily applied the requirements of Sections 414CA and 414CB of the Companies Act 2006 relating to
the disclosure of non-financial and sustainability (environmental, social and governance) information. The information is
integrated across the Annual Report & Accounts and therefore we have used cross-referencing to avoid duplication.
1. Our full Environmental Policy is published on our website at www.thecoventry.co.uk.
The Strategic Report has been approved by the Board of Directors and signed on its behalf.
Stephen Hughes
Chief Executive
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 29
Other information
Reporting requirement Page
Business model 14
Top & emerging risks 22
Key risk management 31
Key performance indicators 4, 98
Colleagues 15
Human rights 20
Anti-bribery and corruption 20
Communities 16
Environmental matters
1
19
Climate-related financial disclosures 55
Strategic Report
Coventry Building Society | Annual Report & Accounts 2023 30
Risk Management Report
Risk Management
Report
This section outlines
the risks that the Society
is exposed to and how they
are managed.
Introduction 31
Risk committee structure 34
Risk categories
Credit risk 35
Market risk 41
Liquidity and funding risk 42
Conduct risk 48
Operational risk 48
Model risk 49
Strategic risk 50
Capital 51
Introduction
This Risk Management Report explains the principal risks that the Society is currently exposed to and provides information
on how these risks are managed.
The report also includes information on the Society’s capital position - holding capital is a key tool in ensuring the Society
protects members from the impact of any related risk which may materialise.
Principal risks
The principal risk categories to which our business model is inherently exposed are set out below. These risks are managed
through the Society’s Enterprise Risk Management Framework (ERMF).
Principal risks are those risks that the Society believes could significantly affect the achievement of the Society's purpose.
The principal risks were reviewed during the year and two categories of technology risk and data risk were elevated to
recognise the prominence they already had at the Society. Additionally, top and emerging risks, those risks that could
impact the Society's strategic plan or business model, are regularly considered and reviewed. Information on the Society’s
top and emerging risks is included in the Strategic Report on pages 22 and 23.
Credit risk
The risk of loss to the Society from retail borrowers or
wholesale counterparties failing to meet their
contractual payments in full and/or on time. Credit risk
is supported by the following sub-categories: Retail
credit risk and Treasury credit risk.
Retail credit risk: We operate robust underwriting and affordability
assessments which, together with appropriate credit policies, results
in the Society lending responsibly and remaining low risk.
Treasury credit risk: We operate under a treasury risk management
framework reviewed annually by the Board which limits the size and
breadth of exposures to good quality counterparties with a low risk
of failure.
Market risk
The risk of a reduction in earnings and/or value as a
result of financial market movements.
We operate within Board approved limits and use interest and
foreign exchange rate swap agreements to mitigate the impact of
changes in interest rates and foreign exchange rate.
Liquidity and funding risk
The risk of insufficient funds to meet obligations falling
due or the inability to access funding at reasonable cost
or risk.
We hold sufficient liquidity to withstand a severe but plausible stress
and operate within limits set by the Board. We maintain a diversified
funding base to avoid any overreliance on any funding source, type
or term.
Capital risk
The risk that the Society has insufficient capital
resources to absorb losses in benign or stressed
conditions, fails to meet regulatory or external
expectations, or has insufficient financial resources to
recapitalise in the event of resolution.
The Society holds sufficient capital to withstand a severe but
plausible stress, and mitigate risks identified through the annual
ICAAP process. Risk appetite limits are set to ensure that the Society
always maintains compliance with regulatory minima, with early
warning indicators in place to identify periods of severe stress as
part of the recovery planning process.
Conduct risk
The risk that the Society’s behaviour and decision
making at all levels, causes foreseeable harm and
prevents the delivery of good customer outcomes, or
fails to meet the standards articulated in the Society's
purpose and belief in Putting Members First.
We place good customer outcomes at the heart of our decision
making. In line with Putting Members First, this reduces conduct
risk. This ethos is embedded in product design, services, and people
and communication strategies. The Board plays an active role in
oversight of these strategies and the delivery by the Society of good
customer outcomes.
Operational risk
The risk of loss arising from inadequate or failed
internal processes, people and systems, or from
external events. The operational risk category
excludes technology and data risks.
We actively identify, assess and manage operational risks across a
number of categories to which the Society is exposed, consistent
with Basel risk classifications, industry best practice and the
Society's business model. We aim to continuously enhance our
operational risk management framework to enable the Society to
effectively manage its operational risk, thereby limiting incidents
and associated losses to within appetite.
Technology risk
The risk of loss due to breach of confidentiality,
failure of integrity of systems and data,
inappropriateness or unavailability of systems and
data.
We continue to make significant investment in upgrading our IT
estate and enhancing digital capabilities, IT operations and security
defences. The Society monitors and assesses its protection from the
increasing threat of cyber crime, implementing incremental
improvements, thereby continually strengthening risk management
capabilities. A new Board Technology Oversight Committee is in
place.
Risk categories Mitigation
Coventry Building Society | Annual Report & Accounts 2023 31
Risk Management Report
Risk Management Report
Principal risks continued
Risk categories Mitigation
Data risk
The risk of the Society failing to effectively govern,
manage and protect its data or evolve its data
capabilities to align with customer needs and
expectations or meet regulatory and legal compliance.
We are providing greater focus to data risk in light of increasing
consumption and to support digitisation. Data risk capabilities are
being enhanced and an Executive level committee has been
established to provide governance and oversight.
Model risk
The risk of an adverse outcome such as financial loss or
reputational damage as a result of weaknesses or
failures in the development, implementation or use of a
model.
We have implemented robust model risk management policies,
comprising the Board policy on model risk and Model Risk Framework.
These cover key governance requirements and processes applicable to
critical models.
Strategic risk
The risk that the business model fails as a result of not
responding to changes to macroeconomic, geopolitical,
regulatory (including climate change) or other factors
(including changing customer behaviour and
expectations in an increasingly digital world), or from
making poor strategic choices.
We have a simple business model and a clear understanding of the risks
and opportunities in the markets in which we operate. We have a
robust strategic planning process which includes capital and liquidity
stress testing and sensitivity analysis. We monitor changes in strategic
planning assumptions and the market outlook to identify emerging risks
which could threaten the business model over the medium- to long-
term.
Controlling and managing risk
The Society operates a simple business model. It manages risk through the ERMF, which sets out the Board’s approach to
managing and overseeing risk by defining risk strategy; risk appetite; governance and control; and risk management in light
of the Society’s strategy. The ERMF is approved annually by the Board to ensure it operates effectively. The Society will
continue to enhance the ERMF as required to ensure it identifies and manages risk within its low risk appetite.
Three lines of defence
The Society operates within a ‘three lines of defence’ model, recognised as an industry standard for risk management. The
key accountabilities of the three lines of defence within the Society are set out below:
Coventry Building Society | Annual Report & Accounts 2023 32
First line of defence
The business
• Identifies, manages and
mitigates the Society’s risks.
• Is responsible for compliance
with relevant regulation and
legislation.
• Defines and
operatescontrols.
• Assesses key risk indicators
and marketconditions.
• Produces management
information and reports on
risk.
Second line of defence
Third line of defence
Risk oversight
• Designs, develops and
ensures adherence to the
Enterprise Risk Management
Framework.
• Designs and develops other
key frameworks, including
Conduct, Model and
Operational Risk
Frameworks.
• Provides oversight and
challenge over the
management of risks.
• Develops compliance
policies, supports delivery of
regulatory change and
monitors andreports on
regulatoryissues.
• Is responsible for overseeing
effective compliance
withrelevant regulation
andlegislation.
Internal audit
• Provides independent and
objective assurance and
advice on all mattersrelated
to theachievement of
Society objectives.
• Conducts independent
testing and verification
ofthe adequacy and
effectiveness of the Society’s
governance, risk
management, controls,
policies, processes and first
linecompliance.
• Responsible for providing
assurance thatrisk
management processes are
functioning as designed and
that strong evidence
regarding compliance with
relevant regulation and
legislation exists.
Risk Management Report continued
Risk Management Report
Risk management
The Society’s risk management objectives are to:
• Identify risks to the strategic plan and to the Society’s
objectives.
• Assess risk exposures by impact and likelihood.
• Respond to risks by evaluating them against the
Society’s risk appetite, formulating associated
management responses and monitoring progress
against agreed management action plans.
Risks are identified, assessed, managed, monitored,
escalated and reported in accordance with the
requirements of the ERMF. Management information
captures risk metric information against risk indicators,
triggers and limits as appropriate. Where a trigger or limit
is breached, an escalation process exists to ensure it is
escalated, reported and managed effectively, through the
appropriate channels.
Risk strategy
The Board sets the Society’s risk strategy and risk
management approach. The strategy includes establishing
a robust risk culture, setting the Board’s risk appetite and
ensuring that the ‘three lines of defence’ model operates
effectively.
Risk culture
Risk culture is reflected in the behaviour and approach of
the Board and all employees to risk awareness, risk taking
and risk management. A strong risk culture helps the
Society to achieve its strategy within acceptable risk
levels.
The Society’s risk culture is built on the following four
elements:
• Tone from the top;
• Accountability;
• Effective communication and challenge; and
• Incentives.
In particular, the Society does not pay any sales
incentives to employees.
Board risk appetite
The Board articulates the risks it is willing to take in
delivering the Strategic Plan through its risk appetite
statements, which create a framework for decision
making. These appetite statements are reviewed on an
annual basis to ensure they remain effective.
The Board’s strategy towards risk and risk appetite is to
achieve operational, conduct and prudential resilience
that protects the long-term interests of our membership
and the Society, and also reflects our market role in
supporting economic growth and financial stability.
The Executive Risk Committee (ERC), the Board Risk
Committee (BRC) and the Board all review performance
and adherence to Board risk appetite limits.
Stress testing and planning
Stress testing, for both internal and external shocks, is
used to understand the potential impact of risks
crystallising and options to manage them. This includes
scenario and contingency planning.
Stress testing is a key part of the Society’s capital and
liquidity assessments, and allows the Board to be satisfied
that the Society has sufficient capital and liquidity
resources even under a range of severe forward-looking
scenarios.
More detail on the stress testing carried out by the
Society, including the Internal Capital Adequacy
Assessment Process (ICAAP), and Internal Liquidity
Adequacy Assessment Process (ILAAP) is set out in the
sections that follow covering capital, and liquidity and
funding risk.
Governance and control
The Society has a number of committees which oversee
and monitor risk as set out opposite. The Board delegates
to BRC oversight of the Society's risk management
arrangements as a whole. The Chief Risk Officer (CRO)
has an independent reporting line directly to the Chair of
the BRC, in addition to reporting to the Chief Executive.
The Internal Audit function provides independent and
objective assurance and the Chief Internal Auditor has an
independent reporting line to the Chair of the Board Audit
Committee (BAC).
Further information on the BRC and BAC is included in the
Governance Report.
Coventry Building Society | Annual Report & Accounts 2023 33
Risk Management Report continued
Risk Management Report
Principal
committees
Coventry Building Society | Annual Report & Accounts 2023 34
Management
committees
Board Risk Committee (BRC)
To provide oversight in relation to current
and potential future risk exposures and future
risk strategy, including determination of risk
appetite and tolerance and the effectiveness
of the Society's framework for managing risk.
Board Audit Committee (BAC)
To oversee the effectiveness of the system of
internal control and the effectiveness of the
Internal Audit function and external auditors.
Chief Executive
Asset & Liability Committee
(ALCO)
To oversee balance sheet risks faced by the
Society and market tisk, treasury credit risk
and liquidity and funding risk.
Conduct Risk & Compliance
Committee (CRCC)
To oversee and manage delivery of good
customer outcomes consistent with conduct
risk appetite statement.
Model Risk Committee (MRC)
To oversee management of model risks and
exposure to risk remains within risk appetite
statement.
Operational Risk Committee
(ORC)
To oversee management of operational risks
faced by the Society and the resolution of
any risks that crystallise into risk events.
Retail Credit Committee
(RCRC)
To monitor management of retail credit risk
and performance of mortgage book to ensure
compliance with risk limits.
Technology Risk Committee
(TRC)
To oversee management of technology risks
faced and resolution of any risks that
crystallise into risk events.
Data Risk Committee (DRC)
To oversee the management of data risks
faced and resolution of any risks that
crystallise into risk events.
Climate Risk Forum (CRF)
To oversee management of financial
risks arising from climate change and
demonstrate an understanding of the
distinctive elements of these risks and
a sufficiently long-term view.
Risk committee structure
Board
Executive Risk Committee (ERC)
To oversee and monitor risk, and ensure that risk is being identified and managed efficiently across
the Society in line with the Enterprise Risk Management Framework.
Risk Management Report
Credit risk
Credit risk is the risk of loss to the Society resulting from retail borrowers or wholesale counterparties failing to make their
contractual payments in full and/or on time. Credit risk arises from the retail mortgage book and treasury assets held and
therefore is supported by the following sub-categories:
• Retail credit risk; and
• Treasury credit risk.
Maximum exposure to credit risk
The Society’s exposure to credit risk mostly relates to loans and advances to customers. The maximum exposure to credit
risk increased to £64.6 billion in 2023 (2022: £62.6 billion) as a result of growth in the mortgage book and an increase in
liquid assets.
The maximum exposure to credit risk for on-balance sheet and off-balance sheet financial exposures is set out below,
allowing for impairment where appropriate. The maximum exposure to credit risk for off-balance sheet financial exposures
is considered to be the contractual nominal amounts.
(Audited)
On-balance
sheet carrying
value
2023
£m
Off-balance
sheet
exposures¹
2023
£m
Maximum credit
risk exposure
2023
£m
On-balance sheet
carrying value
2022
£m
Off-balance
sheet
exposures¹
2022
£m
Maximum
credit risk
exposure
2022
£m
Cash and balances with the Bank of
England
8,572.2 — 8,572.2 7,792.2 — 7,792.2
Loans and advances to credit institutions 787.9 — 787.9 622.8 — 622.8
Debt securities 1,564.2 — 1,564.2 1,594.8 — 1,594.8
Loans and advances to customers 50,276.1 1,909.2 52,185.3 48,014.3 2,316.0 50,330.3
Derivative financial instruments 1,513.5 — 1,513.5 2,278.1 — 2,278.1
Total 62,713.9 1,909.2 64,623.1 60,302.2 2,316.0 62,618.2
1. Off-balance sheet exposures comprise pipeline loan commitments and undrawn loan facilities.
Retail credit risk
Credit risk in the Society’s mortgage book only crystallises in the event that a borrower is unable to repay the mortgage
and, as a result, the property on which the mortgage is secured has to be repossessed and sold at a price which is
insufficient to allow the borrower to repay the loan.
The Society continues to focus on low risk, high quality owner-occupier and buy to let mortgages. Non-traditional mortgage
lending outside these core segments relates to residual legacy products and comprises a negligible amount of total gross
loans.
Buy to let lending continues to be provided mainly on an interest only basis, reflecting the underlying investment nature of
buy to let properties, which can be sold to repay the capital amount. Interest only lending was 5.4% of the owner-occupier
portfolio at 31 December 2023 (2022: 5.3%) with an average loan to value of 35.1% (2022: 32.4%).
More information on the performance of the retail portfolio is included in the following sections.
Coventry Building Society | Annual Report & Accounts 2023 35
£'bn
Loans and advances to customers (Audited)
50.3
48.0
30.9
28.5
19.4
19.5
Owner-occupier Buy to let
2023
2022
0.0
10.0
20.0 30.0 40.0
50.0 60.0
Risk Categories
Risk Management Report
Geographical concentration
The mortgage portfolio continues to be well diversified
and reflects the national coverage of the Society’s
distribution channels.
The geographical split of mortgages by balance, gross of
impairment provisions, is shown below and has remained
broadly stable:
Loan to value and income multiples
(Unaudited)
The low loan to value (LTV) profile of the mortgage book,
as shown in the following tables, is a reflection of the
Society’s low risk approach to lending. The Society
updates the estimated value of the properties securing
the mortgage portfolio on a quarterly basis using
Nationwide regional house price indices and all tables
within this report are prepared using these valuations.
The standard maximum income multiple for owner-
occupier mortgages is 4.49, consistent with 4.49 for the
prior year. The Society lends on multiples of up to 5.0 for
very low LTV cases. Any lending at or above 4.5 times
income is closely monitored and by value 3.1% (2022:
4.9%) of advances were made at or above this level in
2023. The Society reduces maximum income multiples
permitted if the loan term extends significantly into
retirement to ensure it remains affordable, and
constantly monitors how much lending it is doing at
higher income multiples.
The Society is a responsible lender and operates robust
affordability checks before advancing any loans. For
owner-occupier mortgages, ensuring a borrower has
sufficient net income, both at the time of application
and in a future higher interest rate environment, is a key
part of this. For buy to let loans, the Society sets
minimum interest coverage ratios which reflect among
other things the tax status of the borrower.
The Society’s actual average interest coverage ratio at
the end of the year using a stressed 5% interest rate was
218.8% (2022: 203.4%), significantly above its minimum
lending criteria. The Society also lends to portfolio
landlords within the buy to let segment and takes a
prudent approach to assessing portfolio LTV and income
coverage ratios. There are also limits on the number of
properties in the portfolio both in total and those which
the Society will lend on. Each loan in a portfolio is
assessed on a standalone basis and no allowance is made
in the affordability assessment for other income of the
borrower.
The LTV distribution of the mortgage book as at 31
December 2023 has remained broadly stable with 2022,
as a result of continued growth in HPI offset by a slight
increase in the 85% to 95% and >95% bandings as a result
of additional lending in the year, including first time
buyers. The overall average LTV (balance weighted)
marginally increased from 51.0% to 53.8% during the
year. The following tables calculate LTV based on the
weighted average loan balances unless stated otherwise.
The average indexed LTV of loan stock in London has
increased to 52.6% (2022: 50.5%) as a result of
movements in house prices during the year. The rest of
the portfolio has seen indexed LTV increase marginally to
54.3% (2022: 51.1%).
The average LTV of gross new lending in 2023 is shown
below, which has marginally decreased during the year.
Gross lending by balance - new
lending profile (Audited)
2023
%
2022
%
Owner-occupier purchase 44.9 36.9
Owner-occupier remortgages 34.3 28.3
Owner-occupier further
advances
1.7 2.3
Buy to let purchase 4.3 8.1
Buy to let remortgages 14.4 23.4
Buy to let further advance 0.4 1.0
Total 100.0 100.0
Average loan to value
(simple average)
59.9 61.0
Average loan to value
(balance weighted)
64.9 64.4
Retail credit risk management - mortgages
The Retail Credit Risk Committee (RCRC), and ultimately
the Board, oversee the Society’s credit risk management
supported by a specialist retail credit risk department
reporting to the Chief Risk Officer.
The Board sets prudent credit risk limits within the
context of the Society’s overall risk appetite and these
are reflected in the Society’s lending policy and credit
controls. The limits are also tested in a severe but
plausible stress scenario to ensure the Society is not
exposed to risk outside of its appetite if such a scenario
unfolds, and lending is tracked against these limits.
All mortgage applications are assessed against the
Society’s lending policy criteria to ensure consistent
Coventry Building Society | Annual Report & Accounts 2023 36
Region (Audited)
2023
%
2022
%
London 26.9 27.3
South East England 18.5 18.5
Central England 14.2 14.2
Northern England 13.6 13.4
East of England 12.0 11.8
South West England 8.7 8.8
Scotland 3.5 3.4
Wales and Northern Ireland 2.6 2.6
Total 100.0 100.0
Total mortgage book profile by number of
accounts (Audited)
2023
%
2022
%
Indexed loan to value:
< 50% 52.8 57.2
50% to 65% 26.5 26.8
65% to 75% 11.7 10.0
75% to 85% 5.9 4.0
85% to 95% 2.7 1.7
>95% 0.4 0.3
Total 100.0 100.0
Average indexed loan to value of stock
(simple average)
46.2 44.0
Average indexed loan to value of stock
(balance weighted)
53.8 51.0
Risk Categories continued
Risk Management Report
credit decision making and lending within the Society’s
credit risk appetite. This assessment uses stressed
interest rates to ensure affordability even if interest
rates increase.
The lending criteria has remained broadly unchanged in
2023.
The Society also ensures that there is no overexposure to
any geographical region or counterparty and that its
mortgage portfolio as a whole can withstand a range of
macroeconomic and specific stress scenarios.
The Society's approach to payment
difficulties
Cost of living challenges
The Society continues to support customers and closely
monitor the impacts of the affordability pressures that
both the cost of living inflationary challenges and a
higher interest rate environment have given rise to over
the last two years. The Society takes action to
proactively contact mortgage customers who have or will
be coming to the end of their initial fixed rate mortgage
product period, and who may experience increases in
their mortgage rates. In the event that customers do
experience financial difficulties, contact is made on a
missed direct debit (pre-arrears) as well as following
missed payments (arrears). The full range of forbearance
support, as detailed below, is available related to the
circumstances of the borrower. The Society also supports
the Mortgage Charter, an initiative established in the
year to provide short-term assistance to borrowers
experiencing cost of living challenges.
Arrears performance
During 2023, the Society's longer-term arrears position
has worsened, with £126.7 million (2022: £70.4 million)
of accounts being greater than three months in arrears.
The overall credit quality of the book however does
remain high and arrears levels compare favourably to the
UK Finance average. The vast majority of these accounts
have an LTV below 75%. As at 31 December 2023, the
Society had 25 properties in possession (2022: 27).
The overall level of arrears remains significantly lower
than the UK Finance average, as shown below:
1. UK Finance data as at 31 December 2023 (31 December 2022).
Extent and use of forbearance (Unaudited)
The Society exercises forbearance if it is in the best
interests of the borrower. Forbearance measures that the
Society may offer are:
• Concessions, where the Society agrees to accept
either the normal monthly payment with no
contribution towards paying off the outstanding
arrears, reduced payments, or in exceptional
circumstances, no repayments for a short period.
• Mortgage term extensions to reduce the amount of
the monthly payment as part of a longer-term
solution.
• A change of product which results in more
sustainable monthly payments.
On very rare occasions, arrears may be capitalised or the
Society may agree to change repayment mortgages to
interest only terms for a temporary period as a means of
exercising forbearance.
Where a loan is up to date, the Society may agree a
short-term payment holiday as a way of allowing
borrowers to resolve financial difficulties, in which case
this is treated as a forbearance measure rather than as
one where the borrower is using a product feature.
Forbearance payment holidays are for a maximum of
three months and are only given where the borrower can
afford the post-holiday monthly repayments. The table
on the following page provides details of loans which
have had forbearance measures granted.
The Society applies the Prudential Regulation Authority
(PRA) definition of forbearance (which aligns to the
European Banking Authority) for the purpose of this
disclosure, where forbearance measures have been
granted in the last 24 months, regardless of whether the
incident of forbearance has now been lifted and the
loans are back on their original terms.
As outlined in the table below, the overall number of
loans in forbearance has increased marginally compared
to 2022, but still stands at 0.2% of the total mortgage
portfolio (2022: 0.2%). The average LTV (balance
weighted) of accounts in forbearance as at 31 December
2023 remains low at 50.1% (2022: 47.2%) and mitigates
the risk of loss to the Society in the event that the
borrower defaults on the loan at a future date.
All accounts subject to forbearance at the reporting
period are assessed as either stage 2 or 3 under IFRS 9
and the Society recognises a lifetime ECL for these as an
impairment provision.
The table below details all cases which have had
forbearance measures granted during the last 24 months,
under the PRA definition of forbearance. This therefore
includes stage 1 accounts under IFRS 9, as the
forbearance measures had been lifted at 31 December
2023.
Coventry Building Society | Annual Report & Accounts 2023 37
2023 2022
(Audited)
Gross
balance
£m
Arrears
balance
£m
Gross
balance
£m
Arrears
balance
£m
Greater than three months 122.0 5.9 66.3 3.1
Greater than six months 62.2 4.2 32.0 2.3
Greater than one year 19.7 2.2 13.6 1.4
In possession 4.7 0.3 4.1 0.2
2023 2022
(Audited - Society only)
Society
%
UK
Finance
1
%
Society
%
UK
Finance
1
%
Greater than three months 0.26 0.91 0.17 0.71
Greater than six months 0.14 0.56 0.08 0.45
Greater than one year 0.04 0.26 0.03 0.25
In possession 0.01 0.03 0.01 0.02
Risk Categories continued
Risk Management Report
2023 2022
(Unaudited)
No. of
accounts
Carrying
value
£m
No. of
accounts
Carrying
value
£m
Forbearance: Accounts past due
Concessions 198 31.3 144 19.9
Payment holidays 65 8.7 48 6.0
Product transfers 2 0.2 2 0.2
Temporary transfer to interest only 12 2.0 15 4.1
Term extensions — — — —
Forbearance Indicators: Accounts past due
Concessions 146 19.5 158 19.5
Payment holidays 212 26.3 199 22.0
Product transfers 1 — 1 0.3
Temporary transfer to interest only 30 4.9 87 16.5
Term extensions 2 0.2 3 0.5
Total Forbearance 668 93.1 657 89.0
Of which Stage 2 202 24.6 211 26.1
Of which Stage 3 307 47.9 242 35.8
ECL on forborne accounts 0.8 0.6
Identifying impaired loans (Audited)
Under IFRS 9, the Society calculates impairment
provisions on loans and advances to customers on an
expected credit loss (ECL) basis and not on an incurred
loss basis. ECL provisions are based on an assessment of
probability of default, loss given default and exposure at
default in a range of forward-looking scenarios.
IFRS 9 requires the Society to categorise customer loans
into one of three stages at the Balance Sheet date.
Assets that are ‘performing’ are shown in stage 1; assets
where there has been a significant increase in credit risk
(SICR) since initial recognition or ‘deteriorating’ assets
are in stage 2; and accounts which are credit impaired or
in ‘default’ are in stage 3. Under IFRS 9, loans are
generally treated as being in ‘default’ if they are three
or more months in arrears, have been three or more
months in arrears in the last 12 months or have other
specific unlikeliness to pay indicators. Equity release
loans are treated as being in default once the loan is 12
months past the contractual trigger event. IFRS 9
requires a 12 month ECL provision on all stage 1 assets
and a lifetime ECL provision on all stage 2 and 3 assets.
Further disclosure on the ECL provisions and the
accounting judgements which have been applied are
included in note 14 to the accounts.
Credit risk outlook
Whilst economic headwinds persist, macroeconomic
conditions have improved slightly given the relatively
lower inflation and interest rates, and even though the
labour market has remained resilient, the outlook for
economic growth is somewhat muted. Customers are still
being impacted by the cost of living challenges and
higher interest rate levels and therefore the Society
remains alert to these factors and will continue to
manage policy in accordance with any emerging risks.
As at 31 December 2023, we have observed a modest
increase in arrears levels albeit from a historical low
point, and benchmarking data illustrates the high quality
of the portfolio, but we remain vigilant to potential
increases in arrears levels in the medium-term.
The Society has maintained its ongoing focus on low risk
lending, which is geographically spread across the UK.
This continues to offer protection against forecasted
house prices falls in 2024 and increased affordability
pressures on borrowers.
Coventry Building Society | Annual Report & Accounts 2023 38
Risk Categories continued
Risk Management Report
Treasury credit risk
Treasury credit risk is the risk that the Society is unable
to recover the principal or interest due from a wholesale
debtor, or that the value of a wholesale asset or
instrument suffers materially due to changes in the
creditworthiness of the counterparty.
Management of treasury credit risk
The Society has a low appetite for treasury credit risk
and restricts exposures to good quality counterparties
with a low risk of failure.
Treasury investments in financial institutions are
predominantly with highly rated UK banks and
systemically important international institutions in
addition to multilateral development banks (MDBs), such
as the European Investment Bank. The Society also
invests in Covered Bonds and Residential Mortgage
Backed Securities (RMBS). The treasury credit risk
framework is reviewed annually by the BRC and the
Board, and reflects internal analysis, external credit
ratings and any other relevant factors. There is a
maximum permitted exposure set for each category of
investments in addition to country and regional limits.
Within the risk framework, detailed limit setting is
delegated to the Asset and Liability Committee (ALCO)
with oversight from the Risk function, supplemented by
daily monitoring by the Treasury Credit Committee.
Exposures are reviewed continuously to ensure that they
remain within the approved limits. Developments with
treasury counterparties are closely monitored, with
detailed internal credit assessments performed annually
on key counterparties, with limits reduced or suspended
where there are adverse changes, including changes in
the creditworthiness of counterparties or markets.
Treasury credit exposure profile (Audited)
Treasury assets comprise cash and balances with the
Bank of England, loans and advances to credit institutions
and debt securities. The majority of liquidity continues
to be held in UK central bank reserves.
All of the Society’s treasury exposures remain at
investment grade as set out below:
Exposure value by Moody's rating
2023 (Audited)
Aaa-Aa3
£m
A1-A3
£m
Baa1-Baa3
£m
Unrated
£m
Total
£m
Central banks and sovereigns 9,270.4 — — — 9,270.4
Multilateral development banks (supranational bonds) 109.7 — — — 109.7
Financial institutions 690.5 240.5 — 458.8 1,389.8
Mortgage backed securities 154.4 — — — 154.4
Total 10,225.0 240.5 — 458.8 10,924.3
Exposure value by Moody's rating
2022 (Audited)
Aaa-Aa3
£m
A1-A3
£m
Baa1-Baa3
£m
Unrated
£m
Total
£m
Central banks and sovereigns 8,701.1 — — — 8,701.1
Multilateral development banks (supranational bonds) 159.3 — — — 159.3
Financial institutions 345.7 193.7 — 517.1 1,056.5
Mortgage backed securities 92.9 — — — 92.9
Total 9,299.0 193.7 — 517.1 10,009.8
The majority of treasury assets continue to be held within the UK. The geographical domicile of the Society’s treasury
assets is shown below:
Treasury assets Of which, debt securities
2023 (Audited)
Sovereign
£m
Supranationals
£m
Financial
institutions
£m
Mortgage
backed
securities
£m
Total liquid
assets
£m
Book value
£m
Market
value
movement
£m
Fair value
£m
United Kingdom 9,270.4 — 984.1 154.4 10,408.9 1,496.6 (42.0) 1,454.6
Supranationals — 109.7
1
— — 109.7 110.9 (1.3) 109.6
France — — 404.7
2
— 404.7 — — —
Spain — — 1.0 — 1.0 — — —
Total 9,270.4 109.7 1,389.8 154.4 10,924.3 1,607.5 (43.3) 1,564.2
1. Supranationals relate to amounts held with the European Investment Bank (guaranteed by a number of European sovereigns), the Asian Development Bank (guaranteed by a number of
global sovereigns), and both the European and International Bank for Reconstruction and Development (guaranteed by a number of global sovereigns).
2. Cash collateral held by counterparties under Credit Support Annexes (CSAs) in relation to derivative liabilities.
Coventry Building Society | Annual Report & Accounts 2023 39
Risk Categories continued
Risk Management Report
2022 (Audited)
Treasury assets Of which, debt securities
Sovereign
£m
Supranationals
£m
Financial
institutions
£m
Mortgage
backed
securities
£m
Total liquid
assets
£m
Book value
£m
Market
value
movement
£m
Fair value
£m
United Kingdom 8,701.1 — 883.3 92.9 9,677.3 1,492.4 (57.0) 1,435.4
Supranationals — 159.3
1
— — 159.3 161.0 (1.6) 159.4
France — — 173.2
2
— 173.2 — — —
Spain — — — — — — — —
Total 8,701.1 159.3 1,056.5 92.9 10,009.8 1,653.4 (58.6) 1,594.8
1. Supranationals relate to amounts held with the European Investment Bank (guaranteed by a number of European sovereigns) and both the European and International Bank for
Reconstruction and Development (guaranteed by a number of global sovereigns).
2. Cash collateral held by counterparties under Credit Support Annexes (CSAs) in relation to derivative liabilities.
Counterparty credit risk mitigation
The Society enters into derivative transactions for risk
management purposes. It undertakes sale and repurchase
(repo) transactions to manage liquidity and raise longer-
term funding, where highly rated assets such as gilts are
sold with an agreement to repurchase at an agreed price
at a later date. Counterparty credit risk includes the risk
of default by the derivative counterparty and the risk
that cash received in a repo transaction is less than the
market value of the asset.
The Society manages this risk by undertaking credit
assessments of all counterparties and by exchanging
collateral to mitigate any exposure. Daily
collateralisation of repo transactions is carried out in
accordance with the Global Master Repurchase
Agreements to mitigate net exposure arising from
changes in market value. Similarly, all derivatives have
Credit Support Annexes (CSAs) in place to collateralise
the net mark-to-market credit exposures.
The Society has entered into International Swaps and
Derivatives Association (ISDA) master netting agreements
for all of its derivatives (other than swaps undertaken by
Coventry Building Society Covered Bonds LLP and
Coventry Godiva Covered Bonds LLP). These allow the
Society to settle exposures ‘net’ in the event of a default
or other predetermined event.
The Society is subject to mandatory central clearing of
derivatives through a third-party regulated central
clearing counterparty to reduce systemic and operating
risk. Under this, collateral is exchanged on a daily basis.
The Society may still enter into swaps that are not
currently cleared by any of the central clearing houses,
e.g. cross currency swaps; these are all subject to daily
exchange of collateral to better manage counterparty
risk.
The Society’s Covered Bond programmes (Coventry
Building Society Covered Bonds LLP and Coventry Godiva
Covered Bonds LLP) and Economic Master Issuer plc enter
into swaps under separate ISDA agreements. Each
agreement includes a CSA which provides for
collateralisation of the swap exposure.
The derivative exposures can only be settled net
following a default or other predetermined event, and
therefore exposures are presented gross on the Balance
Sheet.
The Society has a £10.3 million derivative net credit
exposure (2022: £0.6 million), of which £10.0 million is
with A1 rated institutions (2022: £0.6 million), and £0.3
million relates to Aa3 rated institutions (2022: £nil).
More information is included in note 31 to the accounts.
Analysis of treasury assets by IFRS 9 stage
and impairment
Under IFRS 9, the calculation of impairment on treasury
assets is performed on an expected credit loss (ECL)
basis.
The Society determines whether there has been a
significant increase in credit risk for treasury assets using
a range of factors including counterparty credit ratings,
internal monitoring processes and, for mortgage backed
securities, stress testing. Exposures are monitored by the
Treasury Credit Committee.
All of the Society’s treasury assets are assessed as stage
1 'performing' assets at both 1 January and 31 December
2023. Due to the underlying quality of the assets, they
have remained resilient to market volatility and the cost
of living pressures.
ECLs are calculated by applying an externally published
Probability of Default (PD) for the applicable credit risk
rating to the treasury exposure value. The required
provision remained negligible for 2023 and is immaterial
to the financial statements.
As at 31 December 2023, no treasury assets were past
due (2022: none).
Treasury credit risk outlook
There remains uncertainty in the economic outlook
moving into 2024. However, the Society’s consistent low
risk approach to treasury credit risk protects the Society
and its members from credit risk arising on its treasury
portfolio. This is expected to be maintained in future
periods.
Coventry Building Society | Annual Report & Accounts 2023 40
Risk Categories continued
Risk Management Report
Market risk
Market risk is the risk of a reduction in earnings and/or
value resulting from adverse movements in financial
markets.
Market risk only arises in the banking book as the Society
does not hold a trading book. Interest rate risk in the
banking book includes re-price, option and basis risk. The
Society is also subject to credit spread risk in the banking
book and foreign currency risk.
The main source of market risk to which the Society is
exposed to is re-price risk.
Management of market risk
The Board has overall responsibility for determining the
Society's appetite to market risks, including interest rate
risk in the banking book (IRRBB). The Chief Financial
Officer and Treasurer are responsible for managing and
monitoring current and emerging market risks. This is
overseen by the Market Risk Committee, ALCO, BRC and
ultimately the Board.
Market risk is managed by specifying risk tolerances and
operating within these limits, using derivatives, such as
interest rate swaps, or matching offsetting assets and
liabilities. The Society maintains adequate margin
capacity through administered rates, and invests its
reserves and some of its interest rate insensitive
balances in fixed rate assets to reduce income volatility.
Re-price risk
The Society is exposed to the risk that interest rates
change and its assets and liabilities re-price on different
dates, resulting in a negative impact to the future net
interest income or the value of the balance sheet. The
Society manages this risk by limiting the impacts of
different interest rate shocks.
The impact on the economic value of assets and
liabilities under parallel and non-parallel interest rate
shock scenarios is monitored by the Society.
The Society monitors its exposure against the prescribed
shocks of the Basel Committee on Banking Supervision
(BCBS) outlier tests monthly and the Board sets limits for
the maximum change in the Society’s economic value of
equity beneath the regulatory limit.
In addition to the economic value measures, the impact
of various interest rate scenarios on net interest income,
i.e. an earning measure, over multiple timeframes, is
monitored.
The Society uses a structural hedge to manage net
interest sensitivity arising from its reserves and some of
its interest rate insensitive balances. The structural
hedge has a number of Board approved parameters that
limit the size, duration and concentration of maturities
of the hedge.
The table below shows the exposure to re-price risk
against a range of value and earnings-based assessments
as at 31 December 2023. The relatively small change in
value and net interest income measures provides insight
into the modest amount of re-price risk the Society runs.
The balance sheet is positioned so that net interest
income benefits should interest rates rise, i.e. net
interest income disbenefits from falling interest rates.
The sensitivity of the economic value to the different
interest rate shocks is driven by pre-hedged customer
flow positions and separate assumptions on how they will
complete under each shock.
Shock applied (Unaudited)
2023
£m
2022
£m
Impact on present value of assets and liabilities at year end from a parallel change in yield curve:
+100 basis points shift (EV 100) (2.4) (14.8)
-100 basis points shift (EV 100) 2.5 15.6
+200 basis points shift (EV 200) 30.8 14.9
-200 basis points shift (EV 200) (34.5) (17.1)
Impact on net interest income for the year from a parallel change in yield curve:
+100 basis points shift 6.8 10.1
-100 basis points shift (10.5) (11.0)
Product option risk
The Society is exposed to the risk that arises when
interest rate changes result in a financial incentive for a
customer to exercise an option on a fixed rate product
and hedging has to be adjusted at adverse rates. The key
behavioural assumptions made are:
• Rate of prepayment of fixed rate mortgages.
• Rate of prepayment of fixed rate savings.
• Rate of conversion of fixed rate mortgage pipeline.
Prepayment risk is quantified and assessed using a set of
bespoke models that, based on historical experience,
attempt to predict customer behaviour in response to
changes in interest rates, which are backtested. It is
mitigated by appropriate redemption or early withdrawal
charges.
Pipeline risk is managed through dynamic hedging of the
Society’s estimate of likely sales and timing using a
conversion model and applying stressed assumptions.
Final hedging adjustments are made once the completion
onto a product has ceased.
Coventry Building Society | Annual Report & Accounts 2023 41
Risk Categories continued
Risk Management Report
Basis risk
The Society is exposed to the risk that interest rates
change and floating rate liabilities re-price by different
amounts than to its assets such that it is negatively
impacted. The Society manages basis risk by offsetting
assets and liabilities by their reference rate and ensuring
that earnings sensitivity to market rates diverging from
the Bank of England Base Rate remain within limits. The
primary short-term interest rate benchmark that the
Society is exposed to is Sterling Overnight Index Average
(SONIA).
Credit spread risk
Credit spread risk in the banking book is the risk arising
from changes in the market value of financial assets due
to fluctuations in their credit spread. Beyond cash, the
Society holds securities for the high quality liquidity
buffer which are held at fair value through other
comprehensive income (FVOCI). The Society manages this
exposure through a limit which caps the change in the
market value of both fixed and floating rate assets under
a shock to credit spreads. Due to the low treasury credit
risk appetite of the Society, in terms of exposure and
credit quality, the risk is constrained.
Foreign currency risk
The Society raises non-sterling funding to ensure
wholesale funds are obtained cost-effectively across a
wide pool of potential providers. However, this exposes
the Society to the risk of a change in the value of foreign
currency denominated liabilities. Cross currency swaps
are entered into in order to fully hedge the foreign
exchange risk. Both pre- and post-hedged exposures are
managed within limits.
Further information is included in note 23 to the
accounts.
Market risk outlook
Interest rate market volatility continued to be highly
elevated in 2023 as markets tried to assess the Bank of
England's reaction to the surge in inflation and any
potential for expectations to become embedded,
principally in core services inflation and average
earnings. As it turned out, headline inflation had peaked
in October 2022 and the latter half of 2023 saw
disinflationary trends emerging that have in turn seen
markets become more confident to price central bank
pivots away from restrictive monetary policy. The UK's
inflation picture however, has ended 2023 at the highest
level of any G7 country, which leaves the timing of any
rate cuts less certain and later than other jurisdictions.
Although significant uncertainty remains, with the
improvement in the inflation picture the outlook for
growth as seen in forward-looking Purchasing Manager
Indices (PMIs) now looks less negative and any recession
in 2024 is expected to be shallow.
The Society is satisfied that the controls outlined above
will mean that market risk remains within appetite.
Liquidity and funding risk
Liquidity risk is the risk that the Society has insufficient
funds to meet its obligations as they fall due. Funding
risk reflects an inability to access funding markets or to
do so only at excessive cost.
Both risks are managed on a Group basis (including all
subsidiary entities) with day-to-day responsibility
delegated to the Chief Financial Officer and Treasurer,
with oversight provided by the Liquidity Management
Committee, ALCO, BRC and the Board.
Management of funding risk
The Society ensures that it is not reliant on any single
source or funding provider to manage funding risk. It
maintains a strong and diversified funding base with
access to a range of wholesale funding markets. This
reflects the Society’s strategy and the traditional
building society model.
Retail funding forms the bulk of the funding base and
consists of a mix of variable rate products, fixed rate
bonds and ISAs. The Society has a strong record of
attracting and retaining savings balances and continues
to organically grow its savings book. The Society raises
deposits from a broad customer base which is spread
throughout the UK and offers a range of retail savings
products to diversify retail funding. Funds are acquired
directly through the Society's operating channels and
through a number of partnerships, with new channels and
partnerships being explored to diversify this further.
Over 2020 and 2021, the Society accessed the Bank of
England Term Funding Scheme with additional incentives
for SMEs (TFSME) to further reduce funding costs and
diversify exposures. The Society has drawn a total of
£5.25 billion from TFSME which is set to be repaid by the
end of 2025, with the repayment funded by a mix of new
wholesale issuances and retail savings acquisition. This
scheme closed to new drawings in 2021, and during 2023,
£1.8 billion of the balance was repaid.
The Board sets limits to avoid both overreliance on
wholesale funding and funding concentration by type,
counterparty or tenor. These limits comply with the
Building Societies Act 1986 and follow the Prudential
Regulation Authority’s (PRA) supervisory guidance.
Management of liquidity risk
The Society ensures it holds sufficient quality and
quantity of liquidity to remain a going concern after a
severe but plausible stress. In turn, this ensures that it
meets regulatory requirements set by the PRA. The level
of stress applied is dynamically assessed based on an
assessment of risks run by the Society and the prevailing
economic and market liquidity backdrop.
The Society’s business model inherently involves
‘maturity transformation’ as it borrows, or takes
deposits, for shorter-terms than its mortgage lending.
This mismatch could, in certain stressed circumstances,
give rise to liquidity risk if the Society was unable to
raise new funding or replace existing funding at maturity
because of either a liquidity crisis in the capital markets
Coventry Building Society | Annual Report & Accounts 2023 42
Risk Categories continued
Risk Management Report
or a loss of member confidence that causes a ‘run’ on
retail funds at that time.
The annual Internal Liquidity Adequacy Assessment
Process (ILAAP) is completed to ensure that the Society
holds sufficient liquidity to cover this risk. The ILAAP is
approved by the Board and confirms the Society’s
liquidity risk appetite including limits that determine the
mix and amount of liquidity it must hold.
The Society’s Recovery Plan outlines a menu of actions
that can be undertaken to stop the Society from failing in
severe stress situations covering both capital and
liquidity stresses. In line with regulatory requirements,
the Society has also considered its funding requirements
in resolution including identifying its liquidity needs and
available resources.
The Society completes regular stress testing including ad
hoc scenarios and reverse stress testing to test both the
current balance sheet and the latest projection, thereby
ensuring that actual and forecast liquidity remain within
appetite. The forecast and actual liquidity levels are
monitored by the Liquidity Management Committee,
ALCO and BRC, and overseen by the Board.
The Society held a significant buffer above its regulatory
liquidity requirement throughout 2023.
Liquidity resources
The Society’s liquidity resources include funds in cash
accounts held in the Bank of England reserve account and
other highly marketable assets and contingent liquidity.
They are managed based on the prudent estimation of
the expected time taken to convert them into cash in a
stress situation. These limits ensure that the Society
meets its risk appetite, which is consistently higher than
regulatory requirements.
The Society monitors compliance against Liquidity
Coverage Ratio (LCR) requirements on a daily basis and
as at 31 December 2023, the Society’s LCR was 227%
(2022: 195%), significantly above the regulatory
minimum.
The Net Stable Funding Ratio (NSFR) is a measure that
compares the stability of the Society's asset and liability
base. The Society holds sufficient stable funding to meet
the regulatory requirement of 100% NSFR.
As at 31 December 2023, total cash and High Quality
Liquid Assets (HQLA) remains high, with the majority of
assets held as cash at the Bank of England. Total
contingent liquidity increased compared to the prior year
following the Society repaying some of its TFSME funding.
Liquidity adequacy and stress testing
The ILAAP ensures that the Society holds sufficient
liquidity both to meet minimum regulatory requirements
such as the LCR and to comply with the Internal Liquidity
Adequacy Assessment (ILAA) Rules, including the Overall
Liquidity Adequacy Rule.
The ILAAP explains the assumptions used in the Society’s
liquidity stress tests, including the rationale for their
selection and calibration. These assumptions are specific
to the Society and reflect the main risks. The stress tests
consider the potential causes of liquidity risk for the
Society in a severe but plausible stress and the
management actions that may be taken to ensure that
the Society remains a going concern. The Society’s
business model means that the main liquidity risks would
relate to significant unexpected withdrawals of retail
deposits, the impact of any credit risk downgrade and a
lack of access to wholesale funding markets when
wholesale funding matures.
The ILAAP is reviewed by the PRA. Following this, the
PRA provides Individual Liquidity Guidance which sets out
the liquidity that the PRA requires the Society to hold,
including any add-ons for liquidity risks that are not
adequately captured by the LCR.
The Society continued to meet all regulatory liquidity
requirements throughout the year.
Coventry Building Society | Annual Report & Accounts 2023 43
Risk Categories continued
Risk Management Report
Wholesale funding
During 2023, the Society issued two Residential Mortgage Backed Securities transactions (with total bonds issued of £0.75
billion), £0.5 billion in covered bonds, and £0.4 billion in medium term notes, as well as completing the private placement
of £145 million of medium-term notes.
Overall, the wholesale funding at 31 December 2023 has decreased by £2.4 billion as a result of repayment of TFSME during
the year, lower deposit from banks balances, offset by higher RMBS backed debt securities in issue.
2023
2022
(Audited)
Notes to the
accounts £m % £m %
Deposits from banks, including repo agreements 21 1,735.0 16.0 2,255.5 17.1
Amounts drawn under the Term Funding Scheme 21 3,495.7 32.2 5,287.4 40.0
Other deposits and amounts owed to other customers 237.3 2.2 421.1 3.2
Debt securities in issue
Medium term notes 22 1,145.0 10.6 1,451.9 11.0
Covered bonds 22 2,954.3 27.2 3,099.6 23.5
Residential Mortgage Backed Securities 22 1,278.2 11.8 691.7 5.2
Total 10,845.5 100.0 13,207.2 100.0
Wholesale funding outstanding at 31 December 2023 remained primarily denominated in sterling as shown below:
(Audited)
GBP
£m
EUR
£m
Total
£m
Deposits from banks, including repo agreements 1,735.0 — 1,735.0
Amounts drawn under the Term Funding Scheme 3,495.7 — 3,495.7
Other deposits and amounts owed to other customers 237.3 — 237.3
Debt securities in issue
Medium term notes 1,145.0 — 1,145.0
Covered bonds 1,005.5 1,948.8 2,954.3
Residential Mortgage Backed Securities 1,278.2 — 1,278.2
Total as at 31 December 2023 8,896.7 1,948.8 10,845.5
Total as at 31 December 2022 11,200.8 2,006.4 13,207.2
All of the euro denominated covered bonds have been swapped back into sterling.
The expected maturity analysis for wholesale funding is shown below, based on the earlier of first call date or contractual
maturity. More funding matures in the one to five year period, reflecting primarily the maturity due on TFSME funding.
Coventry Building Society | Annual Report & Accounts 2023 44
2023 2022
(Audited) £m % £m %
Less than one year 2,652.4 24.5 4,140.5 31.3
One to two years 4,086.5 37.7 2,741.8 20.8
Two to five years 3,715.1 34.2 5,412.8 41.0
More than five years 391.5 3.6 912.1 6.9
Total 10,845.5 100.0 13,207.2 100.0
Risk Categories continued
Risk Management Report
Contractual maturity profile of financial assets and liabilities
The table below analyses the carrying value of financial assets and financial liabilities based on the remaining contractual
life to the maturity date. In practice, the contractual maturity will differ to actual repayments; ‘on demand’ customer
deposits will be repaid later than the earliest date on which repayment can be requested and mortgages may be repaid
ahead of their contractual maturity. Overall, the net liquidity gap increased during the year.
At 31 December 2023 (Audited)
Repayable
on demand
£m
Up to 3
months
£m
3-12
months
£m
1-5 years
£m
More than 5
years
£m
Total
£m
Assets
Cash and balances with the Bank of England
1
8,572.2 — — — — 8,572.2
Loans and advances to credit institutions 474.5 313.4 — — — 787.9
Debt securities — 224.2 402.4 738.7 198.9 1,564.2
Loans and advances to customers 53.8 893.4 2,561.3 12,456.9 34,310.7 50,276.1
Hedge accounting adjustment (0.7) (1.0) (51.6) (381.4) 1.6 (433.1)
Derivative financial instruments 6.1 7.2 199.4 1,207.0 93.8 1,513.5
Investment in equity shares — — — — 6.8 6.8
Total financial assets
9,105.9 1,437.2 3,111.5 14,021.2 34,611.8 62,287.6
Liabilities
Shares 23,717.0 1,549.9 13,319.2 8,627.5 368.7 47,582.3
Sale and repurchase agreements
2
— 557.5 — 250.1 — 807.6
Amounts drawn under TFSME
2
— 45.7 500.0 2,950.0 — 3,495.7
Deposits from banks - other 925.6 1.8 — — — 927.4
Other deposits — — — — — —
Amounts owed to other customers — 187.3 41.7 8.3 — 237.3
Secured debt securities in issue - RMBS and covered bonds — 443.8 0.6 3,788.1 — 4,232.5
Senior unsecured debt funding — 1.0 6.7 748.4 388.9 1,145.0
Hedge accounting adjustment — — (40.9) (1.3) (25.9) (68.1)
Derivative financial instruments 0.2 — 140.5 319.0 134.5 594.2
Subordinated liabilities — 0.4 — 15.0 — 15.4
Subscribed capital — 1.6 — — 40.0 41.6
Total financial liabilities 24,642.8 2,789.0 13,967.8 16,705.1 906.2 59,010.9
Net liquidity gap (contractual) (15,536.9) (1,351.8) (10,856.3) (2,683.9) 33,705.6 3,276.7
1. Includes £182.1 million mandatory reserve with the Bank of England.
2. Included in Deposits from banks on the Balance Sheet.
Coventry Building Society | Annual Report & Accounts 2023 45
Risk Categories continued
Risk Management Report
At 31 December 2022 (Audited)
Repayable
on demand
£m
Up to 3
months
£m
3-12 months
£m
1-5 years
£m
More than 5
years
£m
Total
£m
Assets
Cash and balances with the Bank of England
1
7,792.2 — — — — 7,792.2
Loans and advances to credit institutions 622.8 — — — — 622.8
Debt securities — 127.9 747.8 514.2 204.9 1,594.8
Loans and advances to customers 44.4 863.2 2,484.3 12,071.2 32,551.2 48,014.3
Hedge accounting adjustment (1.2) (9.9) (128.7) (1,377.0) (78.5) (1,595.3)
Derivative financial instruments 6.8 23.2 202.3 1,843.3 202.5 2,278.1
Investment in equity shares — — — — 5.8 5.8
Total financial assets 8,465.0 1,004.4 3,305.7 13,051.7 32,885.9 58,712.7
Liabilities
Shares 24,344.3 837.1 8,573.0 8,237.5 296.8 42,288.7
Sale and repurchase agreements
2
— 348.2 — 250.0 — 598.2
Amounts drawn under TFS
2
— 37.4 — 5,250.0 — 5,287.4
Deposits from banks - other 1,653.4 3.9 — — — 1,657.3
Other deposits — 5.0 — — — 5.0
Amounts owed to other customers — 332.6 83.5 — — 416.1
Secured debt securities in issue - RMBS and covered bonds — 8.0 813.4 2,305.6 664.2 3,791.2
Senior unsecured debt funding — 403.6 451.5 349.0 247.9 1,452.0
Hedge accounting adjustment (0.7) — (118.6) (280.2) (53.0) (452.5)
Derivative financial instruments 4.1 — 164.4 380.1 77.9 626.5
Subordinated liabilities — 0.4 — 15.0 — 15.4
Subscribed capital — 1.6 — — 40.0 41.6
Total financial liabilities 26,001.1 1,977.8 9,967.2 16,507.0 1,273.8 55,726.9
Net liquidity gap (contractual) (17,536.1) (973.4) (6,661.5) (3,455.3) 31,612.1 2,985.8
1. Includes £169.0 million mandatory reserve with the Bank of England.
2. Included in Deposits from banks on the Balance Sheet.
Gross contractual cash flows payable under financial liabilities are analysed further below. This analysis differs from the
analysis of contractual maturity as it includes interest accrued for the period to maturity on the balance outstanding at the
Balance Sheet date. Principal payments are included based on the earlier of first call date, accessible date or contractual
maturity. The undated Subscribed capital is included in the ‘More than 5 years’ column but with no accrued interest after
this date. The profile remained broadly similar to the prior year.
At 31 December 2023 (Audited)
Up to 3
months
£m
3-12
months
£m
1-5 years
£m
More than 5
years
£m
Total
£m
Liabilities
Shares 25,276.1 13,400.5 8,655.1 368.8 47,700.5
Deposits, amounts owed to other customers and debt securities in issue 1,501.7 1,899.2 6,751.3 460.1 10,612.3
Other liabilities and adjustments 11.9 348.2 452.9 24.4 837.4
Subordinated liabilities 0.6 0.6 18.3 — 19.5
Subscribed capital
1
2.4 2.5 19.4 40.0 64.3
Total liabilities 26,792.7 15,651.0 15,897.0 893.3 59,234.0
Undrawn loan facilities 20.2 20.2
1. The 2022 subscribed capital balance included £415m of Perpetual Capital Securities, these have been excluded in 2023.
At 31 December 2022 (Audited)
Up to 3
months
£m
3-12 months
£m
1-5 years
£m
More than 5
years
£m
Total
£m
Liabilities
Shares 25,193.0 8,621.6 8,261.5 296.9 42,373.0
Deposits, amounts owed to other customers and debt securities in issue 1,689.1 2,313.6 7,225.9 910.6 12,139.2
Other liabilities and adjustments 38.1 242.3 331.2 28.6 640.2
Subordinated liabilities 0.6 0.6 19.5 — 20.7
Subscribed capital 2.4 2.4 434.3 40.0 479.1
Total liabilities 26,923.2 11,180.5 16,272.4 1,276.1 55,652.2
Undrawn loan facilities 23.1 23.1
Coventry Building Society | Annual Report & Accounts 2023 46
Risk Categories continued
Risk Management Report
Asset encumbrance
Some of the Society’s mortgages or treasury assets are used to support collateral requirements for secured funding, central
bank operations or third-party repo transactions. Mortgages or treasury assets used in this way are referred to as
encumbered. Encumbrance provides cheaper and more stable funding; however it creates the risk that savings members
and other senior unsecured creditors may be unable to benefit from the liquidation of encumbered assets in the event of
insolvency of the Society, and may risk bearing losses from a forced sale of the encumbered assets if the Society defaulted.
While these risks are very remote, limits on encumbrance are set by the Board and encumbrance levels are managed within
these limits.
Asset encumbrance at 31 December 2023 is set out in the table below.
Encumbered Unencumbered
(Unaudited)
Pledged as
collateral
1
£m
Other
2
£m
Available as
collateral
3
£m
Other
4
£m
Total
£m
Cash and balances with the Bank of England — 261.5 8,310.7 — 8,572.2
Loans and advances to credit institutions 787.9 — — — 787.9
Debt securities 724.3 — 839.9 — 1,564.2
Loans and advances to customers 15,133.5 — 4,727.9 30,414.7 50,276.1
Hedge accounting adjustments — — — (433.1) (433.1)
Derivative financial instruments — — — 1,513.5 1,513.5
Other assets — — — 181.9 181.9
Total as at 31 December 2023 16,645.7 261.5 13,878.5 31,677.0 62,462.7
Total as at 31 December 2022 17,207.3 231.1 12,746.5 28,682.2 58,867.1
1. Assets that have been used to support interest rate swap collateralisation agreements, third-party secured funding operations, central bank operations or third-party repo
transactions, and cannot be used for any other purpose.
2. Other encumbered assets are assets that cannot be used for secured funding due to legal or other reasons. This includes cash and assets supporting secured funding vehicles.
3. These assets are readily available as collateral to secure funding. Loans and advances to customers in this category comprise Bank of England approved portfolios, and those that
although technically encumbered are held in respect of retained self-issued notes in the Society’s covered bond and securitisation programmes.
4. Unencumbered other assets are therefore conservatively defined as not readily available for use as collateral. The Loans and advances to customers in this category include £18.1
billion at 31 December 2023 (2022: £17.4 billion) which would be eligible for use to support future external or self-issuance under the Society’s covered bond and securitisation
programmes. A proportion of the remaining balance would also be suitable for such purpose subject to amending the programme structures.
External credit ratings
The Society’s long-term and short-term credit ratings were unchanged by Moody’s and Fitch in the year, with the outlook
remaining stable. Short- and long-term credit ratings as at the date of approval of the Annual Report & Accounts are set out
below:
(Audited) Long-term Short-term Outlook Date of last credit opinion
Moody’s A2 P–1 Stable June 2023
Fitch A– F1 Stable November 2023
Liquidity and funding risk outlook
The Society remained committed to prudent liquidity levels and funding levels, raising funds via retail savings and
wholesale markets with beneficial conditions. The Society has £3.45 billion of TFSME drawings which are due to be repaid
by the end of 2025, primarily through new wholesale issuances and further retail acquisition. The Society’s wholesale
funding plan also considers regulation related to meeting the Minimum Requirement for own funds and Eligible Liabilities
(MREL), and the impact on the Society's ratings of senior debt.
Coventry Building Society | Annual Report & Accounts 2023 47
Risk Categories continued
Risk Management Report
Conduct risk
Conduct risk is the risk that the Society’s behaviour and
decision making, at all levels, causes foreseeable harm
and prevents the delivery of good customer outcomes, or
fails to meet the standards articulated in the Society's
purpose and belief in 'Putting Members First'.
Conduct risk profile
The Society’s purpose is to exist to make people better
off through life to create a wider society that is fair,
confident and resilient. The Society's mutual ownership,
its culture and values, and its belief of Putting Members
First drives its decision making and actively supports
delivery of good customer outcomes.
The Society continues to meet its conduct risk
responsibilities and ensures the delivery of good
outcomes for members. This is evidenced through the
Society’s low level of customer complaints and the
positive response from the Financial Ombudsman Service
on complaints that are referred to it, both of which
remain consistently below industry averages. In 2023,
87%¹ of complaints referred to the Financial Ombudsman
Service were decided in the Society’s favour (2022: 97%)
compared with an industry average of 63%² (2022: 63%).
Management of conduct risk
The Society manages conduct risk through its Conduct
Risk Framework, which is designed to protect our
customers by identifying, assessing and managing risks
that could cause them harm (financial or non-financial)
during their relationship with the Society.
In relation to Consumer Duty, the Society successfully
implemented the new rules for new and open products
and services in July 2023 and is on track to complete the
review of closed products and services.
The Society has an established product approval
governance framework, which ensures any new or
materially adapted products are assessed for consistency
with the needs of the identified target market, clarity of
terms and conditions, consideration of the implications
for customers with characteristics of vulnerability and
the mitigation of any risks inherent in the products.
Day-to-day management of conduct risk is the
responsibility of all of the Society’s senior and functional
management teams. Oversight is provided by the
Conduct Risk and Compliance Committee (CRCC),
membership of which includes senior managers from
across the Society. All major product developments are
reviewed and approved by CRCC before launch.
Quality assurance activities across operational processes
are focused on customer outcomes, in addition to process
and policy adherence, and specifically to check members
have received the right advice and levels of service for
their particular needs. Second line oversight is
undertaken by the Conduct Risk Oversight & Compliance
function, reporting into the Chief Risk Officer. The Board
plays an active role in oversight of these strategies and
the delivery by the Society of good customer outcomes.
Supporting vulnerable customers
The Society recognises that members in vulnerable
circumstances are at greater risk of poor outcomes when
dealing with their finances.
The Society has a strong track record in supporting
vulnerable customers with vulnerability experts in place
across our teams, supported by a Vulnerability Working
Group that regularly assesses the needs of vulnerable
customers. The Society is fully committed to applying a
‘human approach’ across all of its channels and this will
remain a key focus as digital services are developed.
Complaints and redress
We are pleased to report a reduction on complaint levels
in 2023 compared to the previous year. The Society
continues to keep positively encouraging members to
identify poor outcomes or service, that do not meet their
expectations and seeks to resolve complaints as soon as
possible.
Key related improvements in 2023 include digital annual
investor statements, improvement to customer
identification through the telephone channel, and an
internal complaints referral line to provide customer-
facing colleagues with immediate access to expert
complaint handlers.
Conduct risk outlook
Management of conduct risk at the Society will continue
to seek alignment with the FCA’s plans for 2024, which
aim to ensure that markets continue to function well,
that the most vulnerable are protected, that the impact
of firm failure is minimised, that scams are tackled and
that consumers are treated fairly.
Key internal future developments evolve around the
continued work on the implementation of Consumer Duty
and the continued focus on supporting borrowers in
financial difficulty, including supporting the Mortgage
Charter to provide short-term assistance to borrowers
experiencing cost of living challenges.
Operational risk
(including technology and data risk)
Operational risk is the risk of loss arising from inadequate
or failed internal processes, people and systems, or from
external events.
Our operational risk appetite is driven internally by the
Society’s belief of Putting Members First and externally
by consumer expectations and regulatory standards that
increasingly focus on resilience and Consumer Duty.
Management of operational risk
Operational risk is managed, reported and controlled
across a number of categories, consistent with the Basel
risk classifications, industry best practice and the
Society’s business model. The most significant
operational risk categories for the Society relate to
technology (including information security), data
statutory, regulatory and internal financial reporting and
financial crime.
Coventry Building Society | Annual Report & Accounts 2023 48
Risk Categories continued
Risk Management Report
1. Source: Financial Ombudsman – complaints upheld in the Society's favour for the six months to 30 June 2023.
2. Source: Financial Ombudsman – complaints upheld in the banking and credit sector for the six months to 30 June 2023.
The Operational, Technology and Data Risk Committees
provide primary oversight of all operational risk categories,
with further oversight provided by the BRC and the Board.
Operational resilience
Ensuring the Society's operational resilience is a top
priority and the Society complied with the PRA and FCA 12-
month regulatory requirements of defining important
business services, setting impact tolerances, mapping
operational assets to services and testing resilience
capabilities. Operational resilience is governed ultimately
by the Society’s Board Risk Committee, and on a day-to-
day basis by the Resilience and Continuity Committee.
Technology
The Society aims to maintain the stability, security and
resilience of its technology estate, and in doing so, avoid
member disruption and reputational impacts arising from
cyber attacks and IT outages.
During 2023, the Society invested significantly in upgrading
its IT estate and enhancing its digital capabilities, IT
operations and security defences and will continue to do so
in 2024.
Statutory, regulatory and internal financial
reporting
The Society has established a multi-year finance
transformation programme to modernise, optimise and
transform the finance operating model. A new general
ledger went operational in 2023 and a new regulatory
reporting solution is due for implementation in 2024.
Data
The increased digitisation has led to the need to give
greater focus to data risks resulting in data being
classified as a principal risk for the Society in 2023. A
data risk transformation programme has been established
to increase capabilities across both technology and our
people. The newly formed executive level Data Risk
Committee will oversee the maturing of our data
capabilities.
Financial crime
The Society and its members are exposed to an ever
present and evolving threat of criminal activity.
Increasing attention has been given to keeping our
members safe from criminal activity through increasing
technological protection and raising member awareness
of threats they might face.
Summary of risk incidents
Operational, strategic, model and conduct risk incidents
are reported in the Society's risk management system.
In 2023, the total cost of risk incidents was £1.5 million
(2022: £0.9 million), as set out below.
1.Losses less than £5,000 have been excluded.
2.Payment Protection Insurance (PPI) included
Model risk
Model risk is defined as the risk of an adverse outcome
such as financial loss or reputational damage, as a result
of weaknesses or failures in the development,
implementation or use of a model.
Model risk profile
The Society is exposed to model risk in relation to its
credit risk, financial and product models. Models are
utilised in a range of contexts, including credit
decisioning, calculation of regulatory capital
requirements for credit risk, and the application of
accounting standards such as IFRS 9.
The relative simplicity of the Society’s business model
reduces the extent of the Society’s exposure to model
risk, however the Society still considers it important that
robust model risk management practices are applied.
Management of model risk
The Society has a Board approved policy on model risk
which defines the standards to be applied to mitigate
model risk. This policy is supported by the Model Risk
Framework (MRF), approved by the Board Risk
Committee. The MRF defines key governance
requirements and processes for the critical models used
throughout the Society. The Chief Financial Officer is
accountable for managing model risk within the Society,
with independent oversight being the responsibility of
the Chief Risk Officer.
The Model Risk Committee (MRC), chaired by the Chief
Financial Officer, oversees the management of model
risk, and is responsible for ensuring the Society’s
exposure to model risk remains within the appetite
prescribed by the Board. MRC is supported by two
technical sub-committees, the Retail Credit Models
Committee and the Financial Models Committee.
The MRF prescribes requirements that must be met in
order for the most important models to be used within
the Society. These requirements are tailored to the
Coventry Building Society | Annual Report & Accounts 2023 49
% of total
volume % of total losses
Operational risk by Basel category
1
(Unaudited) 2023 2022 2023 2022
Execution, delivery and process
management
23 25 45 71
External fraud 74 65 53 28
Damage to Physical Assets 3 — 2 —
Clients, products and business
practices
2
— 10 — 1
Total 100 100 100 100
Value of losses (£m) 1.5 0.9
Risk Categories continued
Risk Management Report
potential impact of each model on the Society, with
more extensive requirements for the most critical
models.
Model risk management controls include:
• The requirement for all critical models to be
approved for use by MRC.
• Independent model validation, with increased
validation activity carried out for higher criticality
models.
• Model risk standards in relation to model
development, testing, validation, monitoring,
documentation, and use.
• Governance around model assumptions, overlays,
compliance, and data.
• Model overview statements which identify conditions
when the models may fail.
For regulatory capital models, an annual self-assessment
against Capital Requirements Regulations and applicable
PRA Supervisory Statements is undertaken in order to
attest to the models' compliance with prevailing
regulations.
Model risk outlook
In May 2023, the PRA published the supervisory
statement SS1/23 'Model risk management principles for
banks'. Coming into effect in May 2024, it sets out the
PRA’s expectations in relation to banks and building
societies’ model risk management practices. Whilst many
of the expectations broadly align to the Society’s current
practices, work is being undertaken to enhance the
Society’s model risk management practices to improve
alignment with the supervisory statement.
During the year, the Society submitted updated IRB
models to the PRA for approval and is currently awaiting
feedback. The models calculate regulatory capital
requirements for credit risk. In the interim, adjustments
are being made to existing model outputs such that they
reflect the outputs of the updated models.
Strategic risk
Strategic risks are those that jeopardise the sustainability
of the Society's business model or the delivery of its
strategic plan. This includes the following risks:
• Setting an overly ambitious or cautious plan with:
inappropriate goals or targets; the wrong risk/reward
balance; and/or a lack of capability or investment to
deliver.
• The undertaking of initiatives that undermine the
business model or a failure to innovate or invest to
sustain long-term performance and independence.
• A failure to adapt to economic, political, industry,
consumer, regulation or other external factors.
• Erosion of the Society's financial sustainability,
including a decline in volumes or income relative to
the Society's cost base.
Strategic risk also considers risks that extend beyond the
five year strategic planning horizon, including the risks
associated with climate change.
Managing strategic risk
Strategic risks are identified and mitigated as part of the
Society’s strategic planning process and through regular
horizon scanning and oversight by the Board, supported
by the Board Risk and Executive Risk Committees. This
activity is complemented by regular financial forecasting
as well as a range of stress testing activity to consider
the longer-term and tail risks to the Society.
These risks are assessed against Board risk appetite,
ensuring the right balance between the distribution of
value to members, investing in the business and
maintaining operational and financial resilience.
Strategic risk is mitigated through a range of activities
which include:
Strategic planning and financial forecasting – The
Society forecasts and costs over a five year horizon with
an updated forecast reviewed by management regularly
taking into consideration changes in the external
operating environment and key risks and sensitivities.
Monitoring of performance – Financial and non-financial
performance is monitored monthly against forecasts and
key indicators, including consideration of emerging risks
and mitigating actions.
Stress testing and sensitivity analysis – Strategic risk,
including climate risk, is regularly stress tested as part of
internal management reporting as well as the annual
Strategic Plan and Internal Capital and Liquidity
Adequacy Assessment processes. To effectively manage
more extreme events, the Society also maintains a
Recovery Plan in line with regulatory guidance.
Strategic risk outlook
The strategic risk outlook is closely aligned to the top
and emerging risks outlined on page 22. During 2023, we
saw elevated political and economic uncertainty, high
inflation, an increase in the Bank of England Base Rate
and a modest increase in unemployment. As well as the
annual strategic planning process, regular forecasts and
sensitivity analysis are produced to ensure we respond to
external developments and changing assumptions.
Although the currently modelled climate risks to our
mortgage stock are limited, the transitional risk as the
UK moves towards Net Zero emissions could be disruptive
to our business model. This could include increased
capital requirements or Energy Performance Certificate
(EPC) requirements for landlords for example. Further
detail relating to climate risks can be found in the 'our
approach to climate change' section of this Annual
Report.
Stress testing indicates that the Society has sufficient
financial resources to remain resilient against these key
developments and continues to operate within its
strategic risk appetite. This outlook reinforces the
importance of the Society's strategic priorities and
continues to focus on good value, straightforward, lower
risk mortgage and savings products delivered in an
efficient way.
Coventry Building Society | Annual Report & Accounts 2023 50
Risk Categories continued
Risk Management Report
Introduction
Capital risk is the risk that the Society has insufficient
capital resources to absorb losses in benign or stressed
conditions, fails to meet prudential regulations and
expectations, or is unable to recapitalise in the event of
resolution. It is a principal risk within the Enterprise Risk
Management Framework (ERMF) and risk appetite limits
are approved by the Board.
Management of capital
The primary governance forum for the management of
capital is the Assets & Liabilities Committee (ALCO), with
delegated authority from the Board Risk Committee
(BRC) and supported by the Capital Management
Committee (CMC), a sub-committee of ALCO. The first
line risk owner is the Chief Financial Officer (CFO), with
second line oversight owned by the Chief Risk Officer
(CRO).
The Society regularly monitors its capital position against
board approved risk appetite limits, recovery plan early
warning indicators (R-EWIs), and prescribed regulatory
minima. This monitoring is conducted against the current
position as well as forecast values, with escalation
procedures in place should any of these limits trigger.
The Society performs an Internal Capital Adequacy
Assessment Process (ICAAP) annually in which it considers
the key risks to which it is exposed and the capital
required to mitigate such risks. As part of the ICAAP, the
Society assesses its capital adequacy over the planning
horizon under base case strategic plan assumptions, as
well as severe but plausible stresses using scenarios
provided either by the regulator or developed internally.
Stress testing is conducted to ensure the Society
maintains sufficient capital to withstand a severe but
plausible stress, and to identify mitigating management
actions which can be taken.
Reverse stress testing is also conducted to identify
extreme events that have the capacity to ‘break’ the
Society. This process helps identify risks and control
mechanisms which might otherwise be missed.
Capital adequacy
Risk weighted capital requirements
CRD V requires the Society to maintain a CET 1 ratio of at
least 4.5%, a Tier 1 capital ratio of at least 6% and a total
minimum capital ratio of 8%. Taken together, these
ratios are known as the Pillar 1 requirement.
The Pillar 2 capital requirement reflects wider risks
within the Society's ICAAP assessment and any capital
add-ons arising from the supervisory review of those
assessments. The Society's combined Pillar 1 and Pillar 2
requirement is represented by its Total Capital
Requirement (TCR), which is set by the PRA. The TCR
was updated in 2022 and equates to 10.7% of risk
weighted assets (RWAs), or £905 million based on year
end RWAs (2022: 10.7% of RWAs or £846 million). The
Society comfortably meets this requirement out of its
CET 1 capital resources.
CRD V also requires lenders to hold supplementary
capital buffers, to be met from CET 1 capital. As at 31
December 2023,these were:
• A Capital Conservation Buffer (CCoB) of 2.5%.
• A Systemic Risk Buffer (SRB) at 0%
1
.
• A macro-prudential Countercyclical Buffer (CCyB) at
2%.
In addition, a PRA buffer may be applied depending on
the outcome of the severe but plausible stress tests.
The Society uses the IRB basis for the majority of its
retail mortgage portfolios, following approval from the
PRA in 2008.
Internal IRB models are used to calculate capital
requirements for prime owner-occupier and buy to let
mortgage exposures, which accounted for around 99% of
lending exposures throughout 2023 (2022: 99%). The
remaining retail credit risk exposures are legacy closed
products with capital requirements calculated via the
regulatory prescribed standardised approach.
The Society follows the standardised approach for all
other lending exposures and for operational risk. The
standardised approach uses capital risk weighting
percentages set by UK Capital Requirements Directive V
(CRD V).
The Society also forecasts the impacts of the proposed
standardised risk weighted floors that are part of the
Basel 3.1 reform package.
Leverage ratio
The leverage ratio measures Tier 1 capital against total
exposures, including off-balance sheet items. It is a non
risk-based measure designed to act as a backstop to the
risk based capital ratios and therefore does not reflect
features of the Society's low risk mortgage lending such
as the low loan to value nature of the portfolio.
The UK leverage ratio framework regulatory requirement
only applies to banks and building societies with either
retail deposits of £50 billion or more, or non-UK assets
equal to or greater than £10 billion. Neither of these
currently apply to the Society.
The PRA expects that a minimum ratio of 3.25% is
maintained at all times by all firms, including those
below the thresholds outlined above. This requirement,
calculated on the basis that the exposure measure
excludes any central bank exposure with a maturity less
than three months and that no more than 25% is met by
high quality AT 1 capital.
There are two additional buffers, to be met from CET 1
capital: the Additional Leverage Ratio Buffer (ALRB),
which is based on systemic buffers, and a macro-
prudential Countercyclical Leverage Buffer (CCLB), which
is based on the Countercyclical Capital Buffer. The levels
of the additional leverage buffers are set at 35% of the
corresponding CET 1 buffers. Only the CCLB is applicable
to the Society, as it is not a systemic firm and is not
required to hold any systemic buffers.
Coventry Building Society | Annual Report & Accounts 2023 51
Risk Management Report
Capital
1. A buffer of 0% applies to lenders with total assets of less than £175 billion.
The CCLB is currently 0.7%. The Society’s Strategic Plan
ensures that it will continue to meet leverage
requirements on an ongoing basis and that internal risk
appetite limits are in place above regulatory minima.
Minimum Requirement for own funds and
Eligible Liabilities (MREL)
A Minimum Requirement for own funds and Eligible
Liabilities (MREL) has been introduced by regulators to
ensure that taxpayers no longer absorb losses when a
bank or building society fails. MREL requirements are set
to reflect how complex or important to the wider
economy an institution is.
The Society meets an MREL requirement of twice the
binding capital requirement (i.e. two times Pillar 1 plus
Pillar 2a), which currently equates to 21.3% of RWAs. The
Society is further required to meet capital buffers from
CET 1, generating a total loss-absorbing requirement of
25.8%.
When leverage becomes the binding capital measure, this
will significantly increase the MREL requirements to
twice the binding leverage exposure measure, and the
Society will need to issue more MREL eligible debt. The
Society’s financial plan provides for these outcomes, and
the MREL issuance plan is cognisant of the £50 billion
retail deposit threshold.
Regulatory capital analysis
The Society calculates and maintains regulatory capital
ratios on both a Group consolidated (including all
subsidiary entities) and Individual consolidated (or solo)
basis.
The Individual consolidated basis includes only those
subsidiaries meeting particular criteria contained within
CRD V. For the Society, there are no significant
differences between the Group and Individual bases, and
the capital disclosures in this report are provided on a
Group consolidated basis only.
IFRS 9 capital transitional arrangements exist but their
impact on the Society’s regulatory capital ratios is not
material and, as a result, the CET 1 and leverage ratios
disclosed in this report do not include the transitional
reliefs.
Further information on capital management is included in
the Society's 2023 Pillar 3 Disclosures at
www.thecoventry.co.uk.
Risk weighted capital
The Society’s capital position on a CRD V end-point basis
is set out below based on all CRD V requirements that
were in force during 2023 excluding transitional
provisions. Further information on CRD V disclosures on a
transitional basis is included in the Society’s 2023 Pillar 3
Disclosures at www.thecoventry.co.uk.
At 31 December 2023, and throughout the year, the
Society complied in full with the capital requirements
that were in force. The CET 1 ratio increased to 29.1%
(2022: 27.4%) and the Total capital ratio to 34.0% (2022:
32.7%). Total risk weighted assets increased by 7.4%,
most of which is related to mortgages on the IRB
approach. The Society is currently awaiting regulatory
approval of the revised IRB models which it has
developed and submitted to meet regulatory changes
that were brought in at the beginning of 2022. Until such
time as the models are approved, and in common with
many other IRB institutions, the Society has agreed to
hold additional RWAs that represent its best view of the
change in capital requirements that will result from the
new models once they are implemented. This has
resulted in a 36% increase over the IRB RWAs calculated
using current models. With regard to the RWAs
calculated using current models, the impact of 4.7%
growth in the mortgage book is combined with the
effects of less favourable credit conditions and the
increase in LTV discussed in the credit risk section.
The Individual consolidated CET 1 ratio on an end-point
basis at 31 December 2023 was 0.2% (2022: 0.3%) higher
than the Group ratio due to assets held by entities that
sit outside of the individual consolidation.
Coventry Building Society | Annual Report & Accounts 2023 52
Capital continued
Risk Management Report
Capital position
End-point
31 Dec 2023
£m
End-point
31 Dec 2022
£m
Common Equity Tier 1 (CET 1) (audited)
General reserve 2,573.2 2,250.7
Fair value through other comprehensive income reserve 1.3 4.9
Cash flow hedge reserve 250.1 277.1
Common Equity Tier 1 prior to regulatory adjustments (audited) 2,824.6 2,532.7
Common Equity Tier 1 regulatory adjustments
Prudent additional valuation adjustment
1
(1.7) (1.6)
Intangible assets
2
(45.0) (39.7)
Cash flow hedge reserve
2
(250.1) (277.1)
Pension fund surplus adjustment
2
(2.6) (2.4)
Excess of expected loss over impairment
3
(39.4) (32.5)
Foreseeable distributions
4
(10.3) (10.4)
Common Equity Tier 1 capital (audited) 2,475.5 2,169.0
Additional Tier 1 (AT 1) capital
Additional Tier 1 – Perpetual Capital Securities 415.0 415.0
Total Additional Tier 1 capital (audited) 415.0 415.0
Total Tier 1 capital (audited) 2,890.5 2,584.0
Total Tier 2 capital — —
Total capital (audited) 2,890.5 2,584.0
Risk weighted assets (unaudited)
IRB approach
Credit risk – retail exposures 7,208.3 6,780.3
Standardised approach
Credit risk – retail exposures 90.7 96.6
Credit risk – liquidity book 143.5 100.3
Credit risk – other 80.5 119.7
Credit valuation adjustment risk 30.5 47.8
Operational risk 945.6 767.0
Total risk weighted assets (unaudited) 8,499.1 7,911.7
Common Equity Tier 1 ratio (unaudited) 29.1 % 27.4 %
1. A prudent valuation adjustment is applied in respect of assets and liabilities held at fair value.
2. Items do not form part of regulatory capital, net of associated deferred tax.
3. The expected loss over accounting provisions is deducted, gross of tax.
4. Foreseeable distributions in respect of AT 1 securities are deducted, net of tax.
Leverage ratio analysis (Unaudited)
The Society’s UK leverage ratio position on an end-point basis is set out below.
The UK ratio includes a restriction on the amount of AT 1 capital that can be included in leverage capital and excludes
central bank reserves from leverage exposures.
The UK leverage ratio has increased to 5.4%, 4.6% when including central bank reserves and full AT 1 capital amount (2022:
5.2% and 4.5% respectively), as the increase in eligible Tier 1 capital was ahead of the increase in leverage ratio exposures.
This reflects the Society’s strategy to remain low risk while retaining only sufficient profits to support the leverage ratio at
required levels.
Coventry Building Society | Annual Report & Accounts 2023 53
Capital continued
Risk Management Report
Leverage ratio analysis (Unaudited) continued
Leverage ratio
End-point
31 Dec 2023
£m
End-point
31 Dec 2022
£m
Total Tier 1 capital 2,890.5 2,584.0
Adjustment for AT 1 restriction — (11.4)
Total Tier 1 capital – used in UK calculation 2,890.5 2,572.6
Leverage ratio exposures
Total Balance Sheet assets 62,462.7 58,867.1
Mortgage pipeline
1
377.8 458.6
Other committed facilities (undrawn lending)
1
10.1 11.5
Repurchase agreements
2
796.1 29.9
Netted derivative adjustments
3
(1,331.8) (2,104.5)
Other adjustments
4
(98.1) (80.7)
Total leverage ratio exposures 62,216.8 57,181.9
Adjustment to exclude central bank reserves (8,306.7) (7,513.1)
Total leverage ratio exposure – used in UK calculation 53,910.1 49,668.8
Leverage ratio including central bank reserves and full AT 1 capital amount 4.6 % 4.5 %
UK leverage ratio 5.4 % 5.2 %
1. Mortgage pipeline is assessed at 20% and other commitments at 50%.
2. Repurchase agreements represent the extent to which collateral provided on repurchase agreements exceeds the amount borrowed.
3. The netted derivative adjustment figure converts the accounting value of derivatives to an exposure measure.
4. Other adjustments predominantly relate to asset balances that have already been included in the capital calculation and these are therefore removed from the total Balance Sheet
assets figure.
Additional capital disclosures are available in the Society’s 2023 Pillar 3 Disclosures at www.thecoventry.co.uk.
Capital outlook
In November 2022, the PRA released CP16/22 'Implementation of the Basel 3.1 standards' – outlining its proposed approach
to the UK implementation of the Basel III finalisation package outlined by the Bank for International Settlements. Part of
this has since passed into regulation through PS17/23, with the remaining and more substantive sections due to be finalised
in the first half of 2024. The main impact for the Society is the introduction of an output floor which requires IRB firms to
floor aggregate IRB outputs to a minimum of 72.5% of the corresponding RWA calculated under the revised standardised
approach. This is expected to be punitive for the Society as the equivalent risk weights under the standardised approach for
owner-occupied and buy to let mortgages are much higher than under internal IRB models. The proposed implementation
deadline set by the PRA is July 2025, with the output floor being phased in over several years starting at 50%.
As a result, the Society expects to see a significant reduction in reported CET 1 measures and anticipates the need to raise
additional MREL debt.
Considerations and assumptions from the Basel 3.1 standards have been included within the Society’s financial plan, which
indicates that it will continue to have a surplus over all capital requirements, ensuring we remain financially resilient.
Coventry Building Society | Annual Report & Accounts 2023 54
Capital continued
Risk Management Report
Coventry Building Society | Annual Report & Accounts 2023 55
Our approach to
climate change
including climate-related financial disclosures
This section outlines how the
Society is responding to
climate change and includes
its climate-related financial
disclosures.
Introduction 56
Our Climate Strategy 58
Our Climate Governance 60
Our Climate Risk Management 61
Metrics and Targets 63
Our approach to climate change
Introduction
This section sets out our understanding of the impact of climate change on the Society and our members. It covers the
activity we completed during 2023 and have planned for 2024 and beyond to achieve our climate change targets. It also
captures how we are progressing our understanding of climate change and the impact it will have on our members and the
Society in the future.
The Society supports the recommendations provided by the Financial Stability Board’s Task Force on Climate-Related
Financial Disclosures (TCFD), which call on companies to disclose the impacts of climate-related risks and opportunities on
their businesses. The information disclosed within this report is structured to demonstrate our understanding of the risks
and opportunities associated with climate change, in a way that is transparent and in accordance with the TCFD, and also
outlines how we have incorporated the requirements of the Prudential Regulation Authority’s (PRA’s) Supervisory
Statement, SS3/19 – ' Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change'.
We recognise that this is a complex, developing area of reporting, where our understanding continues to evolve. Further
information is detailed within our Climate Action Plan and the Society's Sustainability Report, which is available at
www.thecoventry.co.uk.
Definitions
When writing this climate section of the Annual Report, we've tried to do so in a way that is transparent and accessible.
However, this is a new and emerging area from a reporting perspective and we recognise some of the language in this
report requires further defining. The glossary to this Annual Report includes definitions of key terminology used in this
section.
The Society's definitions for emissions and climate risks are below and reflect industry standards:
Coventry Building Society | Annual Report & Accounts 2023 56
Our approach to climate change
Climate Strategy and TCFD
Strategy
This section outlines the
Society’s strategy and how we
are adapting to the risks and
opportunities of climate change.
Governance
This section describes how the
Society has embedded climate
change within its governance
structure, including the role of
the Board.
Risk management
This section outlines how the
Society has incorporated climate
risk within its Enterprise Risk
Risk Management Framework
(ERMF) and the risks identified.
Metrics and targets
This section describes the Society’s
short-, medium- and long-term
climate targets and ambition, and
provides an update on its emissions
calculations.
Emissions
Scope 1 Direct greenhouse gas (GHG) emissions that occur from our own operations (e.g. our company vehicles, gas
usage and fugitive emissions).
Scope 2 Indirect GHG emissions associated with the purchase of our electricity.
Scope 3 The result of activities from assets not owned or controlled by the Society, but that the Society indirectly
impacts in its value chain. Include all sources not within an organisation's Scope 1 and 2 boundary and can be
separated into the following two categories:
- Scope 3 upstream Business travel by means not owned or controlled by the Society, waste disposal, employee commuting, and
purchased goods and services.
- Scope 3 downstream The emissions from the properties financed through the Society’s operations – i.e. our mortgage customers.
Risk Type
Physical The risks arising from the direct physical impacts of climate change. These risks arise from several factors
and relate to specific weather events (such as heatwaves, floods, and storms) and longer-term shifts in the
climate (such as in precipitation, extreme weather variability, sea level rise and rising mean temperatures).
Transition The risks arising from the process of adjustments as we transition to a low carbon economy. The UK
Government has set a target of achieving Net Zero greenhouse gas emissions by 2050 to respond to the
challenge climate change poses. A range of factors influence this risk, including climate-related
developments in policy and regulation, the emergence of disruptive technology or business models, shifting
sentiment and societal preferences, and the potential for 'stranded assets' to be created.
The table below outlines the Society's progress on its climate journey with its achievements and future planned activity.
Achievements Future activity
Strategy
• Enhanced our assessment of the risks and
opportunities of climate change to our business
model.
• Identified strategic partners who can help us to
rise to the climate challenge.
• Continued to offer our green mortgage product
to eligible members.
• Delivered Sustainability Reports in accordance
with GRI standards.
• Developed our plan to transition to Net Zero, to
support the delivery of our Climate Action Plan.
• Obtained the ISO 20400 for Sustainable
Procurement, and the Sustainable Procurement
Kitemark from the Chartered Institute of
Procurement & Supply.
• Continue to deliver against our Climate Action
Plan and Net Zero Transition Plan
• Develop further our green product propositions.
• Engage with our members to support a green
transition once we have greater clarity around
government support and regulation.
Governance
• Became the first UK building society to become a
Certified B Corp, demonstrating the high
standards we have achieved in our ESG
approach.
• Embedded climate governance through the
Board committee structures.
• Designated Senior Management Function (SMF)
with accountability for the financial risks arising
from climate change.
• A Non-Executive Director who is dedicated to
championing ESG at the Board.
• Continued oversight of external developments
and trends across ESG.
• Ensure our Board and senior management
continue to receive climate risk training and
education.
• Continue to evolve climate governance and
drive positive outcomes.
Risk
Management
• Embedded climate risk within our Enterprise Risk
Management Framework.
• Reviewed and renewed our data with respect to
physical and transition risks to continue to grow
our understanding of our potential exposure to
climate risks.
• Incorporated climate risk modelling and analysis
within our ICAAP process.
• Continue to review lending policy to ensure it
remains robust to potential climate risks.
• Develop our data capabilities to embed physical
and transitional risk considerations in our
modelling and decision making.
• Enhance our scenario analysis capability.
• Continue to evolve our risk appetite for physical
and transition risks.
Metrics and
targets
• Delivered our short-term target; we are carbon
neutral for our own operations.
• Published calculations for all of the Society's
emissions (Scope 1, 2 and 3) since 2022.
• Establish the Society's Net Zero Transition Plan,
which outlines our approach of how we intend to
decarbonise.
• Continuing to publish calculations for all of the
Society's emissions (Scopes 1, 2 and 3).
• We are on track to set a science-based climate
target in 2024.
• Continue to evolve and make progress against
our Net Zero Transition Plan, monitoring
internal and external scenarios to drive the
required action.
• Further define metrics and targets to capture
physical and transition risks.
Coventry Building Society | Annual Report & Accounts 2023 57
Climate Strategy and TCFD continued
Our approach to climate change
We recognise that climate
change is a critical issue for our
stakeholders as well as for
wider society. The impact of
climate change also poses
potential material risks to our
business which need to be
effectively managed on behalf
of our members.
Our climate strategy is consistent with our purpose-led
approach to business, as a mutual committed to our
members. Our Climate Action Plan sets out a range of
activities designed to enable us to contribute to a Net
Zero world. In 2023, the Society continued to take action
to positively contribute to addressing this generational
challenge as well as effectively managing the risks to our
business.
We continued to update our Net Zero Transition Plan,
setting and agreeing our plans to achieving our climate-
related targets and ambition over the short-, medium-
and long-term. We are carbon neutral for our own
operations, and have been since 2021. Our Net Zero
Transition Plan captures further actions to help deliver
our ambition to be fully Net Zero by 2040. Further
information on the Society’s emissions can be found in the
metrics and targets section on page 63.
Whilst we are focused on the positive actions we can take
to support a just transition, the climate challenge for the
UK’s housing stock cannot be solved by the Society on its
own. We recognise that we won't be able to achieve the
reduction in emissions to deliver our 2040 Net Zero
ambition without broader policy changes, significant
cross-industry collaborative effort, and further
government support focused on UK housing. We are
working with several organisations such as the Green
Finance Institute, E3G, and UK Finance, supporting
cross-industry green homes action groups to drive
sustainable and responsible solutions. We also work and
partner with several specialist organisations to increase
our expertise and member propositions around the areas
where we can make the greatest impact in reducing our
carbon footprint. This is a challenging objective, but one
we think is important to aim for, as supporting our
members is our purpose. Therefore we will continue to
contribute to discussions during 2024 and beyond.
We also continued to enhance our understanding of
climate risk exposures, which included obtaining quarterly
updates on the physical and transition risks to our
mortgage book. We have sought to understand the risks of
climate change by performing scenario analysis. Further
detail on this can be found in the Climate Risk
Management section on page 61.
Risks and opportunities from climate change
The impact of climate change will prompt substantial
structural adjustments to global and UK economies. For
the Society’s business model, this presents both risks and
opportunities which are summarised below.
Looking ahead to 2024, we will continue to make progress
across the opportunities highlighted. We will continue to
engage with our members in helping them to understand
potential energy efficiency improvements that could be
made to their homes, and to ensure that we have the
right products available to support those who choose to
retrofit their homes.
As well as the opportunities presented by climate change,
there are also risks to our business. As a cross-cutting risk,
the impacts of climate change have been considered
against the Society's principal risk categories, which are
outlined in the Enterprise Risk Management Framework
(ERMF).
The Society annually reviews its risk categorisation. These
risk categories were identified and are maintained
through consideration of both external guidance and
internal assessments including: the Basel 3 risk
classifications; and the areas, scale, and nature of
inherent risks that the Society is exposed to.
Below is a non-exhaustive summary of the opportunities
and risks identified.
Coventry Building Society | Annual Report & Accounts 2023 58
Our approach to climate change
Our Climate Strategy
TCFD areas of
opportunity
Climate
opportunities
Description
Products and
Services
Green finance
An emerging market and opportunity for the Society to offer
innovative financial products which help borrowers to reduce their
carbon emissions and improve energy efficiency.
Resilience Educating and
communicating
with our members
Supporting our membership with the transition to Net Zero and
leveraging partnerships and our B Corp network to attract more ESG
conscious customers and funding.
Markets Access to green
funding
By supporting a fair transition to Net Zero, the Society can utilise
opportunities to obtain green retail or wholesale funding.
Retail
Credit Risk
Transitional
• Impacts on valuations of properties due to potential future governmental requirements
for minimum efficiency standards (EPC). Metrics linked to this risk can be found under
the heading 'Transition Risk' of the risk management climate section.
• Borrower affordability declines leading to higher arrears and defaults, due to higher
energy costs, structural changes in the economy, tax changes or, for buy to let
specifically, other transitional impacts on borrowers' ability to repay.
Physical
• Houses are damaged or become uninhabitable due to physical impacts such as flooding.
• Properties become uninsurable or premiums increase dramatically, impacting
affordability and property valuations.
Operational
Risk
Transitional
• Reputational and financial impacts because of third-party providers not delivering
climate commitments.
• Potential for litigation from future impacts of climate change.
• Increased regulatory compliance risk associated with climate change.
• New area for potential mortgage fraud through transitional climate processes e.g. energy
ratings for properties.
Physical
• Adverse impact on business continuity because of damages to Society's premises and
infrastructure, or failure of suppliers to provide critical services as a result of physical
risks.
• Risk to employee health and safety in extreme weather events.
Conduct
Risk
Transitional
• Borrowers in lower EPC rated properties are subject to increasing energy bills and unable
to afford retrofit costs, possibly resulting in 'mortgage prisoners' as lenders judge they do
not meet affordability requirements.
• Inadequate or misleading information about climate risks may lead to reputational
damage and erode customer trust.
Market &
Treasury
Credit Risk
Physical &
Transitional
• Impacts to markets arising from physical or transitional events. This could impact foreign
exchange markets or interest rate movements and in turn impact the Society's value, or
net income from its assets and liabilities.
• Investor sentiment and preferences, as they increasingly consider ESG factors when
making decisions.
• ESG rating downgrades, and credit ratings downgrades because of climate risk, could
impact the value of securities held and who we can operate with.
Liquidity &
Funding
Risk
Physical &
Transitional
• Inability to access wholesale markets due to lack of ability to operate in green markets.
• Retail funding is challenging as members suffer economic challenges of climate change.
Strategic
Risk
Transitional
• Reputational impacts of the Society not delivering against its climate commitments.
• Increased costs associated with transitional risks and emerging regulation and legislation.
• Deterioration in book quality and mix if we are selected against by more climate
conscious customers.
Capital risk Physical &
Transitional
• Assets depreciate due to physical or transitional impacts of climate change, especially in
regions prone to extreme weather events.
• Imposed regulatory capital allocation could lead to opportunity cost, as the capital may
be utilised in other areas.
Technology
& Data Risk
Physical &
Transitional
• Climate events causing physical disruption to data infrastructure or the supply chain,
leading to data loss, system downtime, or delays in processing.
• Data governance frameworks and quality of data is reliable for models.
Risk category Risk description
Coventry Building Society | Annual Report & Accounts 2023 59
Our Climate Strategy continued
Our approach to climate change
Board oversight of climate risks and opportunities
The Board has ultimate accountability for the
management of all risks and opportunities relating to
climate change as well as our broader approach to
sustainability. In fulfilling its role, the Board delegates
some of its responsibilities in this area to the Board Risk
Committee, Board Audit Committee, Remuneration
Committee and the Nominations & Governance
Committee, as described above. Details of how the
Society approaches risk management more generally can
be found on page 30.
The Board fulfils its responsibilities by receiving regular
updates and quarterly reviews of a standardised ESG
management information pack on climate-related issues.
In 2023, the Board’s involvement in the Society’s strategy
process included assessing climate change risks and
opportunities and endorsing actions to address challenges.
Additionally, the Board approved the annual budget,
endorsing allocated amounts specifically designated for
addressing climate change risks.
The Board receives support from a nominated Non-
Executive Director, Shamira Mohammed, who serves as
the ESG champion. In addition to participating in formal
Board meetings addressing climate topics, her role
extends to regular engagement with the Executive team
and colleagues involved in this area, as well as the review
of climate-related management information.
Management oversight of climate-related issues
The Chief Executive holds the ultimate responsibility for
executive oversight of climate-related matters, with day-
to-day responsibilities delegated to the Chief Risk Officer
(CRO).
The responsibility for managing financial risks related to
climate change is designated to the Society's Chief Risk
Officer, under the Senior Management Function (SMF).
This role includes ensuring that climate-related financial
risks are appropriately integrated into the risk
management frameworks, allowing the Society to identify,
measure, monitor, and report its exposure to these risks.
Monthly Executive Committee meetings address climate-
related matters, with material outputs reviewed by the
Board. Climate topics are integral to strategic discussions
within the Executive team, analysing opportunities for
green lending and energy efficiency improvements.
In 2023, the Executive team extensively reviewed
proposals on GHG emissions, climate performance,
decarbonisation plans, and the Climate Action Plan,
submitting the latter to the Board for approval.
The ESG Steering Group, chaired by the Chief People
Officer, reviews and endorses materials to be considered
by the Executive, playing a key role in setting and
overseeing environmental targets. The group also
endorses and oversees the annual ESG plan, guiding
sustainability actions, including those related to climate
matters.
The Executive Risk Committee (ERC), chaired by the CRO,
oversees climate risk management, receiving monthly
updates on risk appetite measures and relevant regulatory
developments. The Climate Risk Forum (CRF), reporting to
ERC, covers regulatory compliance, stress testing, risk
management, and data capabilities related to climate
change.
Other risk governance forums, including Retail Credit Risk
Committee and Assets and Liabilities Committee, also
receive periodic updates on climate risk related matters.
How ESG-related performance goals are linked to
remuneration are outlined within the Directors'
Remuneration Report on page 98.
Training
We continue to engage with colleagues across the Society
on further embedding awareness of the climate agenda.
This includes engaging with all new colleagues on our
environmental ambitions as part of the corporate
induction programme. We have also made use of tools
such as carbon calculators to educate employees on their
own personal carbon footprint and share techniques to
reduce this. In 2024, we will continue to enhance learning
opportunities across the organisation.
The Board receive an update on sustainability twice a
year, which includes a review of external trends and
developments across ESG and sustainability.
Coventry Building Society | Annual Report & Accounts 2023 60
Committee
Board Risk
Committee
Remuneration
Committee
Board Audit
Committee
Nominations &
Governance
Committee
Responsibilities for
climate change
Reviews and oversees
the activities
undertaken by the
Society to respond to
the financial risks
arising from climate
change.
Receives annual
updates on the
management of
financial risks arising
from climate change.
Oversees the
application of climate
and other ESG targets
to remuneration.
Oversees external
disclosures relating to
the Society’s
management of the
financial risks arising
from climate change.
Ensures that
arrangements are in
place to manage
climate risks and
opportunities at Board
level.
Climate Governance
Our approach to climate change
In line with the Enterprise Risk Management Framework
(ERMF), the Society seeks to understand the climate risks
relevant to its operations, and to monitor and mitigate
these risks over time. The Society has continued to
engage with third parties to enhance data capabilities,
which has included quarterly assessments of the physical
and transitional risks of climate change. The outputs of
these assessments have been reviewed by the Society's
Climate Risk Forum, with summaries provided to the ERC
and BRC.
Risk categorisation and risk appetite
The Society has a risk appetite statement for climate risk,
which is reflective of climate risk being a cross-cutting
risk type with potential impacts across a number of risk
categories including credit risk, operational risk,
reputational risk and market risk. These are captured
within the Climate Change Risk Policy, which is overseen
by the Board Risk Committee. Climate risk is categorised
as a sub-category of strategic risk.
The risk appetite statement incorporates a methodology
for rating the ESG credentials of its treasury wholesale
funding counterparties, which includes minimum
environmental standards, with the approach endorsed by
the Board Risk Committee.
During 2023, the Society continued to enhance its
understanding of the physical and transitional risks which
it is exposed to, over a range of time horizons reflecting
the complex and short-, medium- and long-term impacts
that climate risk poses to wider society and our business
model. The physical and transition risks of climate change
contribute to a structural change affecting the financial
sector at large, and we have sought to understand these
impacts by use of scenario analysis.
Approach to scenario analysis
The Society has used scenario-based approaches to assess
our exposure to physical and transition risks associated
with climate change. This included analysis of exposures
in our mortgage book across short-, medium- and long-
term horizons, with the results of the analysis feeding
directly into the Society's ICAAP.
Overall, the results of the scenario analysis undertaken to
date have confirmed we have not identified significant
climate-related financial risk on our balance sheet.
Scenario analysis has been used to enhance understanding
of both the physical and transitional risks, with further
detail provided on page 62. However, we recognise that
climate risk and scenario analysis continues to evolve, and
we will enhance our analysis and understanding of the
risks in 2024 and beyond.
Physical risks
The Society modelled the impacts of a range of
Representative Concentration Pathway (RCP) levels on its
portfolio, over short-, medium- and long-term horizons
spanning from 2025 to 2080. RCPs provide a recognised
methodology for assessing a range of climate impacts and
temperature increases and have been used in global
climate science since 2013. The Society's analysis included
undertaking an assessment of the Society's mortgage book
in line with the requirements of the Bank of England's
Climate Biennial Exploratory Scenario (CBES), published in
June 2021. The Society used RCP 8.5 for its physical risk
analysis, which is the highest baseline scenario, and it
should be noted that the CBES RCP range is less severe
than the scenarios modelled by the Society.
This analysis looked at the value at risk, loss given
default, probability of default and realised losses in the
event of a downturn. Our analysis has concluded that the
Society does not have a material exposure to the physical
impacts of climate change, even under severe and long-
term modelling. However, whilst we continue to monitor
and enhance our approach to understanding the
transitional risks, we believe that, in the medium-term
this will have implications within the markets where we
operate as the UK progresses towards a Net Zero 2050
target. The Society is therefore enhancing its
understanding of energy performance certificate (EPC)
ratings and the emissions of the mortgages within our
portfolio and plans to engage with mortgage customers to
help them enhance the energy efficiency of their
properties. It is envisaged this will include providing
insight and information to mortgage customers and
offering specialist lending products designed to enable
customers to finance environmental improvements to
their property.
Coventry Building Society | Annual Report & Accounts 2023 61
Climate Risk Management
Our approach to climate change
Transition risk
Owner-occupier mortgages
As at 31 December 2023 As at 31 December 2022
Current EPC data
Number
Exposure
£m % of book
2
Number
Exposure
£m % of book
2
A 357 81.8 0.3 270 62.3 0.2
B 11,886 2,420.8 7.8 9,808 1,911.2 6.7
C 35,149 6,305.4 20.4 30,110 5,192.9 18.2
D 62,389 11,197.8 36.2 56,622 9,777.7 34.3
E 24,032 4,548.5 14.7 22,549 4,159.9 14.6
F 5,370 1,057.1 3.4 5,146 1,007.7 3.5
G 1,143 212.3 0.7 1,084 197.7 0.7
No EPC
1
42,186 5,121.9 16.5 50,428 6,219.9 21.8
Buy to let mortgages
As at 31 December 2023 As at 31 December 2022
Current EPC data
Number
Exposure
£m % of book
2
Number
Exposure
£m % of book
2
A 62 12.4 0.1 50 10.2 0.1
B 6,173 1,046.3 5.4 5,916 999.4 5.1
C 39,760 5,860.1 30.3 35,492 5,205.8 26.7
D 53,326 8,025.8 41.4 50,994 7,679.7 39.4
E 15,743 2,300.2 11.9 15,864 2,341.6 12.0
F 914 128.7 0.7 1,053 150.3 0.8
G 248 30.6 0.2 283 37.2 0.2
No EPC
1
13,182 1,947.0 10.0 19,987 3,072.0 15.8
1. No EPC means that at the time of searching the EPC register, the property in question did not have a valid EPC carried out within the previous ten years.
2. % of the book is based on the exposure value
In 2023, our proxy for assessing transition risk was the
EPC register which records the EPC for 14 million
properties in England, Wales and Scotland, with a
separate calculation for Northern Ireland. The tables
above demonstrate that the EPC profile of the Society's
mortgage portfolio remains broadly consistent year on
year, with slight improvements to the exposures in both
mortgage types to properties rated B and C, and with a
slight increase to properties rated D, with a
corresponding reduction in properties with no EPC data.
The Society holds an EPC against 86% of portfolio stock,
with the remainder having a modelled EPC recorded
against it. On a portfolio level, the Society is focused on
improving the D-G range. If all properties were
retrofitted to their potential, this figure would change
materially. Taking this information together, the
Society’s provider modelled a range of scenarios relevant
to transitional risk on the Society's portfolio, including
the cost of upgrading all properties to their full potential
using the Bank of England average cost of transitioning,
as well as downgrading the value of all properties rating
F-G to land value, as described under the Bank of
England climate scenario. This activity is an inherent risk
assessment based on what we now know. However, the
residual position will be materially impacted in a positive
direction by the Government bringing forward initiatives
such as grants, subsidies and even innovation to bring
down the costs of transitioning through the EPC grades.
The Climate Risk Forum continues to monitor regulatory
and governmental policy with a view to ensuring the
Society is alert to any strategic implications, risks or
opportunities and the need to respond accordingly.
Conclusions on scenario analysis
Scenario analysis on climate change remains in its infancy
for the Society and the financial service sector, so
therefore caution is required when reviewing the results.
The Society has continued to enhance its understanding
of how climate change will impact its business model and
the steps required to take advantage of the opportunities
and mitigate against the risks, but acknowledge further
work is necessary.
The Society continued to work with an external partner
in 2023, to receive regular updates on the physical risks
to the Society's business model and we will continue
working to address any potential climate data gaps
within our assessments.
From a transitional risk perspective, there is an even
greater level of complexity and uncertainty. Therefore,
the Society is supported by third party experts, who have
enhanced the understanding of the EPC coverage of the
Society's portfolio, enabling regular analysis on
transitional risks and enhancing our Scope 3 emissions
calculations as outlined below.
Coventry Building Society | Annual Report & Accounts 2023 62
Climate Risk Management continued
Our approach to climate change
The Society's metrics are driven by our climate change
targets within our Climate Action Plan. We are carbon
neutral for our own business operations and have been
since 2021 (Scope 1 and Scope 2 emissions). Further
targets are to be Net Zero for Scope 1, 2 and partial
Scope 3 emissions by 2030, with an ambition to be
entirely Net Zero by 2040.
In 2023, we are pleased to confirm that we have
achieved reductions in our Scope 1 and Scope 2 emissions
against the prior year and a continued reducing trend
since 2020. This has been achieved through targeted
initiatives and improvements in line with our Net Zero
Transition Plan. We have continued to measure all
greenhouse gas emissions for Scopes 1, 2 & 3.
We manage our direct energy consumption through
strategic measures, such as the targeted energy
efficiency measures and adaptive measures in portfolio
management; therefore, we set the framework for
continued improvement.
This strategic orientation is then implemented
throughout the Society, leading to tangible changes such
as: installing solar panels and air source heat pumps,
adopting measures like switching to LED lighting,
refurbishing windows, removing gas consumption where
possible or optimising building services (such as heating,
cooling, ventilation and lighting). We only purchase 100%
renewable energy and we continue to invest in on-site
solar energy generation where possible. We are on track
for removing our gas consumption completely by
electrifying our heating demand and transitioning our
business fleet to be fully electric vehicles by 2030,
therefore significantly reducing our Scope 1 emissions.
We will continue our procurement of renewable
electricity via solar and wind and investing in improving
our energy efficiency, therefore reducing our Scope 2
emissions. To ensure successful implementation, as well
as for monitoring purposes, we have been externally
certified for the accuracy of our energy and emissions
reporting (ISO 14064-1) since 2020.
Scope 1 and 2 emissions data
Energy consumption 2023 2022
Scope 1: Combustion of fuel and
operation of facilities
Natural gas (kWh) 2,314,556 3,307,633
Direct transport (kWh) 361,194 359,876
White diesel (kWh) 6,012 12,410
Refrigerants (kg) 9 15
Total Scope 1 energy (kWh) excl refrigerants 2,681,762 3,679,919
Scope 2: Electricity purchased Total electricity (kWh) 4,877,523 6,449,733
Scope 3: Indirect transport Indirect transport (incl only employee owned
vehicles (kWh)
562,593 246,337
Total Scope 1, 2 and 3 energy consumption (kWh) excl refrigerants 8,121,878 10,375,989
Emissions assessment 2023 2022
Scope 1: Combustion of fuel and
operation of facilities
Natural gas (tCO2e) 427 604
Direct transport (tCO2e) 88 89
White diesel (tCO2e) 2 3
Refrigerants (tCO2e) 17 31
Total Scope 1 energy (tCO
2
e) 534 727
Scope 2: Electricity purchased,
heat and steam generated
Location based (LB) (tCO2e) 1,010 1,247
Total Scope 1 and 2 energy (tCO
2
e) 1,544 1,974
Scope 3: Indirect emissions Indirect emissions excluding mortgage (tCO2e)
25,181 19,823
Mortgages (tCO2e) 683,256 670,000
Total Scope 1, 2 (LB) and 3 (indirect) emissions (tCO
2
e) 709,981 691,797
Intensity metric assessment 2023 2022
Intensity ratio (total gross Scope 1
and 2)
tCO
2
e/ net interest income £m 2.00 3.00
Intensity ratio (total gross Scope
1, 2 and partial 3)
tCO
2
e/ net interest income £m 2.31 3.29
The above tables reflect estimates for the final two months of both 2022 and 2023, calculated in line with industry best
practice. We have also included estimates for the emissions from our mortgage portfolio, which has increased slightly in
2023, due to the higher mortgage portfolio balance. Further detail on our consumption and emissions data is available
within our Sustainability Report.
Notes on the above table emissions data:
- No mandatory emissions have been excluded from this report.
- Emissions factors applied: Defra 2023.
- Methodology: the report is aligned with GHG Protocol and Environmental Reporting Guidelines including streamlined energy and carbon reporting guidance.
- Estimations: 20% of the energy data (kWh) and 19% of the emissions data (tCO2e) are based on extrapolated values.
- Scope 3 indirect emissions from mortgages is calculated based on 30 September position.
- A full breakdown of all our Scope 1, 2 and 3 emissions and the Society's environmental data can be found in our Sustainability Report.
Coventry Building Society | Annual Report & Accounts 2023 63
Metrics and Targets
Our approach to climate change
Calculation of Scope 3 emissions
The Society’s approach to calculating Scope 3 emissions
is aligned to the Partnership for Carbon Accounting
Financials (PCAF) methodology, which is the industry
standard for calculating Scope 3 financed emissions. The
Scope 3 emissions have been weighted by the LTV of the
mortgages on the Society’s portfolio, to calculate the
proportion of emissions financed by the Society, in
accordance with PCAF. The approach used by the Society
in forming this calculation leverages the property
information we have from EPCs, sourced from publicly
available government databases, to model the level of
GHG emissions within the Society’s mortgage portfolio.
The Society's second estimate of Scope 3 emissions
achieves a PCAF weighted average data quality score of
3.15 (2022: 3.47), which improved due to the increase in
available EPC data. Across the Society’s mortgage
portfolio, 81% (2022: 77%) of the properties had an EPC
rating at the time of the calculation (30 September)
across the Society’s residential owner-occupier and buy
to let mortgaged properties, with other mortgages
estimated using postcode averages.
The Society considers that 3.15 is a credible data quality
score for its estimated Scope 3 emissions, and this was
supported by data quality spot checks to minimise data
inconsistencies and anomalies. It is expected that the
Society’s data quality score will improve as the Society
looks to enhance its data capabilities and as there is
greater focus on improving the energy efficiency of UK
homes and EPC ratings.
Calculation outputs
30
September
2023
30
September
2022
Total properties
308,039 303,695
Absolute finance
emissions (FE)
(MTCO
2
e)
1
0.68 0.67
Average FE per
property (tCO
2
e)
2.24 2.22
FE intensity
(KGCO
2
e/m
2
)
2
44.4 44.8
% EPC match
81% 77%
PCAF data score
3.15 3.47
1.MTCO2e represents metric tonnes of carbon dioxide equivalent.
2. KGCO2e/m2 represents the carbon dioxide equivalent emitted per square metre.
Our overall Scope 3 emissions have remained broadly
stable, even with business growth and the increased
number of homes on our mortgage book. We have seen
an increase in business travel and employee commuting,
as we establish new ways of working are settling down
post the pandemic. Further initiatives will be put in
place to continue to help our employees reduce this
impact where we can. There was also an increase for
Category 1: purchased goods and services within Scope 3,
due to a methodology change and increase with the
DEFRA carbon conversion factors in 2023.
Caution in interpreting Scope 3 emission data
Whilst this data is key in driving change, and monitoring
our progress against our climate ambitions, we would
urge caution about its usefulness and reliability given the
infancy of uniform Scope 3 disclosures, the data gaps
that exist on energy efficiency data on UK properties, the
lack of information on utility usage and the reliability of
EPC bands. As outlined above, the Society will continue
to enhance its understanding and maturity on this topic
and will continue to report in line with PCAF and industry
best practice to promote transparency. The Society will
also look for opportunities to engage industry on
considering how to make EPC ratings and the PCAF
methodology more sophisticated, for example,
considering the carbon intensive production of new
homes versus retrofitting current ones.
Looking ahead to 2024, we will continue to develop our
capabilities to measure, report and mitigate the risks we
face arising from climate change. We will continue to
develop tools to assess the impacts of climate change on
our business activities and ensure that we embed this
within business management information. In 2024, we
will continue to work to build a relationship with our
mortgage borrowers and to help them understand energy
efficiency improvements and how we can support them
in making home improvements, by ensuring we have
suitable green mortgage products available.
The report is consistent with the recommendations of
TCFD and we will continue to enhance our reporting on
climate- and sustainability- related issues as the area
develops and additional recommendations are released.
Coventry Building Society | Annual Report & Accounts 2023 64
Our approach to climate change
Metrics and Targets continued
Coventry Building Society | Annual Report & Accounts 2023 65
Governance
Governance
This section outlines how the
Society is managed in the
interests of members and
highlights the role, constitution
and governance of the Board
and its Committees.
Board of Directors 66
Directors’ Report on Corporate Governance 70
Nominations & Governance Committee
Report
82
Board Risk Committee Report 84
Board Audit Committee Report 86
Directors’ Remuneration Report 91
Directors’ Report 103
This section provides information about your Board of Directors as at 31 December 2023.
Changes to the Board
During the year, Peter Frost and Catherine Doran retired from the Board on 27 April 2023 and Vanessa Murden joined the
Board on 30 January 2023. Vanessa took the decision to resign from the Board from 23 February 2024 to return to a full
time executive role in the financial services sector. There have been no other changes to the Board post 31 December 2023
and as at the date of signing the Annual Report & Accounts.
Board composition
Executive and Non-Executive Director split Gender split
Tenure of Board members Ethnic diversity
The Board’s calendar and commitments
The Board and its Committees have a regular cycle of meetings and will hold additional ad hoc meetings as required. The
table below outlines the schedule for 2023.
Coventry Building Society | Annual Report & Accounts 2023 66
Executive
Directors,
2
Chair, 1
Non-
Executive
Directors,
6
Female, 3
Male, 6
Ethnically
diverse,
22%
Non-
ethnically
diverse,
78%
Re NDR
Re N&G T
A A A T Re T T Re
Re A A R N&G A N&G Re N&G
R A R B R A R A R A
B B B B B B B B B B
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
A Audit B Board N&G Nominations & Governance
NDR Non-Executive Directors' Remuneration R Risk Re Remuneration
T Technology Oversight
Board of Directors
0 - 2 years, 2
3 - 4 years, 3
5 - 6 years, 4
Governance
Appointed
April 2022
Committee membership
Chair of the Board and the Nominations & Governance Committee. Member of the
Remuneration Committee and Non-Executive Directors' Remuneration Committee.
Experience
David has over 40 years’ experience in the banking industry, including four years as Chief
Executive of Clydesdale and Yorkshire Banks. Prior to joining the Society, David held a number
of Board positions including Non-Executive Director at Barclays Bank UK plc where he chaired
the Board Risk Committee and External Member of the Bank of England’s Prudential
Regulation Committee. David was also former Board member of the British Bankers’
Association, former Chair of the Confederation of British Industry in Scotland and President of
the Chartered Institute of Bankers in Scotland. David's previous roles also include Independent
Non-Executive for the EY Global Network, member of its Global Governance Council and
former Chair of Ernst & Young LLP Audit Board.
External appointments
Independent Non-Executive at Ernst & Young LLP and Chair of the Chartered Banker Institute
2025 Foundation.
Appointed
April 2020
Committee membership
Chair of the Non-Executive Directors' Remuneration Committee.
Experience
Steve has broad transformation, financial and operational experience in senior and board
level roles within financial services and consumer goods sectors. Before joining the Coventry,
Steve had been Chief Executive of Principality Building Society, and Finance Director of the
Lloyds Banking Group General Insurance businesses. Passionate about leadership, he has a
strong belief in the benefit of the mutual model and is positive about the role a responsible
business can have on society, as well as supporting colleagues to be the best they can be.
Steve also held the role of Non-Executive Director on the main board of UK Finance and Chair
of the audit and risk committee of UK Finance.
External appointments
Member of the BSA council. Advisory board member of the Money and Pension Service, and
member of the Payments Advisory Board for the Pennies Foundation.
Appointed
June 2018
Committee membership
Chair of the Board Audit Committee. Member of the Board Risk Committee and Board
Technology Oversight Committee.
Experience
Iraj held the role of Senior Partner with Deloitte for over 20 years, leading its national
internal audit group and serving clients in the financial, retail and public sectors. He spent 10
years as Global Head of Internal Audit for Schroders plc, carrying out numerous reviews of
major financial institutions including banks, building societies and insurance companies. Iraj is
a Fellow of the Institute of Chartered Accountants in England and Wales and former Fellow of
the Royal Statistical Society and was a member of the Internal Audit Task Force of the
Institute of Chartered Accountants in England and Wales for a number of years. Iraj was also
member of the Regulatory Decisions Committee at the Financial Conduct Authority for six
years.
External appointments
Chair of the Audit and Risk Committee at the Development Bank of Wales plc and Non-
Executive Director. Chair of the Audit Committee and member of the Risk Committee at Aon
UK Limited and Chair of the Audit and Risk Committee at Eurocell plc.
Coventry Building Society | Annual Report & Accounts 2023 67
Governance
David
Thorburn
Chair of the Board
Board of Directors continued
Stephen
Hughes
Chief Executive and
Executive Director
Iraj
Amiri
Independent Non-
Executive Director
Appointed
November 2017
Committee membership
Chair of the Remuneration Committee. Member of the Nominations & Governance Committee
and Board Audit Committee.
Experience
Jo is an experienced Non-Executive Director who has worked across multiple sectors in her
executive and non-executive careers. Her early career included roles at Mars confectionery,
Pepsi, and Asda, followed by executive roles at Camelot Group plc, B&Q plc and Homebase
Limited. She was also CEO of Start, a Prince of Wales charitable initiative. Jo has held
previous non-executive roles at Principality Building Society and Safestore Self Storage Ltd
and was the former Chair of PayM and of the Current Account Switch Service for Pay.UK.
External appointments
Non-Executive Director, Chair of the Remuneration Committee and Senior Independent
Director at Dŵr Cymru Welsh Water. Non-Executive Director and Chair of Remuneration
Committee at Sirius Real Estate. Non-Executive Director and Consumer Duty Champion at
Vitality Health.
Appointed
May 2019
Committee membership
Member of the Board Audit Committee and Remuneration Committee.
Skills and experience
Chartered Accountant with over 20 years’ experience within the financial services sector.
Currently, Group Chief Accounting Officer at Athora, an insurance and reinsurance group
focused on the pensions and insurance market. Previous executive roles at Aviva plc and
Phoenix Group plc including Finance Director for the Phoenix Life Division and Finance
Acquisition Director.
External appointments
Group Chief Accounting Officer, Athora.
Appointed
January 2023 (until 23 February 2024)
Committee membership
Chair of the Board Technology Oversight Committee and member of the Board Risk
Committee.
Experience
Previously Group Chief Operating Officer at M&G plc, Managing Director of Customer Services
and Retail, Chief Operating Officer for Lloyds Banking Group as well as international roles
with American Express and Travelex. Served on the Homes England Board, chairing its
Nomination & Remuneration Committee and Change Committee as well as sitting on its Audit
and Risk committees. Vanessa has maintained ongoing relationships with regulators in
previous roles, including the Financial Ombudsman Service, the Financial Conduct Authority,
the Prudential Regulation Authority and UK Finance as well as setting up a new ombudsman
service for SME commercial customers across the UK banking industry and liaising with
international regulators.
External appointments
None.
Coventry Building Society | Annual Report & Accounts 2023 68
Jo Kenrick
Deputy Chair of the
Board and Senior
Independent
Director
Board of Directors continued
Shamira
Mohammed
Independent Non-
Executive Director
Vanessa
Murden
Independent Non-
Executive Director
Governance
Appointed
January 2021
Committee membership
Member of the Remuneration Committee, Board Risk Committee and Board Technology
Oversight Committee.
Experience
Over 35 years’ experience at Allied Irish Bank including Head of its Global Treasury Services,
Head of Corporate Banking International and Head of Business Banking. Most recently on the
AIB Group leadership team as Head of Financial Solutions Group before becoming CEO of AIB
UK plc in 2015.
External appointments
Non-Executive Director at Ford Credit Europe Bank plc.
Appointed
April 2021
Committee membership
Member of the Non-Executive Directors' Remuneration Committee.
Experience
Qualified as a chartered certified accountant in 1997 and with over 30 years’ experience in
the building society sector including 24 years at Nationwide Building Society spanning finance,
product, strategy and most recently as Chief Data Officer and a member of the Executive
Committee.
External appointments
None.
Appointed
September 2018
Committee membership
Chair of the Board Risk Committee. Member of the Board Audit Committee, Nominations &
Governance Committee and Board Technology Oversight Committee.
Experience
Wide-ranging experience within the financial services sector. Director of Banks, Building
Societies and Credit Unions at the Bank of England and Head of UK Banks and Mutuals at the
Financial Services Authority (now Financial Conduct Authority). Ten years in various senior
roles at Yorkshire Building Society.
External appointments
Chair of Northern Bank Limited (Danske Bank UK), Advisor to the Board of OakNorth Bank plc
and a visiting professor at the London Institute of Banking & Finance.
Coventry Building Society | Annual Report & Accounts 2023 69
Governance
Brendan
O’Connor
Independent Non-
Executive Director
Board of Directors continued
Lee
Raybould
Chief Financial
Officer and
Executive Director
Martin
Stewart
Independent Non-
Executive Director
Dear Fellow Member
I am pleased to present to you the Society’s Report on
Corporate Governance, which details how the Society’s
governance framework operated in 2023.
As Chair of Coventry Building Society, I am acutely aware
of the importance of good governance in being
accountable to members of the Society. This report,
together with the reports from the Board Committees,
show how we met this commitment in 2023.
The Board is committed to maintaining the highest
standards in the way that the Society is governed and
managed and is guided by the principles of the UK
Corporate Governance Code (the Code) in line with
guidance from the Building Societies Association to ensure
alignment with good practice and our mutual status.
Below are some of the Board’s key governance activities
during the year.
External events
2023 proved to be another challenging year, dominated by
a rising interest rate environment and inflationary
pressures as well as the ongoing challenges created by the
rising cost of living. As a Board we have maintained
oversight of and supported management in addressing
these external challenges and their impact on our
members and wider stakeholders. In such circumstances,
it is even more important that the Board ensure that the
Society’s strategy and activities remain sustainable and
consistent with our purpose and values, as well as
member expectations. Good governance is at the heart of
this and helps to ensure that members, colleagues and
other stakeholders remain at the forefront of our decision
making.
Strategic priorities
The strategic priorities for the year have focused on
delivering the best mortgages and savings service and
products for our members, continuing to improve our
technology capabilities as part of our digital
transformation and ensuring that our impact on people
and society are carefully considered. As part of these
priorities, the Board Technology Oversight Committee was
formally established in 2023, holding its first full meeting
in June. Their work will support delivery in this critical
area of resilience and capability for the benefit of all
members.
Board changes
After six years of service as a Non-Executive Director,
Catherine Doran, retired from the Board at the Society's
2023 AGM. She was joined by Peter Frost, Chief Customer
Officer, who also retired at the 2023 AGM following ten
years as a Board Director. We would like to thank
Catherine and Peter for their outstanding contribution to
the Society’s success and wish them both well for the
future.
Vanessa Murden joined the Board in January 2023 and
took up the role of Chair of the Board Technology
Oversight Committee. In February 2024, Vanessa took the
decision to step down from her role on the Board to
return to a full time executive role in the financial
services sector.
AGM
Our belief of Putting Members First is deeply embedded in
the organisation and as a Board we recognise the
importance of prioritising our members in our decision
making process. Good engagement with our members is
vital to understanding their needs and I was delighted to
be able to spend time with so many of our members at the
'meet and greet' session ahead of the 2023 AGM. We
remain committed to enhancing our engagement with
members and were thrilled to see that our hybrid AGM
facilities allowed so many of you to join our AGM online in
2023. This was a record breaking year for attendance and
we look forward to more members attending the 2024
AGM.
Sustainability
The Board is responsible for overseeing the delivery of the
Society’s sustainability strategy and it is a key theme of
Board and Committee discussions.
This year we became the first ever UK building society to
become a Certified B Corporation. The B Corp movement
has become the global standard for sustainable business
operations and we see clear parallels in its objective to
make business a force for good, and our purpose-led
strategy and values.
Consumer Duty
The Board has continued its focus on the newly
established Consumer Duty regulatory requirements,
which came into force in July 2023. Extensive work has
been carried out to ensure that the Society meets these
new regulatory expectations and continues to deliver to
the highest standard for our members. The Board and its
committees continue to monitor and review the
implementation and effectiveness of our work in this area
and ensure that Consumer Duty is a golden thread
throughout all of our activities and that we meet both
regulatory and member expectations.
Looking forward
Looking forward to 2024, the Board’s primary objectives
will continue to focus on the medium- to long-term plans
for the Society, to ensure its business model remains fit
for purpose and able to continue to provide security,
service, and value to our members. The Board plays a key
role in overseeing and monitoring the development of a
healthy culture at the Society and this will remain a key
focus in 2024. We will also be considering the
requirements of the Financial Reporting Council's new
Corporate Governance Code (issued January 2024)
ensuring that those areas relating to the Society are
addressed and also consider any other best practice
identified to ensure we continue to uphold the highest
standards of corporate governance.
David Thorburn
Chair of the Board
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 70
Directors' Report on Corporate
Governance
Governance
Purpose: Setting the Society's strategic objectives, and monitoring its overall financial performance, ensuring effective
governance, controls and risk management.
Chair: David Thorburn
Members: Jo Kenrick, Martin Stewart, Iraj Amiri, Shamira Mohammed, Vanessa Murden, Brendan O’Connor, Stephen
Hughes, Lee Raybould
Remuneration
Committee
Purpose: Determines
the Society’s
remuneration policy
and practices,
ensuring they are
effective, compliant,
and reflect the
Society’s purpose
and values. The
Committee is also
responsible for
determining the
remuneration
framework for the
remuneration of all
employees, with
particular scrutiny
given to the
remuneration of the
Chair of the Board,
executive directors
and executive
managers.
Chair:
Jo Kenrick
Members:
Brendan O'Connor
Shamira Mohammed
David Thorburn
Nominations &
Governance
Committee
Purpose: Assists the
Board in maintaining
high standards of
corporate
governance and
ensuring these are
consistent with best
practice. Oversees
the implementation
of the Society’s
diversity and
inclusion objectives.
Regularly reviews the
composition of the
Board and leads on
the appointments
process for
nominations to the
Board, and makes
recommendations to
the Board on
succession planning
of Board directors.
Chair:
David Thorburn
Members:
Jo Kenrick
Martin Stewart
Board Risk
Committee
Purpose: Provides
oversight and advice
to the Board in
relation to current
and potential future
risk exposures of the
Society and future
risk strategy,
including
determination of risk
appetite and
tolerance and the
effectiveness of the
Society’s framework
for managing risk.
Additionally, the
Committee ensures
the Executive team
is held to account in
ensuring risks are
identified, assessed
and managed
effectively in
accordance with the
requirements of the
Enterprise Risk
Management
Framework.
Chair:
Martin Stewart
Members:
Brendan O'Connor
Vanessa Murden
Iraj Amiri
Board Audit
Committee
Purpose: Assists the
Board in discharging
its responsibilities
for the integrity of
the Society’s
financial statements,
ensuring they are
fair, balanced and
understandable. The
Committee is also
responsible for
reviewing significant
financial reporting
judgements, and
oversees the
effectiveness of the
system of internal
control and the
effectiveness of the
Internal Audit
function and external
auditors.
Chair:
Iraj Amiri
Members:
Jo Kenrick
Martin Stewart
Shamira Mohammed
Board
Technology
Oversight
Committee
Purpose: Provides
oversight and advice
to the Board on
matters relating to
the Society’s
technology strategy,
technology
investment, strategic
architectural
direction, cyber
security and strategy
on data
transformation. This
includes oversight of
the delivery and
performance in
respect of each of
these matters. The
Committee also
monitors and
evaluates existing
and future trends in
technology that may
affect the Society's
strategic plans,
including monitoring
of overall industry
trends.
Chair:
Vanessa Murden
Members:
Iraj Amiri
Brendan O'Connor
Martin Stewart
Governance framework
Maintaining the highest standards of governance is integral to the successful delivery of the Society's strategy. Our
governance framework ensures that the Board is effective in both making decisions and maintaining oversight, whilst also
adhering to our well-established purpose and values.
Coventry Building Society | Annual Report & Accounts 2023 71
Governance
Directors' Report on Corporate
Governance continued
The Board
The Board delegates certain matters to its Committees. Matters discussed at Committee meetings are reported to
the Board at each meeting.
In addition to the principal Board Committees outlined, the Board also established a Non-Executive Directors' Remuneration
Committee to assist it in fulfilling its oversight responsibilities for the remuneration, expenses, gifts and hospitality of the
Society's non-executive directors. This Committee typically meets once a year and its members comprise the Chair, Chief
Executive, Chief Financial Officer and Chief People Officer.
Corporate Governance Statement
This Corporate Governance Statement has been prepared in accordance with the Principles of the UK Corporate Governance
Code dated July 2018 (the Code) which applied to the 2023 financial year. The Society met the requirements of the Code
throughout 2023 with the exception of the provisions relating to engagement with institutional shareholders, which is not
relevant to the Society given its mutual ownership model. The Governance Report explains how the Society has applied the
principles of the Code throughout 2023.
Role of the Board
The Board has a collective responsibility to secure the long-term sustainable success of the Society for the benefit of its
members and wider stakeholders. It must ensure the delivery of the Society's strategy and that its strategic objectives
remain aligned to the Society's purpose and values. Having a robust governance framework is integral to achieving this
success. It enables the Board to reach decisions in a focused and balanced way, ensuring that full consideration is given to
the impact on each of the Society's key stakeholders.
The Board derives its powers from the Society's Rules and Memorandum (the Rules) which can be found in the corporate
governance section of the Society's website. The Rules are based on the provisions of the Building Societies Act 1986 and
other applicable law and regulation that the Society must comply with. The responsibilities of the Board are set out in a
formal schedule of matters reserved to the Board, which is located on the corporate governance section of the Society's
website. The Board reviews its schedule of matters reserved at least annually to ensure they reflect good governance
practice, any relevant regulatory changes and the requirements of the business. The Board last reviewed its schedule of
matters reserved in January 2024. The Board delegates certain matters to Board Committees so that they can be considered
in more detail by the directors who have the most relevant skills and experience to do so. A summary of the role of each of
the Board's Committees can be found on page 71 of this report and a more detailed account of activities undertaken by the
Board Committees can be found in their respective reports from page 82 onwards. Each of the Board Audit, Board Risk,
Board Technology Oversight, Remuneration and Nominations & Governance Committees has terms of reference which set
out their respective roles and responsibilities. These can be found on the corporate governance section of the Society’s
website.
The day-to-day running of the business is delegated to the Chief Executive who is supported by an Executive team with the
remit of delivering the Society's strategic objectives.
Board responsibilities
The Board seeks to meet its legal and regulatory obligations as well as fulfilling its purpose to oversee the overall
management of the Society. The Board has a number of important responsibilities designed to achieve this objective
extending across a number of areas as summarised below. A full list of the Board's responsibilities are detailed in a
document called the 'Matters Reserved to the Board' which can be found on the corporate governance section of the
Society's website.
Coventry Building Society | Annual Report & Accounts 2023 72
Governance
Board
responsibilities
Challenge and approve
the Society's long-term
strategy
Monitor the impact of the
Society's operations on
society and the
environment
Set the right culture and
values for the Society
Act in the best interest of
the Society's stakeholders
Determine and review the
Society's risk appetite
and the major risks faced
by the Society
Assess the adequacy of
capital and liquidity
Monitor and review the
Society's performance
Directors' Report on Corporate
Governance continued
Board activities in 2023
Board meetings are an important mechanism through
which the Board discharges its responsibilities, particularly
in relation to the requirements of the Code and Section
172 of the Companies Act 2006. Some of the Board’s
responsibilities are discharged directly, whereas others will
be delegated to the Committees of the Board.
The Board’s activities are planned on a 12 month rolling
basis to ensure the responsibilities detailed above are
discharged effectively, with additional items coming to the
Board as appropriate. Each Board meeting is structured
using a carefully tailored agenda that is agreed in advance
by the Chair, in conjunction with the Chief Executive and
Society Secretary. The contents of the agenda are made up
of a combination of standing items from the Board's 12
month planner and additional ad hoc items which fall
within the remit of the Board's responsibilities.
The Board's activities are structured in a way to ensure
that at each meeting the Board has an opportunity to
review trading and financial performance, track the
Society's progress against its strategic aims, assess the
Society's risk position, review governance matters and
oversee the work of its Committees. As relevant, the Board
will also carry out in-depth reviews on key IT and change
programmes, the Society's sustainability performance, new
product proposals and other matters of strategic
importance. Information on directors’ attendance at the
scheduled meetings that took place during the year can be
found on page 74.
The key activities considered by the Board during the year
are summarised below.
Activities in 2023
At each meeting the following standing items are
considered by the Board:
Chief Executive’s report: providing an overview of the
external competitive environment covering key trends
across the lending and savings sectors, in addition to
information on the status and progress of the Society’s
strategic change projects.
Management information: on the Society’s trading and
financial performance since the last meeting of the Board.
Reporting on the Society’s operations including people and
customer service metrics and key developments across
Society operations.
Chief Risk Officer’s report: on the Society’s risk position
and assessment of the Society’s key risks.
Board Committee updates: from the Chairs of the Board
Committees to the Board on the key issues and topics
raised at Committee meetings ensuring the Board is aware
of key discussions and decisions made by the Committees.
Coventry Building Society | Annual Report & Accounts 2023 73
Approved the appointment of Vanessa Murden
as a Non-Executive Director, with specialist
skills in technology, digital and transformation.
Reviewed the results of the Society’s annual
employee opinion survey.
Reviewed the results of the Board and Board
Committee’s annual effectiveness assessments.
Directors' Report on Corporate
Governance continued
Approved the Society's Annual Report &
Accounts.
Reviewed the Society's annual Sustainability
Report and approved its publication.
Reported to the membership on the activity of
the Society at the Annual General Meeting.
Consumer Duty requirements came into force
and the Board were assured of compliance and
plans for future work.
Interim financial results reviewed and
approved.
Reviewed engagement activity between the
Board and Board Committee and Society
colleagues.
First Board strategy day held with reflections on
performance and future ambitions considered.
Received an update on external developments
in ESG and reviewed the Society’s progress
against its sustainability strategy.
Received an annual update on the activities of
its Charitable Foundation.
Participated in Fire Drill recovery exercise.
Second Board strategy day held focusing on
formation of the strategic roadmap. Considered
key areas of focus for the forthcoming plan
period and future strategic ambitions.
Approved the Society’s Strategic Plan and
Financial Plan.
Reviewed the annual whistleblowing report
delivered by the Society’s Whistleblowing
Champion.
Reviewed the annual Periodic Summary Meeting
letter issued by the PRA setting out a summary
of the PRA's view on the most material risks
facing the Society.
February
March
April
October
November
Governance
July
January
June
September
December
Operation of the Board
In 2023, there were 11 formal meetings of the Board. These included six routine Board meetings where the Board reviewed
a range of matters (as outlined on page 73) relating to the Society’s business, strategy, culture and performance, and two
meetings dedicated to a review of financial and operational performance only. The Board also held a meeting immediately
after the 2023 Annual General Meeting to deal with the matter of electing the Chair, Deputy Chair and Chairs of the Board
Committees. Another meeting was held in December, where the Board reviewed the annual Periodic Summary Meeting
letter issued by the PRA setting out a summary of the PRA's view on the most material risks facing the Society.
In addition to the scheduled Board meetings, the Board also held two off-site strategy days in June and October where it
considered the Society's business model and made choices about the future direction of the business.
Members of the Society's Executive and senior leadership team are invited to attend meetings as required to present and
discuss matters relating to their business and subject matter areas. Where directors are unable to attend meetings, they
are encouraged to give the Chair their views in advance on the matters to be discussed.
Board and Board Committee attendance 2023
The attendance record for Board members is shown in the table below. The table shows the actual number of meetings
attended, together with the number of meetings which the directors were eligible to attend.
Name Board
Board Risk
Committee
Board Audit
Committee
Nominations &
Governance
Committee
Remuneration
Committee
Non-Executive
Directors’
Remuneration
Committee
Board
Technology
Oversight
Committee
1
David Thorburn
2
11/11 4/4 6/6 1/1
Jo Kenrick
3
11/11 9/9 4/4 6/6
Vanessa Murden
4
10/10 5/5 4/4
Iraj Amiri
5
10/11 6/6 9/9 4/4
Martin Stewart
6
11/11 6/6 9/9 4/4 4/4
Shamira Mohammed
11/11 9/9 3/3
Brendan O'Connor
11/11 6/6 6/6 4/4
Stephen Hughes
7
11/11 1/1
Lee Raybould
11/11 1/1
Catherine Doran
8
4/4 3/3 1/1 3/3
Peter Frost
9
3/4
1. Committee in place from June 2023.
2. Chair of the Board, Chair of the Nominations & Governance Committee and member of the Remuneration Committee.
3. Chair of the Remuneration Committee.
4. Served on the Board from 30 January 2023
5. Chair of the Board Audit Committee.
6. Chair of the Board Risk Committee.
7. Chief Executive and Chair of the Non-Executive Directors' Remuneration Committee.
8. Served on the Board until 27 April 2023.
9. Served on the Board until 27 April 2023.
Division of responsibilities
The Board is comprised of the Chair, six non-executive directors and two executive directors. To ensure an effective
working relationship, it is important that there is a clear division of roles and responsibilities, and that these are well
understood and agreed between the individuals holding them as well as by other members of the Board and executive
management.
The roles of Chair and Chief Executive are separately held and their responsibilities are well defined, set out in writing and
regularly reviewed by the Nominations & Governance Committee, on behalf of the Board.
Each of these roles has a detailed role profile which identifies the areas of responsibility and accountability to the Board
and/or Chief Executive, as appropriate, and a Statement of Responsibility, as required under the Senior Managers Regime.
During 2023, Peter Frost took the decision to retire from the Board and his role as Chief Customer Officer. The Chief
Executive took this opportunity to review the division of his executive responsibilities. As a result, these responsibilities
were assumed by the Chief Commercial Officer, Director of Corporate Services and Director of Customer Services within the
Executive team.
Coventry Building Society | Annual Report & Accounts 2023 74
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Governance continued
Governance
Division of responsibilities continued
The table below provides a summary of key responsibilities for each of these roles.
Chair
David Thorburn
• Provide leadership to the Board and to safeguard and promote the long-term success and
sustainability of the Society in the interests of past and future members.
• Establish a programme of work for the Board, ensuring they are appropriately focused on
strategy, performance, culture and risk management matters.
• Empower Board members to challenge issues openly, and encourage and manage vigorous debate
in order to reach effective decisions.
• Demonstrate ethical leadership and uphold the highest standards of integrity and probity, setting
clear expectations concerning the Society’s culture, values and behaviour, including emphasising
Putting Members First principles.
• Build an effective and diverse Board reflecting an appropriate balance of skills and experience
given the Society’s current and future activities, including leading on policies for Board member
training and development.
• Ensure effective communication with all stakeholder groups and that the Society’s obligations to
and interests of its stakeholders are known and understood by the Board.
• Facilitating the Chief Executive’s relationship with the Board and providing support to the Chief
Executive.
Deputy Chair and
Senior
Independent
Director
Jo Kenrick
• Deputise for the Chair where necessary.
• Understand the views of employees of the Society and ensure that these are appropriately raised
at Board meetings.
• Work closely with the Chair, act as a sounding board and provide support in the delivery of the
directors' objectives.
• Serve as a trusted intermediary for the directors when necessary, including addressing any issues
they feel have not been dealt with adequately.
• Lead an annual process to review the Chair's performance and lead succession planning for the
Chair of the Board’s role, chairing the Nominations & Governance Committee when it considers
Chair succession.
Independent non–
executive
directors
Iraj Amiri
Shamira Mohammed
Vanessa Murden
Brendan O’Connor
Martin Stewart
• Safeguard and promote the long-term success and sustainability of the Society in the interests of
past and future members.
• Constructively challenge and help develop proposals on strategy and oversee the executive
directors’ implementation of the agreed strategy.
• Scrutinise the performance of management in meeting agreed goals and objectives, and monitor
ongoing performance against such goals.
• Satisfy themselves that the integrity of financial information, financial controls and systems of
risk management are robust and defensible.
• Complement the skills and experience of the executive directors, in particular by providing to the
Board a range of knowledge, experience and insight.
Role Responsibilities
Coventry Building Society | Annual Report & Accounts 2023 75
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Governance continued
Governance
Division of responsibilities continued
Role Responsibilities
Chief Executive
(CEO)
Stephen Hughes
• Responsible for the day-to-day running of the business and accountable to the Board for the
Society’s financial and operational performance.
• Responsible for providing leadership and direction to and developing the vision and strategy of
the Society, having regard to the duty to promote the success of the Society in the interests of
members, colleagues and key stakeholders.
• Communicate the vision, strategy and performance of the Society to members, employees,
regulators and other stakeholders.
• Build and lead an effective Executive team to manage the Society in the longer-term interests of
its members.
• Ensure that effective succession and development plans are in place and implemented for all key
executive roles.
• Lead the Executive team to successfully deliver agreed plans, objectives and targets.
• Monitor the effective implementation of policies and procedures for the induction, training and
professional development of all persons performing designated senior management functions on
behalf of the Society.
Chief Financial
Officer (CFO)
Lee Raybould
• With the Chief Executive and Executive team, ensure the development and implementation of
the Society’s corporate plans, strategies and policies. Approve the Society’s strategic aims and
ensure that the Society is appropriately resourced to meet its objectives, with regular reviews of
performance against objectives.
• Ensure the Society remains well funded and has sufficient liquidity to meet internal and
regulatory limits.
• Ensure that plans are in place to meet the financial performance targets agreed with the Chief
Executive and the Board.
• Ensure effective financial control, management and information are in place to support other
business areas.
• Manage the Society’s capital effectively, ensuring capital is managed within agreed risk
appetites.
• Provide leadership of the Society, and the Finance function in particular, with a framework of
prudent and effective controls which enable risk to be assessed and managed.
Independence
In January 2023, the Board reviewed the independence of its non-executive directors. In line with the Code, it considered
whether there were any relationships or circumstances that were likely to affect, or could appear to affect, a director’s
independence.
In the opinion of the Board, all of the Non-Executive Directors satisfy the requirements for independence and have
demonstrated this in their character and judgement. The Chair of the Board, David Thorburn, is a non-executive director
and, in accordance with the Code, was independent on appointment.
Letters of appointment for the Society’s directors are available from the Society Secretary on request. Details of the
directors’ external appointments are set out in the Annual Business Statement.
Time commitment
Non-executive directors are not required to devote the whole of their time to the Society’s affairs but must devote
sufficient time to properly discharge their duties and regulatory obligations. The time that non-executive directors are
expected to commit to their role at the Society is decided on an individual basis upon appointment and will depend on the
director's role and responsibilities. In addition to that spent preparing for and attending Board and Board Committee
meetings, the non-executive directors are also expected to dedicate sufficient time to understanding the business through
meetings with management, engagement with members, attending call listening, undertaking a programme of branch and
department visits, engaging with regulatory bodies and undertaking training. Each year, the Society’s Nominations &
Governance Committee assesses whether each of the directors is able to commit sufficient time to the Society to discharge
their responsibilities effectively, taking into account any external commitments they may also have. The assessment
undertaken in 2023 confirmed that all directors were considered to have sufficient time to properly discharge their duties
as directors of the Society.
Coventry Building Society | Annual Report & Accounts 2023 76
Governance
Directors' Report on Corporate
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Set out below are details of the average time commitment expected of the non-executive directors.
Role Expected time commitment
Chair
Approximately 80–100 days per year
Deputy Chair & Senior
Independent Director
As is required to fulfil the role
Non-Executive
Director
Average time commitment of between 30 and 36 days per year
Committee Chair
Board Risk Committee Chair:
Approximately 12 days per year in addition to the time spent on normal non-executive director
responsibilities.
Board Audit Committee Chair:
Approximately 10–12 days per year in addition to the time spent on normal non-executive director
responsibilities.
Remuneration Committee Chair:
Approximately 10 days per year in addition to the time spent on normal non-executive director
responsibilities.
Nominations & Governance Committee Chair:
Approximately 6 days per year in addition to the overall time commitment required of the Chair.
Board Technology Oversight Committee Chair:
Approximately 10 days per year in addition to the time spent on normal non-executive director
responsibilities.
Conflicts of interest
The Society's directors are subject to a Board Conflicts of Interest Policy which is reviewed regularly by the Nominations &
Governance Committee. The policy gives effect to various legal and regulatory requirements on the Society in relation to
conflicts of interest and in broad terms seeks to ensure the directors of the Society do not assume roles which would
conflict with their obligations as a director of the Society. Prior to appointment, all potential directors are required to
disclose any actual or potential conflicts of interest that may prevent them from taking on an appointment with the
Society. In addition, all directors must seek approval from the Board before committing to any additional, external
appointment. Where such approval is sought, the director must confirm the existence of any potential or actual conflicts
and that the role will not exceed the maximum number of directorships permitted (in accordance with the Capital
Requirements Directive V). The director must provide assurance that the appointment will not adversely impact their
ability to continue to fulfil their role as a director.
The Society's policy and processes for managing conflicts of interest seek to ensure that any actual or potential conflicts of
interest are prevented and any associated risks to the organisation of an actual or potential conflict situation materialising
are mitigated. In the event of an actual or potential conflict of interest arising, the matter would be dealt with in
accordance with the process under the policy and impacted parties would be notified where required.
In accordance with their duties as directors, each director is also obliged to notify the Board of any actual or potential
interest that they have in a matter to be transacted at a meeting. If any potential conflict does arise, the Board Conflicts of
Interest Policy permits the Board to authorise a conflict, subject to any conditions or limitations as it may deem
appropriate. The Board maintains a register of conflicts of interest which is reviewed at the start of every Board meeting
and actual or potential conflicts of interest are managed by the Chair or Deputy Chair, as required, with advice from the
Society Secretary.
Training and development
To enable the Board to be effective and discharge its duties, the Code specifies that each of the directors must be
equipped with the necessary resources to update their knowledge and capabilities. This should be in a manner that is
appropriate to the particular director, and which has the objective of enhancing that director’s effectiveness in the Board
or Committees. In addition to the requirements of the Code, the Society's approach to compliance with the Senior Managers
Regime requires directors to undergo a 'fit and proper' assessment. The Society’s Fit and Proper Policy sets out the various
criteria that the Society will consider to determine if an individual is 'fit and proper', one element of which includes an
assessment of competence. Accordingly, it is crucial that the right training topics are determined for members of the Board
and Committees to enable the Society to meet these requirements. New directors receive formal induction training on
joining the Board. This induction process is tailored to the needs of each director, given their existing knowledge and
experience, and any Committees on which they will serve. Induction includes extensive engagement with directors and
executives, updates on important commercial, regulatory and risk matters, and a particular focus on the culture of the
Society.
Coventry Building Society | Annual Report & Accounts 2023 77
Governance
Directors' Report on Corporate
Governance continued
Training and development continued
Following appointment, all directors continue their professional development and maintain their knowledge of the Society’s
operations through branch and department visits, and formal training overseen by the Nominations & Governance
Committee in line with the Board Training Policy. During 2023, Board members received training on the requirements and
responsibilities of the new Consumer Duty and balance sheet hedging. In addition to dedicated training sessions, directors
also have access to an online resource library with additional materials, including the Society's Board Governance Manual,
various directors' policy documents, and guidance on regulatory and legislative developments, which is updated throughout
the year.
Directors' skills and experience
An effective Board must comprise individuals with the right mix of knowledge, skills and experience. Ensuring this objective
is achieved is one of the responsibilities of the Chair, supported by the Nominations & Governance Committee.
Each year the Nominations and Governance Committee agree a set of key skills and capabilities that provide a collective
view of the Board’s knowledge, experience and composition. These attributes are compiled by reference to the Society’s
Strategic Plan and in particular its purpose, values and principles and seek to define what skills, attributes and experience
are needed to make the Society a success over the long-term.
In 2023, the Society Secretary, under the supervision of the Chair and on the basis of discussion with each director,
prepared an assessment of the Board’s collective position in relation to each of these capabilities. The results of this
exercise confirmed that the Society’s Board collectively had the right balance of skills and experience and indicated which
capabilities should be prioritised in future appointments to the Society’s Board. A summary of the assessment and key skills
and capabilities of the Board are set out below:-
Composition, succession and evaluation
The Board delegates responsibility to the Nominations & Governance Committee to oversee:
• Matters relating to the composition of the Board.
• The development of a diverse pipeline for succession to the Board and executive positions.
• The results of the formal annual evaluation performance of the Board, its Committees, the Chair and individual
directors.
For more information on the work of the Nominations & Governance Committee in respect of these matters, please see
page 82 of this report.
In compliance with the Code, each director is required to submit themselves for election or re-election by members,
annually, at the Society's Annual General Meeting. Before doing so, each director is subject to a formal evaluation in which
the director must satisfy certain requirements regarding their fitness and propriety to undertake the role of a Board
director.
Coventry Building Society | Annual Report & Accounts 2023 78
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Governance
Core capability Supplemental capability
Financial services expertise
Financial acumen
Regulatory knowledge
Risk
Retail balance sheet management
Organisational change/ leadership
Organisational knowledge
External board expertise
Consumer trends
Mortgage expertise
ESG and sustainability
CEO experience
0
2 4 6 8
10
Composition, succession and evaluation continued
These requirements are determined by the rules of the Senior Managers Regime, the Financial Conduct Authority and the
Prudential Regulation Authority, and include amongst other things:
• Qualifications obtained.
• Training undertaken.
• Competence and capability.
• Honesty, integrity and reputation.
The competence of each non-executive director who served on the Board in 2023 was reviewed as part of the routine
appraisal process undertaken by the Chair in respect of the non-executive directors and Chief Executive, the Deputy Chair
in respect of the Chair of the Board and Chief Executive in respect of all executive directors. The assessment of fitness and
propriety also took into account directors' independence (as outlined above) and compliance with the Board Training Policy.
An independent, third-party screening provider is also used to carry out certain checks to confirm the honesty and integrity
of each director.
Individual biographies of the directors are included in the Board of Directors section on page 67. These biographies detail
the backgrounds and relevant skills of the directors. Further details on the roles and responsibilities of each of the Board
directors can be found on pages 75 and 76. Details of those seeking election and re-election at the Society's 2024 Annual
General Meeting can also be found in the Notice of the 2024 Annual General Meeting.
The Society’s Rules require that the Board comprises between six and 12 directors. There are currently nine directors: the
Chair of the Board, six independent non-executive directors (including the Senior Independent Director) and two executive
directors. The composition of our Board is consistent with the Code requirements, which specify that at least half of the
directors, excluding the Chair of the Board, should be non-executive.
Changes to the Board during 2023 were as follows:
Name Role Change
Vanessa Murden Non-Executive Director Appointed January 2023
Catherine Doran Non-Executive Director Retired April 2023
Peter Frost Chief Customer Officer & Executive Director Retired April 2023
Board evaluation
Each year, the Board and each of its Committees undergo a process to assess the effectiveness of their performance during
the year. This is a key mechanism for ensuring that the Board and its Committees continue to operate effectively and for
setting objectives and development areas for the forthcoming year. The table below sets out the internal process
undertaken by the Board and its Committees in 2023 to assess their effectiveness.
Coventry Building Society | Annual Report & Accounts 2023 79
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Governance
In 2023 the Board and Board committee evaluation was conducted internally. The format of the review was
approved by the Nominations & Governance Committee, on behalf of the Board.
Board and committee members together with members of the Society’s Leadership team who are regular
attendees at Board and Board committee meetings were invited to respond to a questionnaire to assess the
effectiveness of the Board and the respective committees during the course of the year.
A report of the findings and feedback from the effectiveness review was considered by each committee.
The Board reviewed the effectiveness reports from each committee and considered the results of its own
effectiveness assessment.
2023 Board Evaluation Outcome
A report of the findings and feedback from the review of the Board was presented and discussed at the Board meeting in
January 2024. The review concluded that the Board had operated effectively in discharging its responsibilities in 2023 with
a number of positive feedback points provided including the quality of chairing, the strong link between purpose, culture
and strategy, a strong focus on governance and capability and the quality of strategy sessions. Potential areas for focus for
2024 included overseeing progress of the Society's diversity and inclusion (D&I) agenda, enhancing engagement between the
Board and Society stakeholders and continued focus on effective succession planning and skills requirements on the Board.
The findings of the Board committees' effectiveness reviews was also discussed at the Board and each relevant committee
meeting and it was concluded that the Board committees operated effectively in discharging their duties in 2023.
Directors' performance
The Chair of the Board appraised the performance of the non-executive directors and the Chief Executive. The Chair of the
Board’s performance review was led by the Deputy Chair and Senior Independent Director, and took into account the views
of the rest of the Board members and certain members of the Executive team. The executive directors' performance was
appraised by the Chief Executive. The conclusions of the appraisal process were reviewed by the Board and it was
concluded that all directors were fulfilling their duties and responsibilities effectively.
The Board and its culture
The Board is also responsible for providing leadership to the Society on culture, values and ethics which are central to
supporting the organisation’s purpose, and the delivery of its strategic ambitions. The Board receives regular updates
through its reviews of the Society’s people strategy, the results of Great Place to Work Survey and other specific employee
surveys which help provide the Board with a good understanding of the Society’s current culture. By reviewing qualitative
and quantitative information from a range of sources, the Board is able to track progress and ensure that the culture
reflects the shared set of values, beliefs and behaviours which are central to the Society’s values.
Iraj Amiri has continued in his role as a permanent member of the D&I Thinktank, our colleague D&I forum, to help shape
what we do on the topic at the Society. His role is key in ensuring there is ongoing Board support for the forum.
During the year, our Board members also took part in a number of reciprocal mentoring activities with colleagues. An event
called ‘Spotlight on Shamira’ was held, in which Shamira Mohammed shared her career story with colleagues, in a discussion
facilitated by a participant of our Ethnicity Career Development Programme. 35 colleagues attended, with all enjoying the
event. Colleagues expressed an interest in running similar sessions in the future. Four colleagues from ethnic minority
backgrounds participated in reciprocal mentoring with some of the Non-Executive Directors. The experience was well
received and positive all round, with plans in place to run another programme in 2024.
The Board and stakeholders
As a purpose-led building society, our Board understands the importance of engaging with the Society’s stakeholders to
understand how its decisions impact this wider group.
The Board takes into consideration the interests of these stakeholders as part of its discussion and decision making
processes, ensuring that they continue to act in the best interest of members, colleagues and the wider stakeholder group.
One of the key ways our Board members engage with members is through our Annual General Meeting. This year over 1,500
members attended and heard from our Board about their work and the achievements of the Society during the last 12
months. Members also had the opportunity to ask the Board questions about the things that matter the most to them. These
questions covered a broad range of topics, including the services and rates we deliver, the resilience of the Society in
turbulent economic times, our branches and technological plans. The number of attendees and the depth of questions
demonstrated how engaged our membership are and the importance the Board places on listening to them.
Our Deputy Chair, Jo Kenrick, attends 'My Society', the elected forum of employee representatives, and uses this as an
opportunity to understand the views of employees on key matters as well as updating forum members on issues that the
Board is considering. My Society members are also invited to attend and contribute directly in certain Board sessions. These
meetings, alongside insight shared from our wider listening approach, inform conversations and provide qualitative insights
to inform decisions made by the Board.
In 2023, the Board continued its initiative to enhance engagement between Society colleagues and the Board’s Committees.
Throughout the year, members of My Society have attended meetings of the Board Committees and have had the
opportunity to support the Committees on various projects. This has proven valuable for both colleagues and Board
members. Employee engagement activities will continue in 2024 to ensure that the Board has direct mechanisms for
engaging throughout the year to understand what employees really value.
Coventry Building Society | Annual Report & Accounts 2023 80
Directors' Report on Corporate
Governance continued
Governance
The Board and stakeholders continued
In addition, to the engagement through the My Society forum, there is a facilitated programme of branch and department
visits where non-executive directors meet colleagues across the organisation. The Board also receives detailed updates on
the results of the Society's employee opinion survey which provides granular insight into the views of the Society's
employees.
The Society's 2023 strategy process also included engagement with My Society which gave the Board a perspective from
colleagues as it formulated and agreed the 2023 Strategic Plan. The views of colleagues also helped to inform the Society's
ESG Strategy and Climate Action Plan, which the Board approved in March 2023. On pages 15 and 16 of the Strategic Report
you will find more information on the Society’s stakeholders and how they influence the decisions that the Board makes.
This section also forms part of our disclosure under Section 172(1) of the Companies Act 2006. Although, as a building
society, we are not required to follow the Companies Act 2006, we seek to voluntarily apply its requirements where
appropriate.
Whistleblowing
The Society has in place arrangements to ensure that those who work for us speak up about concerns so that colleagues can
raise concerns in confidence and anonymously if they prefer, and that these can be investigated and properly dealt with.
The Society is committed to ensuring that no one will be at risk of detrimental treatment from the Society or its employees
as a result of raising a concern. Iraj Amiri, Non-Executive Director, has been appointed by the Board as the Whistleblowing
Champion, demonstrating the Society's commitment to upholding the Whistleblowing standards at the highest level. The
Whistleblowing Champion has overall responsibility for ensuring and overseeing the integrity, independence and
effectiveness of the Society’s whistleblowing policies and procedures, including arrangements for protecting whistleblowers
against detrimental treatment. The Whistleblowing Champion ensures that a report is presented to the Society’s Board
annually regarding the effectiveness of whistleblowing systems and controls. The Society provides training on
whistleblowing annually and has a specific reporting channel for its colleagues to report concerns via an independent third
party.
The Society remains committed to continually evaluating its approach to whistleblowing and its effectiveness. The Board
plays an active role in overseeing the Society’s procedures and policies for whistleblowing and reviews a report on the
effectiveness of the Society’s whistleblowing procedures on an annual basis. The Society also has a designated Enterprise
Leader with responsibility for this area who meets regularly with the Whistleblowing Champion and the members of the
Board Audit Committee, without other management present, to discuss the Society’s whistleblowing arrangements.
Coventry Building Society | Annual Report & Accounts 2023 81
Directors' Report on Corporate
Governance continued
Governance
Dear Member
As Chair of the Nominations & Governance Committee
(the Committee), I am pleased to present a report to you
which outlines the matters that we, as a Committee, have
focused on in 2023.
Operation of the Committee
The Committee is chaired by the Chair of the Board and
the members are independent non-executive directors.
Details of the skills and experience of the Committee
members can be found in their biographies on pages 67 to
69. The Committee meets at least four times a year and
otherwise as required. The number of meetings held in
the year can be found in the table on page 74 along with
the attendance record of Committee members. In addition
to the members, regular attendees of the Committee
include: the Chief Executive, Chief People Officer,
General Counsel and the Society Secretary.
Following each meeting, the Chair of the Committee
provides updates to the Board, summarising activities
undertaken, and key decisions taken.
Governance
One of the principal responsibilities of the Committee is
to ensure that the Society maintains a high standard of
corporate governance that is consistent with best practice
and the requirements of the UK Corporate Governance
Code (the Code). This is a key factor to the overall
success of the Society and ensures that the decisions
made are in the best interests of our members and are
consistent with our values and culture. During 2023, the
Committee has continued to monitor developments.
Board composition and succession planning
One of the Committee’s main roles is to review and make
recommendations on matters relating to the structure,
size, composition and ways of working of the Board.
This includes Board succession planning and overseeing
the appointment of non-executive and executive directors
to the Board and Board Committees. The Committee
reviews the succession plans for the Board and Executive
team annually, focusing on enhancing the composition of
the Board, taking into account the skills, knowledge,
experience and diversity of the existing members of the
Board and the capabilities needed.
Time commitment
For all Board vacancies, the Committee must assess
whether the proposed candidate has sufficient time to
discharge their duties as a director of the Society, having
regard to their other commitments. This assessment is
carried out at least annually for all existing Board
members and also upon any current Board member
seeking additional external appointments.
The Committee considers that the directors currently
comply with Article 91 of the Capital Requirements
Directive and the Code, since all directors are able to
commit sufficient time to perform their duties at the
Society and none of the directors has more than the
maximum number of directorships, when taking into
account the provisions relating to group directorships and
non-commercial organisations.
Committee membership
The Code requires the majority of members of the
Nominations & Governance Committee to be independent
non-executive directors. The Committee complies with
this requirement and comprises solely independent non-
executive directors. The Committee meets a minimum of
four times a year and members of the Executive team are
invited to attend meetings as appropriate.
Current membership Member since
David Thorburn 2022
Jo Kenrick 2018
Martin Stewart 2020
Diversity
Diversity and inclusion are intrinsic to the Society’s values
and purpose. A key strategic priority for the Society is to
create an inspiring place to work which better reflects the
diversity of its city and communities. The Society’s
approach to gender and diversity will continue to be a key
factor in achieving this. As part of its remit, the
Committee oversees the implementation of the Society’s
diversity and inclusion strategy and objectives, and
carried out a detailed review of this area during the year.
One key area of focus for the Committee is the gender
balance of the Board and Executive team and their direct
reports. Clear succession planning is in place and takes
account of the current and future diversity of senior
leaders within the Society. This planning also looks closely
at the external market opportunities to support
achievement of our diversity and inclusion aspirations.The
Committee has engaged with the Executive team to
ensure accountability for progress on the Society’s
diversity and inclusion agenda.
The Society has set a target to achieve 50% female
membership on its Board by the end of 2024. We
recognise that this is a challenging target and due to
changes to the Board’s composition in recent years, the
Board is behind this target with 30% female membership
at the reporting date. While good progress has been made
to address gender balance across the Society generally,
and particularly in respect of improving the number of
females in senior manager roles and above at the Society,
which has increased from 38% to 39% in the last year,
more work is required to achieve a greater balance of
gender diversity on the Board.
Progress in this area remains a priority for the Committee
and the Board. The Committee will continue to ensure
that appointments and succession plans are based on
merit and objective criteria and, within this context,
promote diversity of gender, social and ethnic
background, cognitive and personal strengths, alongside
professional experience. Board appointments will continue
to ensure diverse shortlists as standard.
Coventry Building Society | Annual Report & Accounts 2023 82
Nominations & Governance
Committee report
Governance
Effectiveness
The Committee is responsible for overseeing the
effectiveness assessment of the Board. In 2023, the
Committee oversaw the approach for the 2023 internal
Board and Board committee effectiveness evaluation. The
performance review was conducted by a self-assessment
questionnaire, the questions for which were overseen by
the Committee in conjunction with the respective Board
and Board committee Chairs. The questionnaire covered
general areas of effectiveness including Board and
committee composition and succession planning, dynamics
and operations, strategic oversight and risk management.
Overall the findings of the 2023 Board effectiveness
assessment concluded that the Board had operated
effectively in discharging its responsibilities in 2023. More
information on the Board and Committee evaluation
process can be found on page 78 of this report. Any
recommendations arising will be overseen by the
Committee throughout 2024.
The Committee also considered the results of its own
effectiveness assessment in December 2023 and
determined that a report could be made to the Board that
it operated effectively in discharging its responsibilities
during 2023.
Establishing a new Board Committee
One of the most significant areas of work for the
Committee during the reporting period has been the
establishment of the Board Technology Oversight
Committee (BTOC), following approval from the Board
that this was a necessary development in the governance
of the Society. An independent review, commissioned by
the Board in 2021, recommended that digital
transformation should be a key area of focus for the
Board. In 2022 through discussions on Board succession
and during its annual assessment of board members’ skills
and expertise, the Committee recognised that there was a
gap on the Board in respect of digital, IT and change
transformation experience. As such, the Committee
oversaw and recommended to the Board the appointment
of a new non-executive director and to chair BTOC. This
supported the Society’s strategy and transformational
change agenda. The other members of the BTOC are:
• Martin Stewart (Non-Executive Director)
• Iraj Amiri (Non-Executive Director)
• Brendan O'Connor (Non-Executive Director)
The Board approved the BTOC terms of reference,
formalising governance, with the first meeting held in
June 2023. The role of the BTOC is to provide oversight
and advice to the Board on matters relating to the
Society’s technology strategy, technology investment,
strategic architectural direction, cyber security and
strategy on data transformation. This includes oversight of
the delivery and performance. During the first seven
months in operation, the BTOC has:
• Overseen the Society's technology strategy prior to
making formal recommendations on this to the Board.
• Reviewed progress against the various transformation
workstreams being undertaken by the Society.
• Reviewed the Society's cyber security and data
transformation strategies.
During 2024, the BTOC will deliver its first full year of
activity as an established Board Committee, enabling an
in depth account of its achievements to be set out the
2024 Annual Report & Accounts.
Other key activities in 2023
In addition to the points already covered, the Committee:
• Reviewed the Board succession plan with particular
reference to executive succession and securing a
pipeline of non-executive directors.
• Reviewed the appropriateness of the membership of
the Board’s committees, and reviewed the Society’s
management responsibilities map, before submission
to the Board for approval.
• Oversaw the application of the various policies
designed to ensure the Society’s Board is effective.
• Reviewed the matters reserved for the Board to ensure
matters were considered or delegated appropriately.
• Reviewed directors’ proposed external appointments
to ensure they did not represent a conflict of interest
or exceed the number of permitted directorships or
prevent directors devoting sufficient time to the
Society.
• Reviewed the roles of the Chair of the Board and Chief
Executive.
• Received updates on corporate governance
developments.
• Considered conflicts of interest and reviewed the
effectiveness of the Society’s Conflicts of Interest
Policy.
• Oversaw the application of the Fit and Proper Policy
and other Senior Manager Regime related policies to
ensure compliance with this area of regulation.
• Reviewed arrangements for the Society's Annual
General Meeting of members.
Annual election/re-election
The Board considered the provisions of the Code relating
to re-election of directors, and considers that it is in the
best interests of members to submit the entire Board for
annual re-election. This meant that for the April 2023
Annual General Meeting, all of the directors voluntarily
submitted themselves for re-election, with the exception
of Catherine Doran and Peter Frost, who retired from the
Board following the 2023 AGM. Following review by the
Committee in 2023, all of the directors will voluntarily
submit themselves for re-election at the 2024 AGM, with
the exception of Vanessa Murden who stepped down from
the Board on 23 February 2024.
David Thorburn
Chair of the Nominations & Governance Committee
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 83
Governance
Nominations & Governance
Committee report continued
Dear Member
I am pleased to present the Board Risk Committee (the
Committee) report for the year ended 31 December 2023.
During the year, the Committee continued to focus on the
current and emerging risks to the Society's business model,
including those relating to the macroeconomic,
commercial and regulatory landscape. The Committee,
together with management, has continued to proactively
manage, monitor and mitigate the key risks facing the
Society, ensuring it remains robust and resilient. The
Enterprise Risk Management Framework (ERMF) remains
suitably embedded within the Society's operations and
decision making, with a strong culture of risk awareness.
Further enhancements to the EMRF are also being made to
ensure it remains in line with industry best practice. The
Committee has continued to provide challenge and
influence regarding the Society's strategic goals and
initiatives, and to ensure good outcomes for our members.
The Committee has performed oversight across all of the
Society's principal risk categories during the year, with
performance against risk appetite reviewed on an ongoing
basis. Despite the challenging external environment, the
Society's risk profile has remained broadly stable versus
the prior year. A newly introduced Risk Appetite
Framework, aiming to further enhance the embedding of
risk appetite at the Society, has been reviewed and was
supported.
During 2023, the Committee reviewed the adequacy of the
Society's future and forward-looking capital and liquidity
position via the ICAAP and ILAAP, which subjected the
Society's Strategic Plan to severe but plausible stress
scenarios. The Committee also reviewed the Society's
refreshed Recovery Plan. It was determined that the
Society continues to have sufficient capital and liquidity
resources to support the Strategic Plan.
The impact of climate change and regulatory standards on
climate risk were reviewed, along with the proposed
Society response to the climate risks identified on its loans
and advances to customers and operations.
The Committee has continued to challenge management
on the planning and delivery of key transformational
change projects, and has been kept abreast of the
Society's engagement with regulators, ongoing and future
regulatory change, including Consumer Duty, and emerging
capital regulation and relevant policy decisions.
In order to ensure the Society risk tolerance remains
appropriate, during 2023, the Committee reviewed the
risk appetite statements and policies for all principal risk
categories. Both data risk and technology risk were
introduced as principal risk categories to recognise the
prominence they already had at the Society.
During the 2024 financial year, the Committee will again
review the Society's risk appetite statements, board limits
and policies for principal risk categories. In addition, the
Committee will continue to review the Society's future and
forward-looking capital and liquidity adequacy via the
annual ICAAP and ILAAP, along with focusing on overseeing
current and new regulatory expectations (including
Consumer Duty), supervising progress of the risk
transformation programme (enhancing risk capabilities)
and monitoring the financial and operational resilience of
the Society.
Martin Stewart
Chair of the Board Risk Committee
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 84
Board Risk Committee Report
Governance
Committee role and responsibility
The Committee is a sub-committee of the Board and the
most senior risk committee within the Society. It has
delegated authority from the Board and assists the Board
in fulfilling its oversight responsibilities for risk
management across the Society.
Its responsibilities include the following:
• Providing oversight and advice to the Board in relation
to current and potential future risk exposures of the
Society and risk strategy, including determination of
risk appetite and the effectiveness of the Society’s
framework for managing risk.
• Promoting a risk culture that Puts Members First within
the Society and overseeing implementation and
maintenance of the Society’s Enterprise Risk
Management Framework (ERMF).
• Reviewing key risk policies and frameworks, including
key risk appetite statements.
• Ensuring the Executive team is held to account to
identify, assess and manage risks in accordance with
the requirements of the ERMF.
• Monitoring risks on behalf of the Board.
Committee meetings
During 2023, the Committee met on six separate
occasions. The Committee continues to operate in a
flexible manner with a mixture of meetings held remotely
and in person throughout the year to ensure that the
Committee could appropriately oversee the Society's risk
profile. Details on meeting attendance can be viewed in
the Directors’ Report on Corporate Governance.
Committee membership
The members of the Committee at 31 December are:
Membership Member since
Martin Stewart 2018
Iraj Amiri 2018
Vanessa Murden
1
2023
Brendan O'Connor 2021
1. Member since January 2023.
Key matters considered by the Committee
At each meeting, the Committee considered a
consolidated risk report prepared by the Society's Risk
function. These reports highlighted key and emerging risks
for consideration by the Committee. In addition, during
2023, among other things, the Committee:
• Reviewed the strategic and emerging risks relating to
the Society's 2024–2028 Strategic Plan.
• Reviewed the Society's risk appetite framework,
including risk limits and risk indicators for each of the
principal risk categories.
• Reviewed risk policies for principal risk categories.
• Agreed a risk oversight plan and monitored second line
risk oversight and progress in delivering a programme
of thematic reviews.
• Reviewed the Society's ICAAP, ILAAP, Recovery Plan
and Resolution Pack.
• Reviewed the Model Risk Framework.
• Reviewed the Committee's terms of reference.
• Undertook a review regarding the financial risks arising
from climate change.
• Reviewed the Operational Resilience Framework.
• Reviewed the Regulatory Reporting Framework.
• Reviewed an update on progress in delivering the
Consumer Duty.
• Received updates relating to technology and data and
security risks.
• Undertook reviews of people, change and remuneration
risk.
• Reviewed the Operational Continuity in Resolution
(OCIR) Framework and received updates on outsourcing
and third-party risk management.
• Reviewed an assessment by the Internal Audit function
of the independence and performance of the Risk
function.
• Received updates on regulatory change.
• Oversaw progress on Internal Ratings Based (IRB) model
remediation.
A private session was also held between Committee
members, the Society’s Chief Risk Officer (CRO) and the
CRO’s direct reports to provide an opportunity for
discussion about risk matters without management
presence.
Please refer to the Risk Management Report for the
principal risks facing the Society, and the Strategic Report
for a summary of the inherent risks in the Society’s
business model. The Risk Management Report contains
information relating to how risk is managed across the
Society.
Committee effectiveness
As required by the Code, an annual review of the
Committee's effectiveness was undertaken during the
year. The Committee determined that a report could be
made to the Board that the Committee was operating
effectively in discharging its responsibilities during 2023.
Looking forward
During 2024, the Committee will continue to provide
oversight of risk management across the Society, including
the risk transformation programme, the risks emerging
from a volatile macroeconomic environment and the cost
of living challenges. In addition, ensuring good outcomes
for our members and the focus on climate change risk will
continue to be important priorities for the year ahead.
Coventry Building Society | Annual Report & Accounts 2023 85
Board Risk Committee Report continued
Governance
Dear Member
As Chair of the Board Audit Committee (the Committee), I
am pleased to present our report for 2023, which sets out
the work carried out by the Committee throughout the
year. My role continues to be to direct the Committee’s
oversight responsibilities relating to accounting, financial
reporting and internal control matters through what has
been another busy year. Key impacts on the Society’s
accounting and financial reporting matters, including but
not limited to mortgage provisions, continued to demand
specific consideration by the Committee.
The Committee continued to monitor the integrity of the
Society’s external reporting and reviewed the significant
financial reporting judgements and estimates which
underpin the financial statements. More information on
these judgements is included in this report. The
Committee also presided over matters related to climate
change standards and disclosures aligned to the Task
Force on Climate-related Financial Disclosures (TCFD) and
the Global Reporting Initiative (GRI) standards, as
presented within the Society's Sustainability Report.
As a result of the work performed, the Committee has
been able to provide assurance to the Board that the
Annual Report & Accounts, taken as a whole, are fair,
balanced and understandable, and provide the
information necessary for members and other
stakeholders to assess the Society’s position and
performance, business model and strategy.
The effectiveness of the Society’s internal controls and
risk management systems also continued to be a core
consideration of the Committee during the year. The
Committee reviewed the activities, findings and
performance of the Internal Audit function during the
year, including the effectiveness of the function, its
departmental financial budget and the remuneration of
the Chief Internal Auditor.
The Committee also provided oversight of the Society’s
procedures and policies for maintaining probity during the
year, including whistleblowing, assessed their overall
efficacy and reviewed an annual report on the
effectiveness of whistleblowing procedures prior to
submission to the Board.
We monitored the external auditors' independence and
objectivity, and assessed the effectiveness of the external
audit process, in addition to recommending the
appointment and approving the remuneration and terms
of engagement of the external auditors.
More information on each of the above items is included
in the report.
Iraj Amiri
Chair of the Board Audit Committee
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 86
Board Audit Committee Report
Governance
Role and membership of the Committee
The role of the Committee is to review and assess the
integrity of the Society’s financial reporting and
statements, in addition to monitoring the effectiveness of
internal controls and risk management systems, and
overseeing the work of the Internal Audit function and
external auditors.
The Committee’s members are independent non-
executive directors who are able to draw on their
experience to review and challenge the work of
management in these areas.
The Committee advises the Board on matters which are
set out in its terms of reference, which are included on
our website at www.thecoventry.co.uk. The Committee
reviews its terms of reference and its roles and
responsibilities annually against the Financial Reporting
Council’s (FRC) Guidance on Audit Committees. This
review was completed during 2023 and no material
changes were made to the Committee’s responsibilities.
The Board is satisfied that all Committee members have
recent and relevant financial services sector experience
and that both Iraj Amiri and Shamira Mohammed are
professionally qualified accountants.
Current membership Member
since
Iraj Amiri 2018
Jo Kenrick 2017
Shamira Mohammed 2019
Martin Stewart 2018
More information on the Society’s committee structure is
included in the Corporate Governance Report.
Committee attendance
The Committee met nine times during 2023. All
Committee meetings are routinely attended by the Chief
Executive, Chief Financial Officer, Chief Risk Officer,
General Counsel, Chief Internal Auditor and the external
auditor. Other senior managers are invited to attend
meetings as required.
The Committee meets both the Chief Internal Auditor and
the external auditor without management present at least
once during the year to enable issues to be raised
privately if necessary. The Committee Chair also meets
privately with the Chief Internal Auditor and the external
auditor on a regular basis.
The effectiveness of the Committee
The Committee carried out a review of its effectiveness
during 2023, including an assessment of its work against
its terms of reference, published guidance and
recommended good practice. The review considered the
views of members and attendees, provided anonymously,
and focused on how the Committee had considered key
financial reporting judgements and controls, the work of
the Society’s internal and external auditors, and the skills
and competencies of the Committee.
The assessment of effectiveness is provided to the Board
to enable it to make an overall assessment of the
effectiveness of corporate governance arrangements in
2023 and make a report on this matter in the Society's
Annual Report & Accounts.
The review concluded that the Committee operated
effectively throughout the year, in line with corporate
governance code requirements and recommended good
practice, with the Board approving the Committee's
revised terms of reference.
Key areas of focus during 2023
Significant matters that were considered by the
Committee during the year, working closely with the
Board Risk Committee, the Society’s Risk function and
Internal Audit, are set out in the following sections.
Preparation of financial statements and key
areas of judgement
When assessing both the interim and full year 2023
financial statements, the Committee carefully considered
areas subject to management judgement, which included
the following:
Calculation of expected credit loss provisions under
IFRS 9
The Committee continued to review the Society’s IFRS 9
accounting policies during 2023 to ensure that they
remain appropriate.
The Committee reviewed the basis of calculating ECLs,
including the method for identifying a significant increase
in credit risk and the application of post model
adjustments to the overall ECL provision, and the
potential impact of climate change on the Society's
mortgage portfolio.
The calculation of ECLs for loans and advances to
customers has continued to require a significant degree of
management judgement due to the continuing impact of
inflation, rapidly rising interest rates and resulting
affordability pressures on borrowers. The Committee’s
role is to make sure that appropriate judgements are
applied. The ECL provision has increased to £42.5 million
(2022: £35.5 million) including post model adjustments of
£24.4 million (2022: £19.4 million).
The Committee challenged management on the
calculation methodology and is satisfied with the rationale
and method for determining the required post model
adjustments and for recognising or releasing post model
adjustments as required.
The Committee also reviewed the alternative economic
scenarios that have been used in the provision calculation
and the weightings which have been assigned to them
along with sensitivity of the provision to different
weightings and other key assumptions. The Committee
considered the range of sensitivities, which have
increased compared to the prior year given the economic
challenges and worsening house price assumptions.
The financial statements disclosures were reviewed to
ensure that sufficient information on the judgements
applied is included in the Society’s financial statements.
The Committee was satisfied with the adequacy of the
provisions and the appropriateness of the disclosures
made.
Coventry Building Society | Annual Report & Accounts 2023 87
Board Audit Committee Report continued
Governance
Revenue recognition and EIR methodology
The Society recognises income on its mortgage loans using
the Effective Interest Rate (EIR) method. This applies a
rate of return that reflects a constant income yield over
the expected life of the mortgage loan based on
expectations of future loan redemption and interest rates.
The EIR calculation is most sensitive to assumptions on
loan redemption and the difference between fixed rates
and Standard Variable Rates in the future.
The Committee considered the key assumptions of EIR
methodology and expectations of future changes. The
Committee concluded that the accounting treatment was
appropriate.
Derivatives and hedge accounting
The Committee reviewed the Society’s approach to hedge
accounting. Derivatives are used by the Society solely for
risk management purposes, to manage either interest rate
risk or foreign exchange risk, and the Society uses hedge
accounting to reduce income statement volatility arising
from derivatives which are accounted for at fair value.
The Committee reviewed the Finance team’s control
activities and reports from the external auditor on the
methodology, process and key assumptions applied to the
Society’s hedge accounting activity. During the year, the
Committee also considered a change in approach to the
prepayment rate used to determine mortgage customer
behaviour in the hedge accounting process. The
Committee is satisfied that the amounts recognised in the
financial statements are appropriately stated.
Defined benefit pension scheme position
The Committee also considered the calculation of the
Society’s defined benefit pension surplus including the
valuation of the Scheme’s assets and the assumptions
which are used to calculate the Scheme’s liabilities. The
surplus increased to £3.7 million (2022: £3.3 million) as a
result of market movements during the year and the
Committee is satisfied that it is appropriately stated.
Going concern and long-term viability
The Committee evaluated whether adopting the going
concern basis of accounting was appropriate and
separately considered the Society’s long-term viability,
taking account of the principal risks facing the Society,
including those that could threaten the Society’s business
model, future performance, solvency and liquidity. The
range of macroeconomic scenarios on the Society’s
business continued to be reviewed including revisions to
stress testing and forecasts as a result of updated
forward-looking assumptions.
In particular, the Committee considered the periods over
which the Society’s prospects and long-term viability
should be assessed, along with the basis of these
assessments.
It was concluded that a three year statement on long-
term viability remained appropriate taking into account
the planning and stress testing carried out by the Society
combined with increased and inherent uncertainty in the
outer years of the Strategic Plan resulting from economic
and market conditions and predictions. The Committee
concluded that the going concern and long-term viability
assessment were appropriate and statements on these
matters are included in the Directors’ Report.
Fair, balanced and understandable
The Committee considered whether the Annual Report &
Accounts, taken as a whole, were fair, balanced and
understandable. The Committee satisfied itself that there
was a robust process of review and challenge at different
levels within the Society, to ensure balance and
consistency, and that this is reflected in the Annual
Report & Accounts. Its review included:
• Providing guidance on drafting.
• Making sure all messages are communicated as simply
as possible and that the Strategic Report is
comprehensive.
• Ensuring factual content and statements have been
verified.
• Central coordination and thorough review including
review by a non-specialist.
• Comprehensive review by senior executives including
the Board committees’ Chairs prior to wider
Committee consideration.
The Committee also considered other information
regarding the Society’s performance presented to the
Board during the year. After consideration of all relevant
information, the Committee concluded that it could
report to the Board that the Annual Report & Accounts
were fair, balanced and understandable.
Disclosure preparation
The Committee was briefed on the Annual Report &
Accounts disclosure preparation process and control
environment supporting the activity, concluding that it
remained robust.
New disclosures and requirements
Regular updates and training on financial reporting
developments and disclosures were provided to the
Committee during the year. This included the proposed
changes to the Corporate Governance Code.
The Society's internal control and risk
management arrangements
The Committee reviewed the effectiveness of internal
control and risk management arrangements through
regular reporting from Internal Audit, the Risk function
and the external auditor. In addition, the Committee
reviewed the assurance statements received from the
Chief Internal Auditor on internal control and from the
Chief Risk Officer on risk management.
During 2023, Internal Audit continued to assess internal
control and risk management systems associated with the
functions and activities undertaken by the Society that
reflect the challenging economic circumstances that the
Society is experiencing and new ways of working for
Society colleagues. Attention was given to the Society's
management of cost of living, interest rate rise and
inflation impacts on the Society and its member servicing.
The Committee received the results of formal assessments
related to the key change initiatives as well as functional
control improvement plans related to areas including
Coventry Building Society | Annual Report & Accounts 2023 88
Board Audit Committee Report continued
Governance
information security management and data governance
and management.
The Committee received regular reports during 2023 on
whistleblowing and concluded that the arrangements were
operating effectively and there were no material matters
of concern.
Further information on the Society’s approach to internal
control and risk management is included in the Risk
Management Report.
The activities of Internal Audit
The role and responsibilities of Internal Audit are set out
in the Internal Audit Charter that was reviewed and
revalidated by the Committee during the year. A copy of
this Charter is available on the Society’s website
www.thecoventry.co.uk/InternalAudit.
In addition to approving the annual Internal Audit Plan
and budget, the Committee reviewed and approved
amendments to the Plan and resources throughout the
year.
The Committee received regular reports from the Chief
Internal Auditor setting out the results of assurance
activity related to Society operations and strategic change
initiatives, progress in delivery of the annual Internal
Audit Plan and the adequacy of resources.
Internal Audit’s assessments also considered the Society's
progress with delivering multiple, complex change
initiatives directed at replacing or updating critical
information technology infrastructure, including
continuing work to digitise the mortgage and savings
channels. Change assurance work also included the
continued assessment of the finance transformation
programme, which commenced during 2021, with 2023
assurance work focused on the implementation of the new
General Ledger system in the year, progression of work to
establish a new regulatory reporting system and the
introduction of more modern practices across Finance
function operations.
Significant findings and thematic issues identified were
considered by the Committee, together with
management’s response and completion of remedial
action commitments made in respect of previously issued
audit reports.
During the year, Internal Audit supported the Committee
by ensuring that there was appropriate consistency and
rigour in the process of preparing and reporting of climate
and other sustainability-related disclosures as well as well
as completing an independent review of the Annual
Report & Accounts disclosure preparation assessment.
The Committee oversaw a review of the effectiveness of
the Internal Audit function led by the Chief Internal
Auditor. The review considered the quality of work, the
appropriateness of skills and resources within the team
and compliance with the Chartered Institute of Internal
Auditors’ 'Guidance on Effective Internal Audit in the
Financial Services Sector'. The Committee was satisfied
that the Internal Audit function remained effective.
The 'Guidance on Effective Internal Audit in the Financial
Services Sector' published by the Chartered Institute of
Internal Auditors (revised for a third time in January 2021)
requires the Committee to obtain an independent and
objective external assessment of the effectiveness of the
Internal Audit function at least every five years. The Chair
of the Committee is required to oversee the process and
approve the appointment of the independent assessor.
The effectiveness of the Society’s Internal Audit function
was last subject to independent external assessment in
early 2019. The Committee approved the selection of an
external qualified reviewer in December 2023, with a
schedule established for the Committee to receive the
results of this next external review in July 2024.
External auditor
As well as discussing external audit findings, the
Committee is responsible for overseeing the relationship
with the external auditor and the quality of the audit
process. During the year this included the following:
Audit plan
Prior to the annual audit commencing, the Committee
considered PwC’s audit plan including materiality levels,
areas of audit focus, terms of engagement and fees
payable for the audit. As part of the review of the 2023
Interim Financial Report and audit of the annual financial
statements, the Committee received a report setting out:
the work performed in areas of significant risk and
management judgement and conclusions for each area; a
summary of adjustments and differences; and internal
control recommendations. In recommending approval of
the interim and annual financial statements, the
Committee considered the matters set out in these
reports.
Audit quality
The Committee oversees external audit quality.
Committee meetings consider factors which impact
external audit quality, and conclusions on external audit
effectiveness are formalised and assessed by the
Committee each March, as part of the year end reporting
process. The factors considered included:
• The technical skills and industry experience of the
audit engagement partner and wider audit team.
• The appropriateness of the proposed Audit Plan, the
identification of significant risk areas and the effective
performance of the audit in line with the agreed plan.
• The quality of communication between the external
auditor and the Committee, and the effectiveness of
interaction between management and the external
auditor.
• The quality of reports to the Committee on accounting
matters, governance and internal control.
• The reputation and standing of the external auditor.
• The independence and objectivity of the external
auditor.
The Committee also considers any Financial Reporting
Council Audit Quality Inspection and Supervision Reports
on PwC.
Coventry Building Society | Annual Report & Accounts 2023 89
Board Audit Committee Report continued
Governance
The Committee concluded that the external audit process
was effective in March 2023, and it was satisfied that
there were no matters of concern with respect to the
external auditor’s independence or objectivity.
The results of the next assessment will be considered by
the Committee in March 2024, at the conclusion of the
year end reporting process, with any areas for
improvement shared with the lead audit partner for
consideration.
Rotation of engagement leader
In light of the current external audit engagement leader
reaching their five year tenure on completion of the 2023
reporting, during the year, the Committee discussed the
proposed rotation and experience of the new engagement
leader for the 2024 reporting period onwards.
The appointment of the external audit firm to
undertake non-audit services
The Committee regularly reviews and monitors the
Society’s relationship with the external auditor to ensure
that auditor independence and objectivity are maintained
at all times. The Committee has developed a policy and
framework which defines the approach to non-audit
engagements and reflect the guidance in the FRC’s
Revised Ethical Standard from 2020. At no time does the
external auditor audit its own work, make management
decisions for the Society, create a conflict of interest or
find itself in the role of advocate for the Society. The
Committee keeps non-audit engagements under review
and receives regular reports from the external audit
partner confirming that adequate safeguards for
independence remain in place.
During 2023, the Society engaged the external audit firm
to provide certain non-audit services, including assurance
engagements in relation to the Society’s debt issuances.
All engagements complied with the Society’s policy.
The Committee received regular updates on the nature
and cost of the engagements, seeking to ensure that they
were appropriate. Details of the fees paid to the external
auditor for audit and non-audit services are set out in
note 9 to the accounts.
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Board Audit Committee Report continued
Governance
Report of the Remuneration Committee to
members
Dear Member
As Chair of the Remuneration Committee (the
Committee), I am pleased to present this report which
outlines for members how the Society’s purpose, values
and ‘Members First’ belief shape remuneration strategy
and decision making.
The report details how the Society's Remuneration Policy
has been applied during the year.
Externally, rising inflation through the earlier part of the
year continued to impact UK households and our
colleagues, with rapid falls in the latter months of 2023
coming as a welcome relief. UK wage growth at just over
7% is reflective of the actions that we, along with other
businesses, have taken to recognise the very real cost of
living pressures being faced by individuals and families.
Whilst UK employment levels continue to be largely
unaffected by the economic challenges, we have had
another successful year attracting and retaining talented
people to work at the Society. We welcomed over 500
new colleagues in 2023, investing in maintaining excellent
customer service, the safety and stability of our systems
and in developing new propositions.
The external landscape for pay and benefits continues to
change rapidly, with the removal of regulatory restrictions
between fixed and variable pay, often referred to as the
‘bonus cap’, being particularly noteworthy. The
Committee has spent time considering changes in the
market and benchmarking our offering for executives and
colleagues. As the Society's variable remuneration
arrangements have remained largely unchanged for more
than five years, the Committee has asked that a review of
these arrangements be undertaken during 2024.
You will have read in the Chief Executive's review, within
the Strategic Report section, about the strong and
balanced business performance in 2023. The Society has
outperformed in six of the nine measures in the balanced
scorecard, which is used to underpin both the all-
colleague Success Share scheme and the Executive
Variable Pay Plan (ExVPP). The scorecard enables the full
range of business performance to be assessed against
stretching targets. We reflect our mutual culture and
values by giving equal weight to all elements of the
scorecard - so measures for customer, ESG and colleague
outcomes have the same significance as financial and risk
measures. The 2023 performance reflects the strength of
our proposition to borrowers and savers and the service
that underpins this. We continue to report growth in
lending and exceptional service to mortgage brokers and
customers. Our saving rates are above the market average
and we have once again seen excellent take-up of our
loyalty savings products.
A number of members have been involved in testing our
first ever app. Feedback has been overwhelmingly
positive, which has been fantastic, and you’ve also helped
us to shape some important changes before a full launch
in early 2024. Alongside development of the app, we’ve
continued to invest in ensuring that the Society remains
strong and relevant. You can read more about the
progress we’ve made, be that completing our three year
technology programme for mortgages or the successful
implementation of a new finance system in the Strategic
Report section. It is the Society’s strong and balanced
performance that enables these important investments for
members and the Remuneration Committee tracks
progress against these key deliverables through the
balanced scorecard.
The Committee takes action to reflect the views of
stakeholders in our decision making. As a mutual
organisation, we believe it is also right to understand and
be guided by the views of our members. The Annual
Remuneration Report is submitted to a vote by you, the
members, each year at the Annual General Meeting. In
addition, the Remuneration Policy is submitted to an
advisory vote by members every three years and you
returned a 92.3% vote in support of the policy at the 2023
AGM. These voting arrangements are advisory and the
directors’ remuneration is not conditional upon them,
however, the Committee intends to take account of your
feedback in its decision making. I also sit on our colleague
forum 'My Society'. Understanding the views of colleagues
is an extremely useful input to the Committee's decision
making.
Given the Society's scale, we are now deemed to be a
"Tier 1" organisation for remuneration matters by our
regulators - the PRA and FCA. Tier 1 firms attract the
highest level of regulatory supervision and this means
greater engagement with our regulators and increased
reporting obligations to them. The Committee has ensured
a thorough understanding of Tier 1 requirements and I’m
pleased to confirm that we are fully compliant.
The Committee will continue to pay close attention to
changes in the wider market, whilst making decisions
which are aligned with and support our members’
interests.
Jo Kenrick
Chair of the Remuneration Committee
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 91
Directors' Remuneration Report
Governance
The Remuneration Committee
Committee membership and attendees
The Committee consists exclusively of independent non-
executive directors and the Chair of the Board.
The members of the Committee are:
Current membership Member since
Jo Kenrick
1
2017
David Thorburn 2022
Catherine Doran (until 27.04.23) 2016
Shamira Mohammed 2023
Brendan O’Connor 2021
1. Chair of the Committee since April 2018.
The Committee seeks input from the Chief People Officer,
the Head of Reward and People Services, and the Chief
Executive, who are invited to attend meetings. The Chief
Risk Officer and the Company Secretary are invitees
where appropriate. The Committee also benefits from
specialist advice from its independent remuneration
advisor (Deloitte LLP).
Governance and the role of the Remuneration
Committee
The Committee has overall responsibility for remuneration
matters delegated to it by the Board. The Committee’s
role is to consider the Remuneration Policy and its
application to all employees, with particular scrutiny
given to the remuneration of executive directors and
executive managers. The Policy is considered at least
annually, or more frequently in the event of any
significant change, and is subject to an advisory vote
every three years.
The Committee continually assesses the adequacy and
effectiveness of the Policy.
All decisions about remuneration reflect the Society’s
purpose, values and 'Putting Members First' belief.
Decisions align with the approach taken for all employees
and take account of the long-term sustainable success of
the Society.
The Society complies with the relevant requirements of
the UK Corporate Governance Code in relation to
determining executive director remuneration policy.
These include ensuring clarity and transparency of policy
and arrangements. The Committee has also considered
and mitigated any risks to ensure that the Society does
not incentivise the wrong type of behaviour.
The Committee’s work has involved ensuring predictability
in the remuneration structure; considering proportionate
variable pay awards for colleagues and executive directors
that reward good performance and are not excessive, and
aligning policy and practice to the Society’s purpose,
values and belief.
The Committee considers that the Remuneration Policy
has operated as intended in terms of the performance of
the Society and the quantum of awards.
The Committee ensures that statutory and regulatory
requirements are met and that there continues to be a
clear link between corporate and individual performance
and remuneration decisions.
Activities during 2023
During 2023, the Committee:
• Considered the outturn of the 2022 balanced scorecard
to determine the 2022 Success Share scheme payment
and the 2022 Executive Variable Pay Plan (ExVPP)
payment.
• Approved the performance measures for the 2023
remuneration scorecard.
• Approved deferred and retained payments from in-
flight executive variable pay plans, ensuring these are
in line with the Society’s Remuneration Policy.
• Considered updates to the Society’s Remuneration
Policy.
• Assessed external benchmarking data as an input to
ensure remuneration remains competitive and
appropriate.
• Approved the Society’s salary review approach.
• Received a report from the Risk function that gave
assurance that the Society’s remuneration framework
had not encouraged excessive risk taking.
• Considered the Risk function's annual review of any
grounds to recover or withhold variable pay awards.
• Oversaw an assessment of employees whose
responsibilities could impact the Society’s risk profile.
• Approved the Society’s Prudential Regulation Authority
(PRA) Remuneration Policy Statement and Material
Risk Taker (MRT) disclosures.
• Approved the Directors’ Remuneration Report.
The Committee also undertook the following activities in
2023:
• Considered and approved an amendment to the
Society's approach to the retention of executive
variable pay through a share-like instrument.
• Considered the Society’s gender and ethnicity pay
ratios and CEO pay ratio and, in response, committed
to future diversity and inclusion actions.
• Considered amendments to the default funds under
the Society's Group Personal Pension Plan.
• Approved remuneration packages for new executive
managers.
• Considered the Society's benefit offering to ensure it
offered sufficient flexibility and choice, and remained
fit for purpose.
• Received updates from the Committee's advisors and
from the Society's secretarial function.
• Engaged with the workforce through My Society, the
Society’s colleague forum, to explain the work of the
Committee and to take feedback from representatives.
Coventry Building Society | Annual Report & Accounts 2023 92
Directors' Remuneration Report continued
Governance
Remuneration Policy
The Society’s Remuneration Policy (as approved by our
members at the 2023 Annual General Meeting) is
determined by the Remuneration Committee and
confirms the principles that underpin its approach to
remuneration. The full policy can be found at
www.coventrybuildingsociety.co.uk and applies to all
employees.
The Remuneration Policy is designed to reward all
employees for their skills, knowledge, responsibilities
and performance. When making any decisions about pay
and benefits the Society must strike a balance between
the needs of employees, the needs of members to ensure
cost efficiency and the requirements of its regulators.
The Society’s ultimate objective is to offer a
remuneration package (pay, benefits and non-financial
rewards) that is competitive when compared with similar
financial services organisations and that is also fair and
appropriate for the size and type of organisation we are.
The principles of the Remuneration Policy apply to all
employees, including executives, across the whole
Society. All fixed and variable remuneration (with the
exception of benefits in kind such as cars, where
applicable) are paid through the payroll.
In determining the remuneration approach, the Society
works with its colleague forum, My Society, and the trade
union, UNITE, to ensure that colleagues views are
understood and represented.
The Society follows the PRA’s Code on Remuneration
Practices and Disclosure Requirements, and in addition,
aligns the Policy with the PRA’s best practice guidelines
and the UK Corporate Governance Code where
applicable.
The Remuneration Policy is consistent with the Society’s
risk appetite and is designed to support the overall
financial stability of the Society and its strategic
priorities, by promoting sound and effective risk
management and not encouraging excessive risk taking.
The Remuneration Policy is based on two further
principles:
• It must reflect our purpose, values and belief and the
expectations of our members.
• It must support the Society to recruit, motivate,
engage and retain great people.
The main elements of executive remuneration
The main elements of remuneration in place for the executive leadership of the Society, executive directors who sit on the
Board and executive managers are set out below with an explanation of how each element links to our overall business
strategy:
Base salary
Purpose and link to strategy Salaries of executive directors are set with reference to market rates of pay to enable the
Society to recruit, retain and motivate high calibre leaders.
Operation Executive director salaries are normally reviewed annually, with any increases usually
taking effect from 1 April, taking into account a number of factors, including but not
limited to:
• The scope and size of role.
• The skills, experience and responsibility of the role holder.
• The position of the role holder’s salary against wider market rates of pay and their
individual performance.
• Equal pay principles, the Society’s financial performance and the economic
environment.
• Increases awarded to the Society’s employees.
Where an executive director is to be promoted or where their role is to be expanded, the
Society will review the salary and decide whether an adjustment is appropriate.
Risk mitigation Executive director salaries are benchmarked against comparable financial services
organisations to ensure they are not excessive.
No executive director is involved in setting their own remuneration or exercising discretion
over judgements that could influence their own remuneration.
Maximum potential Any increases will generally be no higher than the average increases applied to the
Society’s employees (in percentage terms). Increases may be made either above or below
that level in exceptional circumstances, taking into account the factors outlined above.
Performance metrics Individual performance is considered when setting salaries.
Consistency with other
employees
The Society uses the same approach when setting salaries for all its employees and
executive directors.
Coventry Building Society | Annual Report & Accounts 2023 93
Directors' Remuneration Report continued
Governance
The main elements of executive remuneration continued
Purpose and link to
strategy
The Society provides a competitive benefits package to all its employees to support their
physical, mental and financial wellbeing.
Operation Each executive director receives benefits that are in line with the external market. These may
include a company car or cash alternative, private medical insurance, health screening,
permanent health insurance and life insurance.
Risk mitigation Not applicable.
Maximum potential Not applicable.
Performance metrics Not applicable.
Consistency with
other employees
All employees receive permanent health insurance and life insurance, and many also receive
private medical insurance. Executive directors do not receive any benefits that are unavailable to
other senior managers within the Society.
Benefits (excluding pension)
Purpose and link to
strategy
The Society provides post-retirement financial security for all its employees at a cost that is
sustainable for the Society over the long term and in line with market practice.
Operation Executive directors are eligible to participate in the defined contribution pension plan. If their
contributions exceed the annual or lifetime allowance, they may be permitted to take a cash
alternative in place of contributions.
Risk mitigation No executive director is involved in exercising discretion over judgements that could influence
their level of pension contribution.
Maximum potential Executive directors receive a pension contribution or cash alternative. This is 10% of base salary
in line with the maximum potential for all employees (or 15% for members of the now closed
defined benefit pension scheme).
Performance metrics Not applicable.
Consistency with
other employees
All employees are eligible to join the Society’s defined contribution pension scheme, receiving
contributions of up to 10% (or 15% for members of the now closed defined benefit pension
scheme).
Pension
Annual Success Share bonus
Purpose and link to
strategy
Success Share is a key part of the Society’s remuneration package. It is a discretionary variable
pay scheme that enables all eligible employees to share in the Society’s success in delivering
against its strategy. It helps the Society to be competitive in attracting and retaining high calibre
employees, and ensures their alignment with strategic priorities.
Operation The Scheme applies to all eligible employees (including executive directors) with the same
Society performance measures used to assess payments for everyone. The Scheme is reviewed
each year to ensure that it is aligned to the Society’s business plans and any changes in
regulation.
Risk mitigation The Society does not incentivise any employees based on individual or team sales targets.
The Committee has absolute discretion to reduce any variable pay award if it decides that
acceptable standards or performance levels have not been met. The Committee can also adjust,
withhold or recover any vested awards using ‘malus’ and ‘clawback’ arrangements for executive
directors and executive managers.
Maximum potential The maximum award for all employees (including executive directors) is 20% of base salary for
exceptional performance and 10% of base salary for on target performance.
Performance metrics The Society measures annual performance against a number of stretching financial and non-
financial targets detailed in the balanced scorecard, which is aligned to its strategic priorities
(see below).
Consistency with
other employees
All employees of the Society are in scope for the Success Share scheme.
Coventry Building Society | Annual Report & Accounts 2023 94
Governance
Directors' Remuneration Report continued
The main elements of executive remuneration continued
Purpose and link to
strategy
The ExVPP helps to recruit and retain high calibre executive directors, and rewards performance
over the longer term in delivering the Society’s strategy.
Operation Awards to executive directors are made in cash (as opposed to shares) and are subject to deferral
and retention. The Remuneration Code requires that 50% of variable pay is made in shares or, in
the case of a non-listed business like the Society, an equivalent share-like instrument. The
Society’s share-like instrument is based on leverage ratio (excluding AT 1) and provides for both
uplift and reduction of awards. The plan is reviewed each year to ensure alignment to the
strategic priorities and changes in regulation.
Risk mitigation Risk mitigation is as outlined above for the annual Success Share bonus. In addition, the plan
ensures that executive director remuneration packages are strongly linked to the Society’s long-
term performance and members’ interests.
Maximum potential If the Society performs in line with its plans, the ExVPP scheme provides for an award of up to
30% of salary for executive directors (up to 15% for executive managers). The maximum award
(up to 60% of base salary at the date of grant for executive directors and up to 30% for executive
managers) can only be achieved by exceeding stretching upper targets for all measures.
Performance metrics The Society measures annual performance of the ExVPP against a mix of collective performance
targets in the balanced scorecard that account for 70% of the total award, and up to three
individual objectives that account for 30% of the total award. These goals are agreed with the
Remuneration Committee at the outset of the scheme year.
Consistency with
other employees
The plan is only available to executive directors and executive managers.
Executive Variable Pay Plan (ExVPP)
Performance measures for variable pay
A balanced scorecard is used to assess the performance
of the Society. The performance measures in the
scorecard reflect the Society’s strategic priorities, and
stretching performance targets are set each year for the
Annual Success Share bonus and ExVPP schemes. In
setting performance targets, the Committee takes into
account a number of different reference points which
may include the Society’s business plans and strategy,
and the market environment.
The Committee retains the discretion to adjust or set
different performance measures or targets if the
measures are no longer appropriate, such as in the case
of a significant change in prevailing market conditions,
and amendment is required so that the measures achieve
their original purpose. The Committee does not expect to
make such changes during a performance period.
Differences between the executive directors'
and wider employees' remuneration policies
Performance related variable pay makes up a higher
proportion of remuneration for the executive directors
and executive managers than for employees generally,
reflecting the role of these individuals in leading the
business to achieve the Society’s strategic objectives.
Malus and clawback
Malus, clawback, deferral and retention arrangements
are in place for executive directors and executive
managers. The Committee ensures that an objective
assessment of business risk and long-term sustainability is
included with any assessment of variable pay awards and
it may decide to exercise its discretion and adjust
Success Share or ExVPP payments. Further details about
malus and clawback arrangements are set out below:
Coventry Building Society | Annual Report & Accounts 2023 95
Malus Clawback
What is it? The Committee can decide to reduce or cancel
any variable pay award, before the payment has
been made.
The Committee may decide that an individual must repay
part or all of a variable pay award after the payment has
been made.
Which
awards does
it apply to?
Malus applies to any payments under the annual
Success Share bonus and ExVPP schemes, as well
as any future variable pay schemes.
Clawback applies to payments under the annual Success
Share bonus and ExVPP variable pay schemes, for up to seven
years even if an individual leaves the Society’s employment.
When would
this be
used?
Can be applied in circumstances including, but
not limited to:
• Reasonable evidence of misbehaviour or
material error by the executive director.
• The Society suffering a material downturn in
its financial performance.
• The Society suffering a material failure of
risk management.
Can be applied in circumstances including, but not limited
to:
• Reasonable evidence of misbehaviour or material error by
the executive director.
• The Society or function suffering a material failure of risk
management.
• A material misstatement of the Society’s financial
results, such that the payment made under the variable
pay arrangement was greater than it would have been.
Directors' Remuneration Report continued
Governance
Other considerations when setting executive
director remuneration
When approving executive director pay, the Committee
will take decisions aligned to the Society's Remuneration
Policy and will consider wider market benchmarking
across financial services and remuneration paid to other
employees across the Society.
Application of the Remuneration Policy
The following table shows the maximum variable pay for
executive directors, as a percentage of base salary:
Service contracts
Executive directors' terms and conditions of employment
are detailed in their individual service contracts, which
are available at the Principal Office. All of the Society's
executive directors must voluntarily stand for re-election
by its members each year. An executive director's
contract can be terminated by the director or the Society
giving six or 12 months' notice (dependent on role). The
dates that current executive directors were appointed
are shown in the table below:
Executive director
Date of
appointment
Chief Executive - Stephen Hughes 20.04.2020
Chief Customer Officer - Peter Frost
1
01.11.2012
Chief Financial Officer - Lee Raybould 06.04.2021
1. Until 27 April 2023
Details of the Non-Executive Directors’ Remuneration
(NEDR) Committee
The members of the NEDR Committee are:
Current membership Member since
Stephen Hughes
1
2020
Lee Raybould 2021
David Thorburn 2022
1. Chair of the Committee.
The NEDR Committee is responsible for reviewing and
recommending the remuneration of the non-executive
directors, other than for the Chair of the Board, for the
Board's approval and they met once during the year.
Non-executive directors' letters of appointment
Non-executive directors are appointed for an initial term
of three years, which can be terminated by the director,
or at the discretion of the Board with a notice period.
Non-executive directors must voluntarily stand for re-
election each year.
Approach for non-executive directors’ fees
The approach for non-executive directors is in line with
the objectives of the Remuneration Policy for the whole
Society, which is to offer fees that are competitive when
compared with similar financial services organisations
and, as such, allow the Society to recruit, retain and
motivate high calibre non-executive directors.
The NEDR Committee recommends the remuneration of
the non-executive directors, other than the Chair of the
Board, to the Board for approval. Recommendations for
the remuneration of the Chair of the Board are made by
the Remuneration Committee and approved by the full
Board without the participation of the Chair. No director
takes part in the discussion of their own remuneration.
Non-executive directors
The Committee oversees remuneration for all employees, including executive directors and executive managers, and the
Chair of the Board. Non-executive director matters are dealt with separately as outlined below:
Coventry Building Society | Annual Report & Accounts 2023 96
2023
performance
scenarios
As a percentage of base salary
Success Share
%
ExVPP
%
Total variable pay
%
Minimum 0 0 0
On target 10 30 40
Maximum 20 60 80
Non-executive directors fees
Purpose and link to
strategy
Non-executive director fees are set at a level that reflects market conditions and is sufficient to
attract individuals with appropriate knowledge and experience.
Operation Fees are usually reviewed annually and amended to reflect market positioning and any change in
responsibilities. Non-executive directors may be eligible to receive reimbursement of expenses for
travel and accommodation costs and tax thereof.
Risk mitigation Benchmarking non-executive director salaries against comparable financial services organisations
ensures they are not excessive. Fees paid to non-executive directors are recommended by the
NEDR Committee and approved by the Board as a whole. Non-executive directors do not
participate in the Annual Success Share bonus and ExVPP.
Maximum potential Fees are based on the level of fees paid to non-executive directors serving on boards of similar-
sized UK companies and the time commitment and contribution expected for the role.
Non-executive directors receive a basic fee and an additional fee for further duties (for example,
Chair of a Committee or Senior Independent Director responsibilities).
Performance metrics Not applicable.
This concludes the Remuneration Policy section of the Committee's annual report, the following pages outline how the
current Policy was implemented in the annual Remuneration Report.
Governance
Directors' Remuneration Report continued
Annual Remuneration Report
This report sets out remuneration awarded to executive and non-executive directors for 2023. All remuneration decisions
are taken in accordance with the Remuneration Policy approved by an advisory vote at the Annual General Meeting in 2023.
The total pay package that was earned by each executive director for 2023 and 2022 is shown below:
Total remuneration earned by executive director
(Audited)
Fixed remuneration Variable remuneration
Total
remuneration
£000
Base
salary
1
£000
Taxable
benefit
£000
Pension
allowance
2
£000
Total
fixed
£000
Success
Share
£000
ExVPP
£000
Total
variable
£000
2023
Stephen Hughes 572 10 57 639 109 338 447 1,086
Lee Raybould 424 11 42 477 81 245 326 803
Peter Frost
3
103 8 16 127 20 51 71 198
Total 1,099 29 115 1,243 210 634 844 2,087
(Audited)
Fixed remuneration Variable remuneration
Total
remuneration
£000
Base
salary
1
£000
Taxable
benefit
£000
Pension
allowance
2
£000
Total
fixed
£000
Success
Share
£000
ExVPP
£000
Total
variable
£000
2022
Stephen Hughes 530 10 53 593 97 277 374 967
Lee Raybould 402 9 40 451 73 208 281 732
Peter Frost 308 23 46 377 56 145 201 578
Total 1,240 42 139 1,421 226 630 856 2,277
1. Base salary is the actual salary earned in the year and will differ from the current salary effective from 1 April.
2. Pension allowance includes both contributions to the Group’s defined contribution pension scheme and cash payments in lieu of contributions.
3. The remuneration shown for Peter Frost is up to the date he stepped down from the Board on 27 April 2023.
Further information on individual
remuneration elements: executive directors
Base salary 2023
The annual review of salaries in April 2023 saw a pool of
8.0% of basic salaries which was focused on those in our
entry level grades and those who are low in their salary
range. Executive directors received increases in line with
the approach for all employees as set out below:
The CEO's salary increase was set at a level due to the
relatively low positioning of base salary and total
remuneration against comparator companies, strong
performance and growth of the Society. This approach
was consistent with that taken for other employees.
Benefits and pension 2023
Executive directors received benefits including a fully
expensed Society car or a cash alternative, personal
membership of a private medical insurance scheme,
permanent health insurance and life assurance.
Executive directors were eligible to participate in the
Society’s defined contribution pension scheme, which is
offered to all employees.
The Chief Executive and Chief Financial Officer received
cash alternatives in lieu of pension contributions
equivalent to 10% of base salary as they have exceeded
the lifetime allowance. This is in line with the approach
for all employees who are eligible to join the Society’s
defined contribution pension scheme, receiving
contributions of up to 10%. The Chief Customer Officer
received cash alternatives equivalent to 15% as a legacy
arrangement, which is in line with the approach for
members of the now closed defined benefit pension
scheme.
Variable pay 2023
The balanced scorecard reflects the measures used by
the executive team and the Board to assess the Society’s
performance. This ensures alignment of remuneration
with the Society’s objectives. All measures are deemed
to be equally weighted.
Further information on the Society’s performance can be
found in the Strategic Report. Performance against the
balanced scorecard measures is summarised below:
Coventry Building Society | Annual Report & Accounts 2023 97
Executive director
Effective 1 April
2023
£
Effective 1 April
2022
£
%
increase
Stephen Hughes
583,200
540,000 8.0 %
Lee Raybould
430,000
405,500 6.0 %
Directors' Remuneration Report continued
Governance
Annual Remuneration Report continued
Variable pay 2023 continued
People and societal impact
Employee Engagement
1
76% - 80% Trust (Recognised) 81% Trust (Recognised) Exceeded Target
Environmental, Social and Governance
measures
Qualitative and quantitative assessment
2
Assessment against these
outcome measures rated
overall as Achieved Target
Best at mortgages and savings
Mortgage balance growth
Par share (3% / £1.6bn)
+/- 0.25%
4.7% / £2.3bn Exceeded Target
Net Promoter Score
3
'+72 - +76 +76 Achieved Target
Savings Rate Premium 0.56% - 0.60% >0.70% Exceeded Target
Key capability delivery
Programme initiatives and key capability
delivery
4
Qualitative and quantitative assessment
Assessment against these
outcome measures rated
overall as Exceeded Target
Comply with updated Consumer Duty
requirements
Financial plan delivery
Cost / Income ratio 46% - 40% 39% Exceeded Target
Profit before tax £m £350m - £400m £474m Exceeded Target
% Mortgage balances >2.5% in arrears
5
0.20% - 0.15% 0.17% Achieved Target
Individual objectives:
3 Main Individual Objectives
Chair of Board/Chief Executive assessment
Balanced Scorecard - 2023 Plan
Performance target range Performance result
Performance relative to
target range
1. The 2023 engagement survey was provided by Great Place to Work (GPTW) and measures the Trust index. The GPTW employee engagement score reflects the assessment as a large
sized company.
2. More detail can be found in the sustainability section within the Strategic Report.
3. Net Promoter Score (NPS) is 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. Programme initiatives and key capability delivery are assessed against delivery and financial measures by the Board Technology Oversight Committee.
5. Percentage of mortgage balances where arrears are more than 2.5% of the balance.
Despite the challenging market conditions in 2023, the
Society delivered a strong and balanced performance.
The Society exceeded against six of the nine
performance targets which determine variable pay,
achieved in line with three measures and did not perform
below target against any measures.
A scoring matrix provides guidance to the Remuneration
Committee as to potential outturn based on performance
against the balanced scorecard. The number of
objectives that were deemed to be above or below
target determine the range of award that could be
considered.
For recipients of the ExVPP, the performance metrics are
split 70:30 between collective performance, as
determined by the outturn of the balanced scorecard,
and individual performance, as determined by the
achievement of up to three strategically aligned
individual goals. The balanced scorecard ensures
alignment between remuneration and the long term,
sustainable goals of the Society. The individual goals are
used to increase personal accountability for the delivery
of key strategic targets and are agreed with the
Remuneration Committee. Performance against these
goals, together with conduct and behaviours, are
considered by the Committee when assessing individual
performance.
Coventry Building Society | Annual Report & Accounts 2023 98
Directors' Remuneration Report continued
Governance
Annual Remuneration Report continued
Variable pay 2023 continued
Stephen Hughes individual goals
Delivery against short and long term strategic goals
for mortgages, savings and costs.
Led strong delivery across the full range of
strategic measures, both financial and non-
financial. Significant delivery of transformation,
with roadmaps developed to shape future
ambitions for members. Colleague engagement
increased, progress made against all diversity and
inclusion (D&I) ambitions and clear investment in
capability build.
Exceeded
target
performance
Drive transformation agenda; delivery in year as
well as shaping future ambitions.
Focus on people and culture; measured through
colleague engagement, achieving diversity
ambitions and the development of key future
capabilities.
Lee Raybould individual goals
Delivery of Finance transformation programme.
Very successful, on time implementation of new
general ledger in 2023 and continued progress in
the automation of regulatory reporting. Data
strategy approved and internal capability
enhanced, with good delivery across a number of
programmes. Increases in engagement and in
ethnic and gender diversity.
Exceeded
target
performance
Realise the ambitions laid out in the data strategy.
Sustain colleague engagement through
transformation and support achievement of the
Society's D&I ambitions.
Given the performance outlined above, the Committee
considered the vesting outcomes reflected in the
underlying business performance and risk appetite of the
Society with an appropriate level of variable awards and
determined:
• An annual Success Share bonus for all eligible
employees, including executive directors, equivalent
to 19% of base salary from a potential maximum of
20%.
• An ExVPP award to executive directors of between
57% and 58% of base salary from a potential maximum
of 60% and to executive managers ranging from 24.5%
to 28.5% of base salary from a potential maximum of
30%. Awards made reflect whether performance was
assessed as on target or exceeded target.
For executive directors and executive managers, these
awards will be deferred as described below.
The impact of deferral
Variable remuneration is subject to regulatory deferral
arrangements as described below. All executive directors
are deemed to be Higher Paid Material Risk Takers under
the CRD V regulations; as a result, their total variable
pay (annual Success Share bonus and ExVPP) is paid over
nine years following the performance period, with 60% of
this being paid in the last six years of the ‘extended
deferral period’. The percentage which is paid in each
year is set out in the table below. For each annual
payment, half is made in cash with the other half
retained in an equivalent share-like instrument for a
further 12 months. All payments are subject to malus and
clawback reductions.
Impact of deferral in relation to the 2023 and 2022
performance periods
In 2023, all executive directors were above the
regulatory deferral threshold and therefore their variable
remuneration will be paid in instalments as set out
below. The table shows the percentage (where
applicable) of variable remuneration which will be paid
in each year.
Coventry Building Society | Annual Report & Accounts 2023 99
Variable pay
received
2023
performance
period
2022
performance
period
2023 — 20 %
2024 20 % 20 %
2025 20 % —
2026 — 6 %
2027 6 % 12 %
2028 12 % 12 %
2029 12 % 12 %
2030 12 % 12 %
2031 12 % 6 %
2032 6 % —
Directors' Remuneration Report continued
Governance
Annual Remuneration Report continued
The impact of deferral continued
The impact of deferral is illustrated by reference to the Chief Executive's variable pay in the diagram below
Payments for loss of office
Peter Frost retired from his position as Chief Customer
Officer on 31 October 2023. In line with his contractual
arrangements, he did not receive any compensation for
loss of office. From 27 April 2023, he stepped down from
the Board and was on garden leave until his retirement.
During that period, he received monthly payments
comprising his salary, car cash allowance, cash in lieu of
pension and holiday pay which totalled £215,000. He was
also eligible to receive pro rated variable pay awards for
Success Share and ExVPP awards in respect of 2023
totalling £91,000.
As a retiree, the Committee determined that Peter
should be treated as a good leaver and any in-flight
deferred variable pay will be released at the normal time
in line with the Remuneration Policy and other recent
executive director leavers.
Payments to former Directors
The Committee may determine that retirees or
redundancies should be treated as good leavers and any
in-flight deferred variable pay will be released at the
normal time in line with the Remuneration Policy. The
following payments relating to deferred variable pay
were made to former directors in 2023: £96,000 to M
Parsons, former Chief Executive, £41,000 to M Faull,
former Chief Financial Officer, and £17,000 to A Deeks,
former Product, Marketing & Strategy Director. There are
no further payments due to A Deeks. All of these
payments were subject to performance and risk review
by the Remuneration Committee in line with the
Remuneration Policy.
Remuneration elements in 2024
Base salary 2024
Base salaries for executive directors will be reviewed in
April 2024, in line with the approach outlined in the
Remuneration Policy.
Benefits including pension 2024
No changes to the Society’s approach to benefits are
anticipated.
Variable pay 2024
The 2024 annual Success Share bonus scheme and ExVPP
will be reviewed in line with the Society’s strategic
priorities and any changes to regulation. Details of the
performance metrics for both variable pay plans will be
provided in the 2024 Directors’ Remuneration Report.
Relative importance of spend on pay
The following table sets out the changes in profit after
tax in 2023 and 2022, and compares these with the
overall spend on remuneration over the two years. As a
mutual organisation, the Society only seeks to retain
sufficient profit to maintain capital ratios and allow for
investment in the business, returning any surplus above
this to members through superior pricing. A better
measure of the Society’s activity is the level of growth in
mortgage and savings balances and so the percentage
change in total assets has been included to give an
appropriate indication of this.
The higher employee remuneration costs reflects the
increase in salaries following the annual salary and
variable pay reviews and an increase to additional full
time equivalent headcount to support the growth of the
business, and investment in our technology,
infrastructure and resilience.
Coventry Building Society | Annual Report & Accounts 2023 100
£'000
89 89
27
54 54 54 54
27
75
75
22
45
45 45 45
22
2023 Performance period 2022 Performance period
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
0
100
200
2023
£m
2022
£m
Change
%
Total assets 62,462.7 58,867.1 6.1
Total employee
remuneration costs paid
157.0 137.5 14.2
Profit after tax 351.1 286.2 22.7
Directors' Remuneration Report continued
Governance
Annual Remuneration Report continued
Change in remuneration of Chief Executive
The historical levels of the Chief Executive’s variable pay awards as a percentage of the maximum payable are shown
below:
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014
% % % % % % % % % %
Annual Success Share bonus as a
percentage of maximum
95 90 75 40 50 55 60 70 60 60
LTIP as a percentage of maximum n/a n/a n/a n/a n/a n/a 63 63 — 100
ExVPP as a percentage of maximum 96.5 85.5 75 40 45 50 60 65 n/a n/a
CEO pay ratio
The Companies (Miscellaneous Reporting) Regulations
2018 require UK quoted companies with more than 250
UK employees to publish their CEO pay ratio figures and
supporting information in their annual reports. The
regulations require that the pay ratio figures are
calculated using the single total figure of remuneration
methodology used above, which includes total salary,
variable pay, pension benefits and taxable benefits.
The Society has elected to publish its CEO pay ratios
using the Government’s preferred methodology (Option
A) which is based on actual full time equivalent pay and
benefit values for all employees for the financial year. It
is calculated by identifying the median total
remuneration as well as the total remuneration at the
25th percentile and 75th percentile points. For 31
December 2023, these were as set out in the table
below. In calculating these figures, leavers were
excluded but all other employees who started partway
through the year or who were on extended leave for
some or all of the year have been included on the basis
of a full year’s salary.
Remuneration element
On the basis of these numbers the ratio of CEO pay to
employee pay at the median and 25th and 75th
percentiles is as follows:
The median pay ratio remains stable over the last year
with a slight increase due to the Society's exceptional
scorecard and the Society believes it is consistent with
the principles of its Remuneration Policy.
Coventry Building Society | Annual Report & Accounts 2023 101
25th
percentile
£
Median
£
75th
percentile
£
Total pay and benefits 31,240 41,788 62,254
Salary 25,200 32,820 45,296
Year Method
25th
percentile
£
Median
£
75th
percentile
£
2023 Option A 35:1 26:1 17:1
2022 Option A 32:1 25:1 16:1
2021 Option A 32:1 24:1 16:1
2020 Option A 36:1 27:1 19:1
Governance
Directors' Remuneration Report continued
Details of the non-executive directors' remuneration
Audited information
Base fees
Committee
Chair and
other fees
Expense
payments
Total fees
and
expense
payments Base fees
Committee
Chair and
other fees
Expense
payments
Total fees
and
expense
payments
2023 2023 2023 2023 2022 2022 2022 2022
Note £000 £000 £000 £000
£000 £000 £000 £000
Non-executive directors:
David Thorburn 1 199 — 3 202 129 — 5 134
Gary Hoffman 2 — — — — 59 — — 59
Iraj Amiri 3 55 16 2 73 54 15 4 73
Catherine Doran 4 18 — 1 19 54 — 2 56
Jo Kenrick 5 55 27 1 83 54 25 1 80
Shamira Mohammed 6 55 — 1 56 54 — 1 55
Vanessa Murden 7 51 12 — 63 — — — —
Brendan O'Connor 8 55 — 2 57 54 — 1 55
Martin Stewart 9 55 16 3 74 54 15 3 72
Total 543 71 13 627 512 55 17 584
1. Chair of the Board from 28.04.22.
2. Chair of the Board to 28.04.22
3. Non-executive director from 28.06.18 and Chair of the Board Audit Committee from 18.09.18.
4. Non-executive director from 01.08.16 until 27.04.23.
5. Deputy Chair of the Board from 22.04.21, Senior Independent Director from 24.04.19 and Chair of the Remuneration Committee from 26.04.18.
6. Non-executive director from 01.05.19.
7. Non-executive director from 30.01.23. Chair of the Board Technology Oversight Committee from 30.01.23
8. Non-executive director from 18.01.21.
9. Non-executive director from 01.09.18 and Chair of the Board Risk Committee from 25.09.18.
Fees for non-executive directors changed in April 2023 in
line with the approach for executives, as shown in table
below. Non-executive director fees are made up of a
base fee, plus a Committee Chair fee as appropriate. The
Chair of the Board does not receive additional fees for
roles carried out other than that of Chair.
1. If both the Deputy Chair and Senior Independent Director roles are held by the
same person, the fees are combined at £13,700.
Expense and other payments
Non-executive directors are reimbursed reasonable travel
and accommodation expenses in relation to attending
meetings but do not participate in any Society pension,
benefits or bonus arrangements.
Remuneration committee advisor
Deloitte LLP (Deloitte) was appointed by the Committee
in 2012 and is retained to provide independent advice to
the Committee as required. Deloitte is a founding
member of the Remuneration Consultants Group and, as
such, voluntarily operates under the code of conduct in
relation to executive remuneration consulting in the UK.
The Committee is satisfied that the advice received is
objective and independent, and remuneration services
provided by Deloitte are reviewed annually to ensure this
continues to be the case. The Society also engages
Deloitte to provide other assurance services, consultancy
and specialist advice to other departments.
Consideration of members' views
The Society welcomes feedback on executive and non-
executive directors’ remuneration. Member approval of
the Directors’ Remuneration Report is voted on at each
Annual General Meeting and, every three years, the
Committee asks members for a non-binding vote on the
Remuneration Policy.
Statement of member vote at Annual
General Meeting
At the 2023 Annual General Meeting, ordinary resolutions
(advisory votes) were proposed to members to approve
the Annual Remuneration Report and Remuneration
Policy for the year ended 31 December 2022 for which
the following votes were received:
Coventry Building Society | Annual Report & Accounts 2023 102
Number
of votes
%
votes cast
Annual Remuneration Report
Votes cast for
75,141 92.7
Votes cast against
5,949 7.3
Total votes cast
81,090 100.0
Remuneration Policy
Votes cast for
74,672 92.3
Votes cast against
6,207 7.7
Total votes cast
80,879 100.0
Directors' Remuneration Report continued
Governance
Non-executive director fees
2023
£000
2022
£000
Chair of the Board 202 192
Base fee 56 54
Deputy Chair of the Board
1
8 7
Senior Independent Director
1
8 7
Chair of the Remuneration Committee 14 13
Chair of the Board Audit Committee 16 15
Chair of the Board Risk Committee 16 15
Chair of the Board Technology Oversight
Committee
14 -
The directors have pleasure in presenting their Annual
Report & Accounts for 2023.
Business objectives, future developments and
key performance indicators
The Society’s objectives and future plans are set out in
the Strategic Report, together with the Society’s key
performance indicators. The Strategic Report is
incorporated by reference within this Directors’ Report.
Profit and capital
Profit before tax for the year ended 31 December 2023
was £474 million (2022: £371 million). The profit after tax
transferred to the general reserve was £351 million (2022:
£286 million).
Total Group reserves and equity at 31 December 2023
were £3,240 million (2022: £2,948 million). Further details
on the movements on reserves and equity are given in the
Group Statement of Changes in Members’ Interests and
Equity.
Gross capital at 31 December 2023 was £3,297 million
(2022: £3,005 million), including £15 million (2022: £15
million) of subordinated debt, £42 million (2022: £42
million) of subscribed capital and £415 million (2022: £415
million) of Perpetual Capital Securities.
The ratio of gross capital as a percentage of savings and
borrowings at 31 December 2023 was 5.65% (2022: 5.46%)
and the free capital ratio was 5.48% (2022: 5.27%).
The Annual Business Statement gives an explanation of
these ratios.
Mortgage arrears
At 31 December 2023, there were 164 mortgage accounts
more than 12 months in arrears (including those in
possession) (2022: 119). The balance on these accounts
totalled £24.4 million (2022: £17.7 million) and the value
of these arrears was £2.5 million (2022: £1.6 million) or
0.005% (2022: 0.003%) of total mortgage balances.
Mortgage arrears disclosures are based on the UK Finance
definition, which calculates months in arrears by dividing
the arrears balance outstanding by the latest contractual
payment.
Charitable and political donations
The Society made donations of £2.4 million (2022: £1.8
million) to charitable organisations during the year.
No contributions were made for political purposes.
However, employees are permitted time off to carry out
civic duties and political activity, which can amount to an
effective political donation. The Society supports a small
number of employees in this way.
Employees are also supported in volunteering and
fundraising in the local community. More information in
relation to this is included in the Strategic Report.
Creditor payment policy
The Society’s policy is to agree the terms of payment at
the start of trading with suppliers and to pay in
accordance with its contractual and other legal
obligations. The Society’s creditor days were 13 days as at
31 December 2023 (2022: 13 days).
Country-by-country reporting
The nature of the Society’s activities is set out in the
Strategic Report and for each of the Society’s subsidiaries
in note 16 to the accounts. All of the activities of the
Society and its subsidiaries are conducted in the United
Kingdom, and therefore 100% of the total income, profit
before tax and tax shown in the Income Statement, as
well as employee figures disclosed in note 10 to the
accounts, are related to the United Kingdom. The Society
and its subsidiaries have not received any public subsidies.
Risk management
As a result of its normal business activities, the Group is
exposed to a variety of risks, including credit, market,
liquidity and funding, conduct, operational, model and
strategic risk. The Group seeks to manage all the risks
that arise from its activities and has established a number
of Committees and policies to do so. Details of these are
set out in the Strategic Report, Risk Management Report
and the Directors’ Report on Corporate Governance.
Colleagues
Information on colleague engagement, development,
equality, diversity and inclusion is included the Strategic
Report and is incorporated by reference into this
Directors’ Report.
The Society complies with the UK Equality Act 2010 and
has processes in place to help train, develop and promote
employees with disabilities. If someone has a disability,
the Society makes appropriate adjustments during the
recruitment process.
Similarly, if someone becomes disabled during their
employment, the Society provides support relevant to
individual's needs. This may include retraining and
redeployment within the workforce. Partnerships are also
in place with specialist organisations in order to make our
workplace more accessible to people with a disability.
Board of directors
The names of the directors of the Society who served
during the year and up to the date of signing the financial
statements, are set out on pages 67 to 69. No director has
any beneficial interest in equity shares, or debentures of,
any connected undertaking of the Society as at 31
December 2023.
The Board has agreed that in accordance with the UK
Corporate Governance Code, all the directors will stand
for election or re-election on an annual basis.
Coventry Building Society | Annual Report & Accounts 2023 103
Directors' Report
Governance
Directors' responsibilities in respect of the
preparation of the Annual Report & Accounts
The following statement, which should be read in
conjunction with the Statement of the auditors’
responsibilities on page 114, is made by the directors to
explain their responsibilities in relation to the preparation
of the Annual Accounts, the Directors’ Remuneration
Report, the Annual Business Statement and this Directors’
Report.
The Building Societies Act 1986 (the Act) requires the
directors to prepare Group and Society Annual Accounts
for each financial year. Under that law, they are required
to prepare the Group Annual Accounts in accordance with
UK adopted International Accounting Standards and
applicable law, and have elected to prepare the Society
Accounts on the same basis.
The Group and Society Annual Accounts are required by
law and by accounting standards to present fairly the
financial position and the performance of the Group and
the Society. The Act provides that references to Annual
Accounts giving a true and fair view are references to
their achieving a fair presentation. The Act also requires
the Annual Accounts to provide details of directors’
emoluments in accordance with Part VIII of the Act and
regulations made thereunder.
In preparing each of the Group and Society Annual
Accounts, the directors are required to:
• Select suitable accounting policies and apply them
consistently.
• Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable
and understandable information.
• State whether applicable accounting standards have
been followed.
• Prepare the financial statements on a going concern
basis, unless it is inappropriate to presume that the
Group and Society will continue in business.
In addition to the Annual Accounts, the Act requires the
directors to prepare, for each financial year, an Annual
Business Statement and a Directors’ Report, each
containing prescribed information relating to the business
of the Group.
Directors' responsibilities in respect of
accounting records and internal control
The directors are responsible for ensuring that the Group:
• Keeps proper accounting records that disclose with
reasonable accuracy at any time the financial position
of the Group and Society.
• Establishes and maintains systems for control of its
business, records, inspection and reports.
The directors have responsibility for safeguarding the
assets of the Group and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors who held office at the date of approval of
this Directors’ Report confirm that, so far as each of them
is aware, there is no relevant audit information of which
the Group’s auditor is unaware, and each director has
taken all the steps that they ought to have taken as
directors to make themselves aware of any relevant
information and to establish that the Group’s auditor is
aware of that information.
Directors' statement pursuant to the
Disclosure and Transparency Rules
As required by the Disclosure and Transparency Rules of
the Financial Conduct Authority, the directors have
included a management report containing a fair review of
the business and a description of the principal risks and
uncertainties facing the Group. This information is
contained principally in the Strategic Report and the Risk
Management Report.
The directors confirm that to the best of each of their
knowledge and belief:
• The financial statements, prepared in accordance with
UK adopted International Accounting Standards,
present fairly the assets, liabilities, financial position
and profit of the Group and Society.
• The management report contained in the Strategic
Report includes a fair review of the development and
performance of the business and the position of the
Group and Society, and the Risk Management Report
includes a description of the principal risks and
uncertainties that they face.
Directors' statement of compliance with the
UK Corporate Governance Code
As required by the UK Corporate Governance Code, the
directors confirm their opinion that the 2023 Annual
Report & Accounts, taken as a whole, are fair, balanced
and understandable, and provide the information
necessary for members to assess the performance,
strategy and business model of the Society.
Directors' responsibilities in respect of going
concern and long-term viability
The UK Corporate Governance Code (the Code) requires
that the directors state whether they consider it
appropriate to adopt the going concern basis of
accounting and identify any material uncertainties to the
Society’s ability to continue as a going concern for a
period for at least 12 months from the reporting date.
In addition, the Code requires that the directors explain
how the prospects of the Society have been assessed and
whether there is a reasonable expectation that the
Society will continue in operation and meet its liabilities
as they fall due over the period of assessment. Details of
this long-term viability assessment are set out below.
Coventry Building Society | Annual Report & Accounts 2023 104
Directors' Report continued
Governance
Going concern
In preparing the financial statements, the directors are
required to satisfy themselves that it is appropriate to
adopt the going concern basis of accounting in accordance
with guidance from the Financial Reporting Council and
IAS 1 Presentation of Financial Statements.
The Society’s business activities, together with the factors
likely to affect its future development, performance,
position, liquidity and capital structure, are set out in the
Strategic Report. The Risk Management Report includes
further information on the Society’s objectives, policies
and processes for managing its exposure to credit,
market, liquidity and funding, conduct, operational,
model and strategic risks, along with details of its
financial instruments and hedging activities. In addition,
top and emerging risks are disclosed in the Strategic
Report.
The Group’s forecasts and projections include the
expected impact of these risks. Together with stress
testing and scenario analysis, this shows that the Society
will be able to operate at adequate levels of both liquidity
and capital for at least the next 12 months while meeting
all relevant regulatory requirements.
After making enquiries, the directors are therefore
satisfied that the Society has adequate resources to
continue in business for at least the next 12 months with
no material uncertainties and, therefore, it is appropriate
to adopt the going concern basis of accounting in
preparing these financial statements.
Long-term viability
In accordance with the UK Corporate Governance Code,
the directors are required to explain how, taking account
of the Society’s current position and principal risks, they
have assessed the prospects of the Society and to confirm
that they believe the Society will be able to continue in
operation and meet its liabilities as they fall due over a
specified period determined by the directors.
Assessment of prospects
The directors have assessed the Society’s prospects over a
five year period to December 2028. This period was
chosen as it aligns with the Society’s Strategic Plan
period.
In making this assessment, the directors used a wide
range of sources, including the Strategic Plan, stress
testing, the Society’s business model, principal risks and
the Risk Management Framework described within the Risk
Management Report to assess the Society’s future
prospects.
The directors considered the Society’s strategy and the
key threats to its delivery. The directors also considered
broader risks to the prospects of the Society, including
the adequacy of risk management arrangements, the
performance of the Society against the Board’s risk
appetite and the risk outlook for the Society.
The directors consider this to be a suitable process to
enable them to form a reasonable expectation of the
Society’s prospects over a five year period.
Assessment of long-term viability
The directors have assessed the viability of the Society
over the three year period to December 2026. The
directors consider a three year period appropriate as it is
within the period covered by the Strategic Plan and the
stress testing activities undertaken by the Society. In
addition, using a period of three years eliminates the
inherent uncertainties in the assumptions underpinning
the outer years of the Society’s Strategic Plan.
In making the assessment, the directors considered the
financial projections of the Society, including
profitability, capital and funding positions, and the wide
range of stress testing of those projections to ensure the
viability of the Society even in times of severe stress. The
directors considered the impact of the macroeconomic
environment, including the impact of inflationary
pressures, the impact to the labour market, the credit
environment, the interest rate outlook and the potential
impact on wholesale funding markets.
The most significant stress scenario which was considered
included an increase in unemployment to 8.5% during the
first year of the stress and house price falls of 31% over
the first half of the stress period.
The review considered emerging regulation where there is
sufficient clarity over future standards to inform the
analysis. This review includes assessments of the Society’s
capital position and reflects current understanding of
capital buffer and leverage requirements likely to be
imposed on the Society. The review also considered the
longer-term impacts of climate change and new
regulatory standards on climate risk, along with the
proposed Society response to the climate risks identified
on its loans and advances to customers and operations.
Based upon the assessment set out above, the directors
have a reasonable expectation that the Society will
continue in operation and meet its liabilities as they fall
due over the period to December 2026.
Directors
The directors who served during the year are set out in
the Directors’ Report on Corporate Governance.
The auditor
A resolution to reappoint PricewaterhouseCoopers LLP
auditor of the Society will be proposed at the 2024 Annual
General Meeting.
Approved by the Board of directors and signed on its
behalf by
David Thorburn
Chair of the Board
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 105
Directors' Report continued
Governance
Coventry Building Society | Annual Report & Accounts 2023 106
Financial Statements
In this section, you will find
our primary statements and
related notes.
Financial Statements
Independent Auditors’ Report 107
Accounts 116
Notes to the accounts 120
Report on the audit of the financial statements
Opinion
In our opinion, Coventry Building Society’s Group financial statements and Society financial statements (the “financial
statements”):
• give a true and fair view of the state of the Group’s and of the Society’s affairs as at 31 December 2023 and of the
Group’s and the Society’s income and expenditure and the Group’s and the Society’s cash flows for the year then
ended;
• have been properly prepared in accordance with UK-adopted international accounting standards; and
• have been prepared in accordance with the requirements of the Building Societies Act 1986.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which
comprise: the Group and Society balance sheets as at 31 December 2023; the Group and Society income statements and
statements of comprehensive income, the Group and Society statements of cash flows, and the Group and Society
statements of changes in members’ interests and equity for the year then ended; and the notes to the financial statements,
comprising material accounting policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinions
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group.
Other than those disclosed in note 9 to the financial statements, we have provided no non-audit services to the Group in
the period from 1 January 2023 to 31 December 2023.
Our audit approach
Overview
Materiality • Overall Group materiality: £23.8 million (2022: £18.5 million), based on 5% of Profit before tax from
continuing operations.
• Overall Society materiality: £20 million (2022: £13.1 million), based on 5% of Profit before tax from
continuing operations.
• Performance materiality: £17.8 million (2022: £14.0 million) (Group) and £15.0 million (2022: £9.8 million)
(Society).
Scoping • We performed audit procedures over all material account balances and financial information of the
Society, Godiva Mortgages Limited and ITL Mortgages Limited due to their size and significance to the
Group; and
• We performed audit procedures over balances in other subsidiary companies where they are material to
the Group.
Key audit
matters
• The application of key judgements and estimates in relation to applying expected credit loss provisioning
on loans and advances to customers (Group & Society);
• The application of hedge accounting in accordance with accounting standards (Group & Society); and
• The appropriateness of assumptions used to measure the defined benefit pension obligations (Group &
Society).
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Independent auditors' report to the members
of Coventry Building Society
Financial Statements
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to
fraud.
Capability of the audit in detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined in the Auditors' responsibilities for the audit of the financial statements section, to detect
material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws
and regulations related to the Financial Conduct Authority’s ('FCA') regulations, the Prudential Regulation Authority’s ('PRA')
regulations and UK tax legislation, and we considered the extent to which non-compliance might have a material effect on
the financial statements. We also considered those laws and regulations that have a direct impact on the financial
statements such as the Building Societies Act 1986. We evaluated management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks
were related to the posting of inappropriate manual journal entries that could be used to manipulate financial performance
and the potential for management bias in accounting estimates. Audit procedures performed included:
• Discussions with management and those charged with governance including consideration of known or suspected
instances of non-compliance with laws and regulations and fraud;
• Review of internal audit and compliance monitoring findings throughout the year;
• Reading key correspondence with the Financial Conduct Authority and Prudential Regulation Authority;
• Incorporation of an element of unpredictability in our testing through altering the nature, timing and/or extent of work
performed;
• Challenging assumptions and judgements made by management in their significant accounting estimates; and
• Identifying and testing journal entries, in particular any journal entries posted by senior management, posted with
descriptions indicating a higher level of risk, posted to unusual account combinations based on our understanding of
usual business operations, and material late adjustments.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and
any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. This is not a complete list of all risks identified by our audit.
The privileged access to Information technology ('IT') systems, which was a key audit matter last year, is no longer included
because of migration to a new general ledger application which has reduced the risk of error arising in day-to-day
operational processing. Otherwise, the key audit matters below are consistent with last year.
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Financial Statements
Key audit matter How our audit addressed the key audit matter
The application of key judgements and assumptions in relation to applying expected credit loss provisioning on loans
and advances to customers (Group and Society)
The Group held £42.5 million of expected credit loss
(‘ECL’) provisions against residential mortgages in
accordance with IFRS 9 (2022: £35.5 million) against total
loans and advances to customers of £50,318.6 million
(2022: £48,049.8 million).
The determination of ECL provisions is inherently
judgemental and involves setting assumptions using
forward looking information reflecting the Group’s view
of potential future economic events. This can give rise to
increased estimation uncertainty.
There is significant uncertainty in calculating expected
credit losses due to the potential impacts on customer
behaviour due to the inflationary and high interest rate
environment in the UK.
In response to this uncertainty the Group holds a post-
model adjustment of £18.4 million (2022: £14.2 million)
to capture the risk of increased defaults due to pressures
on customer affordability associated with a rising cost of
living. This adjustment increases the default risk on those
customers that require their fixed term mortgage to be
refinanced in the next two years.
We focussed our work on the areas of the methodology
that we identified as most judgemental. These were:
• The appropriateness of the assumptions used to
identify customers for inclusion in the cost of living
post model adjustment, and the derivation of
increased probabilities of default for this cohort of
loans.
• The appropriateness of the ‘staging’ thresholds
selected by management to determine whether a
significant increase in credit risk had arisen on
customer loans, and hence whether a 12 month or a
lifetime loss provision is recorded; and
• The application of forward-looking economic
assumptions used in the models and the weightings
assigned to those scenarios, particularly in respect of
assumptions relating to future house prices and
unemployment levels since these have the largest
impact on the provision.
The Group’s disclosures are given in Note 14.
Management’s associated accounting policies are detailed
in Note 1. Management’s judgements in the application of
accounting policy and critical estimates are disclosed in
Note 2 and the considerations of the effect of the future
economic environment are given in Note 14. The Audit
Committees’ consideration of the matter is set out in the
Board Audit Committee Report.
We understood and critically assessed the methodology
applied in the impairment models, using modelling
specialists in the more judgemental areas, including the
results of empirical testing on key model components,
primarily the probability of default and loss given default
models, to confirm that the implemented methodology was
compliant with accounting standards.
We tested management’s model monitoring controls and
independently re-performed a number of the monitoring
tests.
We validated management’s ‘staging’ thresholds by re-
performing back testing procedures performed by
management. We examined subsequent account
performance to confirm that the criteria selected by
management were reasonable and that the models are
sufficiently predictive of defaults.
We assessed the reasonableness and likelihood of the
forward looking economic assumptions and weightings
assigned to the scenarios using a benchmarking tool
developed by our economic experts. The severity and
magnitude of the scenarios, specifically the house price
inflation forecasts, were compared to external forecasts and
data from historical economic downturns. Sensitivities of
the ECL provision to the chosen scenarios was considered.
We found that the assumptions adopted and assigned
weightings to the scenarios were reasonable.
We considered the appropriateness of the post model
adjustment for cost of living pressures by critically assessing
the methodology, using modelling specialists, and testing
critical data inputs used in the calculation to supporting
evidence on a sample basis.
We considered historical default behaviour and how this
may change going forwards by examining the output of
stresses performed by the Group’s credit risk function. We
challenged management on the complete capture of loans in
the adjustment and the consistency of the adjustment with
the disclosed stage allocation of the customer loans. Overall
we found the adjustment made to be reasonable.
We reviewed the ECL disclosures made by management to
ensure compliance with accounting standards and agreed
the disclosures to supporting evidence without material
exceptions.
From the evidence we obtained we found that the
judgements and assumptions applied in relation to forward
looking economics and the appropriateness of staging and
the cost of living post model adjustment to be reasonable.
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Financial Statements
The application of hedge accounting in accordance with accounting standards (Group and Society)
The Group has designated several hedge accounting
relationships linked to the Group’s mitigation of interest
rate and foreign exchange risks. The Group is exposed to
interest rate risk as a result of the mismatch between
fixed and floating rate cash flows. The Group is exposed
to foreign exchange risks due to some of its debt
securities being issued in a foreign currency.
The risk of future movements in market rates affecting
profitability of the Group is mitigated through the use of
derivative financial instruments in the form of interest
rate and cross currency swap contracts. These are
designated in hedge accounting relationships so that both
the derivatives and the underlying hedged items are
recorded at fair value, as long as the Group can
demonstrate that the hedge accounting arrangements are
effective in accordance with accounting standards.
At 31 December 2023 the fair value of all hedged items in
designated hedging relationships was £365.0 million less
than their carrying value (2022: £1,142.8 million less).
Management of interest rate risk and cross currency risk
using derivatives in the year also gave rise to a £30.3
million gain (2022: £26.8 million gain) being recognised in
the income statement.
During 2023, the Group has made a number of material
revisions to their mortgage and savings prepayment/
withdrawal rate modelling. We focused our work on these
and the following types of micro hedges, which are
subject to manual calculation which give rise to a
heightened risk of material operational error:
• Hedges of the Group’s debt securities in issue which
are designated as cash flow hedges of interest rate
risk and foreign currency risk for non sterling
denominated debt issuances.
• Hedges of mortgage and savings pipeline interest rate
risk which are designated as cash flow hedges against
Deposits from Banks and Cash and balances with the
Bank of England respectively.
• Hedges of interest risk on fixed rate treasury and
wholesale funding which are designated as fair value
hedges.
The Group’s disclosures are given in Note 23.
Management’s associated accounting policies are detailed
in Note 1. Management’s significant assumptions and
estimates are set out in Note 2. The Audit Committees’
consideration of the matter is set out in the Board Audit
Committee Report.
We understood the nature of the hedge accounting
relationships designated by management in the context of
the risk management strategy.
We obtained and reviewed the relevant hedge accounting
documentation to evaluate and assess whether each hedge
was compliant with the requirements of accounting
standards. This included testing a sample of newly
designated hedges in the year.
We independently re-performed a sample of hedge
effectiveness tests performed by management for each type
of hedge relationship. We re-performed both a sample of
prospective and retrospective effectiveness tests.
We also re-performed the valuation of a sample of
derivatives and underlying hedged items, and tested a
sample of manual calculations for mathematical accuracy
and performed logic and calculation tests to ensure manual
hedging calculations are valid.
We assessed the completeness and accuracy of the data
flowing into the hedging models and performed tests to
ensure that data was being interpreted and categorised
appropriately.
We tested the completeness and accuracy of the income
statement ineffectiveness recorded by the Group during the
year.
We challenged management on the differences between
actual and expected customer behaviour used in hedging
models and whether this was appropriately being captured
in income statement ineffectiveness.
We tested the reconciliation of the hedging models and the
amounts recorded in the general ledger to ensure that the
balances recorded in the financial statements are accurate.
We tested the disclosures in respect of hedge accounting
and confirmed that they were compliant with accounting
standards.
From the evidence we obtained, we found that the hedge
accounting methodology was compliant with accounting
standards and the underlying hedging calculations were
accurate.
Key audit matter How our audit addressed the key audit matter
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Financial Statements
Key audit matter How our audit addressed the key audit matter
The appropriateness of assumptions used to measure the defined benefit pension obligations (Group and Society)
The Group and Society operates defined benefit pension
schemes for retirement benefits for current and former
members of staff. The present value of the schemes was
in a surplus of £3.7 million at 31 December 2023 (2022:
£3.3 million) which is made up of assets carried at fair
value of £153.2 million (2022: £160.7 million) and
obligations of £149.5 million (2022: £157.4 million).
The present value of the scheme obligation is materially
sensitive to a number of actuarial assumptions including
the discount rate, inflation and mortality rates. Changes
in these assumptions can have significant impacts on the
valuation. Management performs a review of the
valuation methodology and assumptions each year using
their third party actuaries. The assumptions are updated
to reflect changing market practice and management’s
future outlook.
The Group’s disclosures are given in note 19.
Management’s associated accounting policies are
disclosed in Note 1. The Audit Committees’ consideration
of the matter is set out in the Board Audit Committee
Report.
We independently assessed, using our actuarial experts, the
discount rate, inflation rate and mortality rates and
compared them to external market rates at 31 December
2023 for schemes of a similar duration and to management’s
estimates derived by their experts.
We confirmed our understanding of the Group’s third-party
actuary’s methodology used in determining the valuation of
the defined benefit pension obligation. We tested samples
of census data of scheme membership data back to source
documents and found the data used to be appropriate.
We considered the independence, objectivity and
competence of the third-party actuaries engaged by
management to perform their valuation.
We have engaged our actuarial experts to evaluate the
judgements and estimates made by management in
determining the key financial and mortality assumptions
used in calculating the defined benefit obligation.
We reviewed the Group's third party actuarial report and
obtained an understanding of how key assumptions are set
and the methodologies adopted in calculating the defined
benefit obligation. We assessed the reasonableness of the
assumptions and methodologies adopted using our
knowledge of current market practice, our own developed
benchmarks and external market data.
Based on the evidence we obtained, we found the
assumptions used in the valuation of the defined benefit
pension obligations to be within a reasonable range. We also
read and assessed the disclosures made in the financial
statements, including the disclosures of the actuarial
assumptions used and found them to be appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Society, the accounting processes and
controls, and the industry in which they operate.
All of the Group’s activities are administered in the United Kingdom. The principal activity of the Group is the provision of
owner-occupied and buy to let lending.
The Group is formed of the Society, Godiva Mortgages Limited and several other subsidiary companies, which are small in
the context of the Group’s overall operations. The Group also consolidates several structured entities which administer the
Group’s funding programmes by virtue of the Group’s control over them.
Based on Group materiality, we performed audit procedures over all material account balances and financial information of
the Society and its subsidiaries. Our audit procedures on the Society and its subsidiaries provided us with sufficient audit
evidence as a basis for our audit opinion on the Group financial statements as a whole. We perform all of the work to
support the Group and Society audit opinion and do not involve any other component audit teams.
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Financial Statements
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the process management adopted to assess the
extent of the potential impact of climate risk on the Group and Society’s financial statements and support the disclosures
made in relation to climate change in the Annual Report & Accounts.In addition to enquiries with management, we also:
• Read the materials considered by the Group’s Climate Risk Forum during the year to consider the impact on our audit
risk assessment;
• Considered the exposure of the Group and Society’s mortgage portfolio to physical and transition risks by examining the
output of assessments performed by management during the year; and
• Considered the consistency of the disclosures in relation to climate change within the Annual Report & Accounts with
the financial statements and our knowledge obtained from our audit.
Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole, or
our key audit matters for the year ended 31 December 2023.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Society financial statements
Overall materiality £23.8 million (2022: £18.5 million). £20.0 million (2022: £13.1 million).
How we determined it 5% of Profit before tax from continuing operations
Rationale for benchmark
applied
Profit before tax is one of the principal considerations when assessing the Group's and
Society's performance and is a generally accepted auditing benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was £5.2 million to £20.0 million. Certain components
were audited to a local statutory audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the
scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £17.8
million for the Group financial statements and £15.0 million for the Society financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our
normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£1,200,000 (Group audit) (2022: £930,000) and £1,000,000 (Society audit) (2022: £650,000) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Society’s ability to continue to adopt the going concern
basis of accounting included:
• A risk assessment to identify critical factors that could impact the going concern basis of preparation, including the
current and forecast financial performance, regulatory metrics and the sector in which the Group operates. As part of
our risk assessment, we reviewed and considered the Group’s strategic plan, ICAAP and ILAAP, regulatory
correspondence and management reports provided to key governance forums;
• Evaluation of the reasonableness of the Group’s strategic and operating plan, including testing key assumptions and
performance of sensitivity analysis using our understanding of the Group and its financial and operating performance
obtained during the course of our audit. We also considered management’s ability to accurately forecast financial
performance by comparing past business plans to actual results; and
• Testing the appropriateness of the disclosures made in the Annual Report and Accounts.
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Financial Statements
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Group’s and the Society’s ability to continue as a going
concern for a period of at least twelve months from the date on which the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s
and Society’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Annual Business Statement and Directors’ Report we also considered whether the disclosures required
by the Building Societies Act 1986 have been included.
Based on our work undertaken in the course of the audit, the Building Societies Act 1986 requires us also to report certain
opinions and matters as described below.
Annual Business Statement and Directors’ Report
In our opinion, based on our work undertaken in the course of the audit:
• the Annual Business Statement and the Directors’ Report have been prepared in accordance with the requirements of
the Building Societies Act 1986;
• the information given in the Directors’ Report for the year ended 31 December 2023 is consistent with the accounting
records and the financial statements; and
• the information given in the Annual Business Statement (other than the information upon which we are not required to
report) gives a true representation of the matters in respect of which it is given.
In light of the knowledge and understanding of the Group and Society and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Directors’ Report.
Corporate governance statement
ISAs (UK) require us to review the directors’ statements in relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the Society’s compliance with the provisions of the UK Corporate
Governance Code, which the Listing Rules of the Financial Conduct Authority specify for review by auditors of premium
listed companies. Our additional responsibilities with respect to the corporate governance statement as other information
are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit,
and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being managed or mitigated;
Coventry Building Society | Annual Report & Accounts 2023 113
Independent auditors' report to the members
of Coventry Building Society continued
Financial Statements
•
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s and
Society’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial
statements;
• The directors’ explanation as to their assessment of the Group’s and Society’s prospects, the period this assessment
covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Society will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group and Society was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their
statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code;
and considering whether the statement is consistent with the financial statements and our knowledge and understanding of
the Group and Society and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of
the corporate governance statement is materially consistent with the financial statements and our knowledge obtained
during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the Group’s and Society’s position, performance,
business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Society’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the statement of Directors’ Responsibilities in respect of the preparation of the Annual Report &
Accounts, the directors are responsible for the preparation of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal
control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and Society’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group and Society or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In
other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is
selected.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Coventry Building Society | Annual Report & Accounts 2023 114
Independent auditors' report to the members
of Coventry Building Society continued
Financial Statements
Use of this report
This report, including the opinions, has been prepared for and only for the Society’s members as a body in accordance with
Section 78 of the Building Societies Act 1986 and for no other purpose. We do not, in giving these opinions, 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.
Other required reporting
Building Societies Act 1986 exception reporting
Under the Building Societies Act 1986 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Society; or
• the Society financial statements are not in agreement with the accounting records; or
• we have not received all the information and explanations and access to documents we require for our audit.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the directors on 27 April 2023 to audit the
financial statements for the year ended 31 December 2023 and subsequent financial periods. The period of total
uninterrupted engagement is five years, covering the years ended 31 December 2019 to 31 December 2023.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these
financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of
the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’
report provides no assurance over whether the annual financial report will be prepared using the single electronic format
specified in the ESEF RTS.
Other voluntary reporting
Directors' remuneration
The Society voluntarily prepares a Directors’ Remuneration Report in accordance with the provisions of the Companies Act
2006. The directors requested that we audit the part of the Directors’ Remuneration Report specified by the Companies Act
2006 to be audited as if the Society were a quoted company.
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Carl Sizer (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
28 February 2024
Coventry Building Society | Annual Report & Accounts 2023 115
Independent auditors' report to the members
of Coventry Building Society continued
Financial Statements
For the year ended 31 December 2023
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £m | £m | £m | £m | |
Interest receivable and similar income calculated using the Effective Interest Rate method | 3 | 2,860.8 | 1,249.6 | ||
Interest payable and similar charges | 4 | ( | ( | (2,228.4) | (750.8) |
Net interest income | 632.4 | 498.8 | |||
Fees and commissions receivable | 5 | 2.6 | 4.7 | ||
Fees and commissions payable | 6 | ( | ( | (9.5) | (8.1) |
Other operating income | 7 | 2.1 | 1.9 | ||
Net gains from derivative financial instruments | 8 | 30.7 | 26.5 | ||
Total income | 658.3 | 523.8 | |||
Administrative expenses | 9 | ( | ( | (230.7) | (219.3) |
Amortisation of intangible assets | 17 | ( | ( | (12.9) | (11.8) |
Depreciation on property, plant and equipment | 18 | ( | ( | (13.2) | (16.9) |
Impairment charge on loans and advances to customers | 14 | ( | ( | (1.8) | (13.6) |
Charitable donation to Poppy Appeal | ( | — | (0.6) | ||
Profit before tax | 399.7 | 261.6 | |||
Taxation | 15 | ( | ( | (103.8) | (62.3) |
Profit for the financial year | 295.9 | 199.3 |
Profit for the financial year arises from continuing operations and is attributable to the members of the Society.
Statements of Comprehensive Income
For the year ended 31 December 2023
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £m | £m | £m | £m | |
Profit for the financial year | 295.9 | 199.3 | |||
| Other comprehensive income/(expense) | |||||
| Items that will not be transferred to the income statement: | |||||
Remeasurement of defined benefit pension plan | 19 | ( | — | (27.6) | |
Taxation | 15 | ( | (0.1) | 8.0 | |
| Items that may be transferred to the income statement | |||||
| Fair value through other comprehensive income investments: | |||||
Fair value movements taken to reserves | ( | 15.2 | (55.2) | ||
Amount transferred to the income statement | ( | (20.2) | 55.4 | ||
Taxation | 15 | 1.4 | 0.2 | ||
| Cash flow hedges: | |||||
Fair value movements taken to reserves | 50.5 | 394.3 | |||
Amount transferred to the income statement | ( | ( | (100.2) | (29.7) | |
Taxation | 15 | ( | 12.7 | (101.3) | |
Other comprehensive (expense)/ income for the year, net of tax | ( | (40.7) | 244.1 | ||
Total comprehensive income for the year, net of tax | 255.2 | 443.4 |
The notes on pages 120 to 170 form part of these accounts.
Coventry Building Society | Annual Report & Accounts 2023 116
Income Statements
Financial Statements
As at 31 December 2023
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £m | £m | £m | £m | |
| Assets | |||||
Cash and balances with the Bank of England | 8,486.7 | 7,724.9 | |||
Loans and advances to financial institutions | 787.9 | 622.8 | |||
Debt securities | 12 | 1,515.3 | 1,520.8 | ||
Loans and advances to customers | 13 | 32,002.6 | 29,634.9 | ||
Hedge accounting adjustment | ( | ( | (433.1) | (1,595.3) | |
Derivative financial instruments | 23 | 1,508.2 | 2,254.7 | ||
Investment in equity shares | 6.8 | 5.8 | |||
Current tax assets | 42.2 | 20.4 | |||
Investment in Group undertakings | 16 | 17,675.7 | 17,879.7 | ||
Intangible assets | 17 | 49.6 | 43.3 | ||
Property, plant and equipment | 18 | 51.0 | 63.2 | ||
Prepayments and accrued income | 29.3 | 23.6 | |||
Pension benefit surplus | 19 | 3.7 | 3.3 | ||
Total assets | 61,725.9 | 58,202.1 | |||
| Liabilities | |||||
Shares | 47,582.3 | 42,288.7 | |||
Deposits from banks | 5,230.7 | 7,532.0 | |||
Other deposits | — | 5.0 | |||
Amounts owed to other customers | 351.6 | 530.1 | |||
Debt securities in issue | 22 | 4,096.4 | 4,549.5 | ||
Hedge accounting adjustment | ( | ( | (68.1) | (452.5) | |
Derivative financial instruments | 23 | 574.5 | 617.5 | ||
Deferred tax liabilities | 20 | 130.7 | 113.2 | ||
Accruals and deferred income | 45.4 | 45.1 | |||
Other liabilities | 29 | 1,260.0 | 677.8 | ||
Provisions for liabilities and charges | 24 | 0.4 | 0.4 | ||
Subordinated liabilities | 25 | 15.4 | 15.4 | ||
Subscribed capital | 26 | 41.6 | 41.6 | ||
Total liabilities | 59,260.9 | 55,963.8 | |||
| Members' interests and equity | |||||
General reserve | 1,801.6 | 1,534.3 | |||
Other equity instruments | 27 | 415.0 | 415.0 | ||
Fair value through other comprehensive income reserve | 1.3 | 4.9 | |||
Cash flow hedge reserve | 247.1 | 284.1 | |||
Total members' interests and equity | 2,465.0 | 2,238.3 | |||
Total members' interests, liabilities and equity | 61,725.9 | 58,202.1 |
The notes on pages 120 to 170 form part of these accounts.
Coventry Building Society | Annual Report & Accounts 2023 117
Balance Sheets
Financial Statements
For the year ended 31 December 2023
| Fair value through | |||||
| other | |||||
| Other equity | comprehensive | Cash flow hedge | |||
| General reserve | instruments | income reserve | reserve | Total | |
| Group | £m | £m | £m | £m | £m |
As at 1 January 2023 | |||||
Profit for the financial year | |||||
Net remeasurement of defined benefit plan | ( | ( | |||
Net movement in fair value through other comprehensive income reserve | ( | ( | |||
Net movement in cash flow hedge reserve | ( | ( | |||
Total comprehensive income/ (expense) | ( | ( | |||
Distribution to Additional Tier 1 capital holders | ( | ( | |||
As at 31 December 2023 | |||||
As at 1 January 2022 | |||||
Profit for the financial year | |||||
Net remeasurement of defined benefit plan | ( | ( | |||
Net movement in fair value through other comprehensive income reserve | |||||
Net movement in cash flow hedge reserve | |||||
Total comprehensive income | |||||
Distribution to Additional Tier 1 capital holders | ( | ( | |||
As at 31 December 2022 |
Society
General reserve
£m
Other equity
instruments
£m
Fair value through
other
comprehensive
income reserve
£m
Cash flow hedge
reserve
£m
Total
£m
As at 1 January 2023 1,534.3 415.0 4.9 284.1 2,238.3
Profit for the financial year 295.9 — — — 295.9
Net remeasurement of defined benefit plan (0.1) — — — (0.1)
Net movement in fair value through other
comprehensive income reserve
— — (3.6) — (3.6)
Net movement in cash flow hedge reserve — — — (37.0) (37.0)
Total comprehensive income/ (expense) 295.8 — (3.6) (37.0) 255.2
Distribution to Additional Tier 1 capital holders (28.5) — — — (28.5)
As at 31 December 2023 1,801.6 415.0 1.3 247.1 2,465.0
As at 1 January 2022 1,383.1 415.0 4.5 20.8 1,823.4
Profit for the financial year 199.3 — — — 199.3
Net remeasurement of defined benefit plan (19.6) — — — (19.6)
Net movement in fair value through other
comprehensive income reserve
— — 0.4 — 0.4
Net movement in cash flow hedge reserve — — — 263.3 263.3
Total comprehensive income 179.7 — 0.4 263.3 443.4
Distribution to Additional Tier 1 capital holders (28.5) — — — (28.5)
As at 31 December 2022 1,534.3 415.0 4.9 284.1 2,238.3
The notes on pages 120 to 170 form part of these accounts.
Coventry Building Society | Annual Report & Accounts 2023 118
Statements of Changes in Members'
Interest and Equity
Financial Statements
For the year ended 31 December 2023
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £m | £m | £m | £m | |
| Cash flows from operating activities: | |||||
Profit before tax | 399.7 | 261.6 | |||
| Adjustments for: | |||||
Expected credit loss provisions and other provisions | 14,24 | 1.8 | 13.6 | ||
Depreciation and amortisation | 26.1 | 28.7 | |||
Interest on subordinated liabilities and subscribed capital | 6.0 | 6.0 | |||
Changes to fair value adjustment of hedged risk | ( | ( | (144.1) | (30.9) | |
Other non-cash movements | 304.8 | 238.3 | |||
Non-cash items included in profit before tax | 194.6 | 255.7 | |||
Loans and advances to credit institutions | ( | ( | (179.3) | (331.2) | |
Loans and advances to customers | ( | ( | (2,369.8) | (1,098.1) | |
Prepayments, accrued income and other assets | ( | (5.7) | 0.9 | ||
Changes in operating assets | ( | ( | (2,554.8) | (1,428.4) | |
Shares | 4,960.7 | 2,304.2 | |||
Deposits and other borrowings | ( | (2,496.2) | 1,273.1 | ||
Debt securities in issue | ( | — | (2.5) | ||
Accruals and deferred income and other liabilities | 3.1 | 3.5 | |||
Changes in operating liabilities | 2,467.6 | 3,578.3 | |||
Interest paid on subordinated liabilities and subscribed capital | ( | ( | (6.0) | (5.9) | |
Interest paid on lease liabilities | ( | ( | (0.3) | (0.4) | |
Taxation | ( | ( | (94.0) | (67.8) | |
Net cash flows from operating activities | 406.8 | 2,593.1 | |||
| Cash flows from investing activities | |||||
Purchase of investment securities | ( | ( | (1,851.8) | (1,526.1) | |
Sale and maturity of investment securities and equities | 1,872.6 | 626.0 | |||
Proceeds from sale of properties | 2.6 | 1.7 | |||
Purchase of property, plant and equipment and intangible assets | ( | ( | (22.8) | (26.7) | |
Net cash flows from investing activities | ( | 0.6 | (925.1) | ||
| Cash flows from financing activities | |||||
Loans to connected undertakings | 787.7 | (462.7) | |||
Distributions paid to Additional Tier 1 capital holders | ( | ( | (28.5) | (28.5) | |
Repurchase and repayment of debt securities | ( | ( | (1,450.0) | (400.0) | |
Issue of debt securities | 1,036.8 | 434.4 | |||
Principal elements of lease payments | ( | ( | (4.7) | (4.7) | |
Net cash flows from financing activities | ( | 341.3 | (461.5) | ||
Net increase in cash | 748.7 | 1,206.5 | |||
Cash and cash equivalents at start of year | 7,555.9 | 6,349.4 | |||
Cash and cash equivalents at end of year | 8,304.6 | 7,555.9 | |||
| Cash and cash equivalents: | |||||
| Cash and balances with central banks | 8,304.6 | 7,555.9 |
1
1. This excludes the mandatory reserve with the Bank of England of £182.1 million (2022: £169.0 million).
The notes on pages 120 to 170 form part of these accounts
Coventry Building Society | Annual Report & Accounts 2023 119
Statements of Cash Flows
Financial Statements
1. Accounting policies
Coventry Building Society | Annual Report & Accounts 2023 120
Financial Statements
Notes to the accounts
1. Accounting policies continued
Coventry Building Society | Annual Report & Accounts 2023 121
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Leases continued
Coventry Building Society | Annual Report & Accounts 2023 122
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Financial assets continued
Coventry Building Society | Annual Report & Accounts 2023 123
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Loans and advances to customers continued
Qualitative criteria continued
Coventry Building Society | Annual Report & Accounts 2023 124
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Loans and advances to customers continued
Coventry Building Society | Annual Report & Accounts 2023 125
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Loans and advances to customers continued
Significant accounting assumptions and estimates – post model adjustments (continued)
Coventry Building Society | Annual Report & Accounts 2023 126
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Coventry Building Society | Annual Report & Accounts 2023 127
Notes to the accounts continued
Financial Statements
1. Accounting policies continued
Coventry Building Society | Annual Report & Accounts 2023 128
Notes to the accounts continued
Financial Statements
2. Judgement in applying accounting policies and significant
accounting estimates
In the process of applying accounting policies, the Group makes various judgements, estimates and assumptions that have
had a significant effect on the amounts recognised in the financial statements. The Group has also made assumptions and
estimates that could affect the reported amount of assets and liabilities both in the accounts and in the following financial
years. The most significant judgements, assumptions and estimates are disclosed in the following notes:
Significant accounting policy judgements | Notes |
Classification and measurement of equity release loans | 1 |
Determining a significant increase in credit risk (SICR) under IFRS 9 | 1 |
| Significant accounting assumptions and estimates | |
Expected credit loss provision on loans and advances to customers – application of post model adjustments | 14 |
Expected credit loss provision on loans and advances to customers – forward-looking information incorporated in the ECL models | 14 |
Valuation of the defined benefit pension scheme liabilities | 19 |
In the prior year, effective interest rate (EIR) on Loans and Advances to customers - revenue recognition was also included
as a significant accounting estimate. Following a change in estimated future cash flows in prior years, and resulting write
down of EIR SVR related assets, mortgages are expected to fully redeem in line with the end of the fixed product term. This
is therefore no longer classed as a significant accounting estimate.
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| On financial assets measured at amortised cost: | ||||
On loans and advances to customers | 1,446.8 | 1,032.3 | 853.8 | 570.7 |
Connected undertakings | — | — | 470.5 | 292.3 |
| Interest on other liquid assets | 449.9 | 114.8 | 443.8 | 113.6 |
Interest and other income on debt securities | 0.1 | 0.1 | 0.1 | 0.1 |
Interest and other income on debt securities measured at FVOCI | 85.7 | 16.3 | 82.6 | 15.3 |
Net income on financial instruments in a qualifying hedge relationship | 1,010.0 | 257.6 | 1,010.0 | 257.6 |
| Total interest receivable and similar income calculated using the EIR | 2,992.5 | 1,421.1 | 2,860.8 | 1,249.6 |
| method |
Coventry Building Society | Annual Report & Accounts 2023 129
Notes to the accounts continued
Financial Statements
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Bank and customer | ||||
Subordinated liabilities | 1.1 | 1.1 | 1.1 | 1.1 |
| Other | 317.5 | 111.2 | 325.7 | 114.0 |
Debt securities in issue | 164.9 | 86.7 | 116.7 | 73.8 |
| Other borrowed funds | ||||
On shares held by individuals | 1,369.8 | 461.9 | 1,369.7 | 461.9 |
On subscribed capital | 4.9 | 4.9 | 4.9 | 4.9 |
On loans from connected undertakings | — | — | 67.9 | 16.3 |
Net expense from hedging instruments | 366.3 | 98.1 | 341.8 | 78.9 |
Foreign currency losses/(gains) | 0.5 | (0.5) | 0.3 | (0.5) |
Other interest payable | 0.3 | 0.4 | 0.3 | 0.4 |
Total | 2,225.3 | 763.8 | 2,228.4 | 750.8 |
5. Fees and commissions receivable
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Mortgage related administration fees | 3.4 | 6.7 | 2.2 | 4.2 |
General insurance commissions | 0.4 | 0.5 | 0.4 | 0.5 |
Total | 3.8 | 7.2 | 2.6 | 4.7 |
6. Fees and commissions payable
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Banking fees | 2.1 | 2.6 | 2.1 | 2.6 |
Mortgage related fees | 4.7 | 5.2 | 3.3 | 2.6 |
Other fees and commissions | 4.3 | 2.9 | 4.1 | 2.9 |
Total | 11.1 | 10.7 | 9.5 | 8.1 |
Coventry Building Society | Annual Report & Accounts 2023 130
Notes to the accounts continued
Financial Statements
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Derivatives designated as fair value hedges | ||||
(Losses)/gains on derivatives designated as fair value hedges | (862.9) | 973.7 | (862.9) | 973.7 |
Movement in fair value of hedged items attributable to hedged risk | 798.2 | (999.0) | 798.2 | (999.0) |
Ineffectiveness on fair value hedges | (64.7) | (25.3) | (64.7) | (25.3) |
| Derivatives designated as cash flow hedges | ||||
Foreign exchange | (0.4) | 0.3 | — | — |
Interest rate | 101.1 | 30.0 | 101.1 | 30.0 |
Ineffectiveness on cash flow hedges | 100.7 | 30.3 | 101.1 | 30.0 |
(Losses)/gains on other derivatives | (5.7) | 21.8 | (5.7) | 21.8 |
Total | 30.3 | 26.8 | 30.7 | 26.5 |
Coventry Building Society | Annual Report & Accounts 2023 131
Notes to the accounts continued
Financial Statements
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Employee costs | ||||
Wages and salaries | 131.9 | 115.7 | 131.9 | 115.7 |
Social security costs | 14.4 | 13.2 | 14.4 | 13.2 |
| Pension costs | ||||
Defined benefit pension scheme (note 19) | (0.2) | (1.3) | (0.2) | (1.3) |
Defined contribution pension scheme | 8.3 | 7.4 | 8.3 | 7.4 |
154.4 | 135.0 | 154.4 | 135.0 | |
| Other expenses | ||||
Information systems | 38.0 | 28.9 | 38.0 | 28.9 |
Training, recruitment and other employee costs | 20.4 | 17.7 | 20.4 | 17.7 |
Premises and facilities | 10.0 | 10.7 | 10.0 | 10.7 |
Legal, professional and consultancy | 6.6 | 7.2 | 6.3 | 7.0 |
Marketing and communications | 6.7 | 6.7 | 6.7 | 6.7 |
Loss on disposal of property, plant and equipment and intangibles | — | 6.4 | — | 6.4 |
Other operating expenses (including project costs) | 49.7 | 53.5 | 49.1 | 52.8 |
Intercompany management charge | — | — | (54.2) | (45.9) |
Total | 285.8 | 266.1 | 230.7 | 219.3 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| Group and Society | £m | £m | £m | £m |
Audit of the Group and Society annual accounts | 1.0 | 0.8 | 1.0 | 0.8 |
Audit of Group subsidiaries | 0.2 | 0.2 | — | — |
Audit related assurance services | — | 0.1 | — | 0.1 |
Other non-audit services | 0.2 | 0.2 | 0.2 | 0.2 |
Total | 1.4 | 1.3 | 1.2 | 1.1 |
10. Employee numbers
| 2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
| Group and Society | Full time | Part time | Total | Full time | Part time | Total |
| The average number of persons employed during the year | ||||||
| (including executive directors) was: | ||||||
Head office and administrative centres | 1,963 | 456 | 2,419 | 1,814 | 435 | 2,249 |
Branches | 311 | 259 | 570 | 287 | 288 | 575 |
Total | 2,274 | 715 | 2,989 | 2,101 | 723 | 2,824 |
The average number of employees on a full time equivalent basis was 2,723 (2022: 2,552) and all of these are employed
within the United Kingdom.
Coventry Building Society | Annual Report & Accounts 2023 132
Notes to the accounts continued
Financial Statements
| Fair value | ||||
| through other | Fair value | |||
| comprehensive | through profit | |||
| 2023 | Amortised cost | income | and loss | Total |
| Group | £m | £m | £m | £m |
| Financial assets | ||||
Cash and balances with the Bank of England | 8,572.2 | — | — | 8,572.2 |
Loans and advances to financial institutions | 787.9 | — | — | 787.9 |
Debt securities | — | 1,564.2 | — | 1,564.2 |
Loans and advances to customers | 50,276.1 | — | — | 50,276.1 |
Hedge accounting adjustment | (433.1) | — | — | (433.1) |
Derivative financial instruments | — | — | 1,513.5 | 1,513.5 |
Investment in equity shares | — | — | 6.8 | 6.8 |
Total financial assets | 59,203.1 | 1,564.2 | 1,520.3 | 62,287.6 |
Other non-financial assets | 175.1 | — | — | 175.1 |
Total assets | 59,378.2 | 1,564.2 | 1,520.3 | 62,462.7 |
| Financial liabilities | ||||
Shares | 47,582.3 | — | — | 47,582.3 |
Deposits from banks | 5,230.7 | — | — | 5,230.7 |
Other deposits | — | — | — | — |
Amounts owed to other customers | 237.3 | — | — | 237.3 |
Debt securities in issue | 5,377.5 | — | — | 5,377.5 |
Hedge accounting adjustment | (68.1) | — | — | (68.1) |
Derivative financial instruments | — | — | 594.2 | 594.2 |
Subordinated liabilities | 15.4 | — | — | 15.4 |
Subscribed capital | 41.6 | — | — | 41.6 |
Total financial liabilities | 58,416.7 | — | 594.2 | 59,010.9 |
Other non-financial liabilities | 212.2 | — | — | 212.2 |
Total liabilities | 58,628.9 | — | 594.2 | 59,223.1 |
Coventry Building Society | Annual Report & Accounts 2023 133
Notes to the accounts continued
Financial Statements
11. Classification and measurement of financial instruments continued
| Fair value | ||||
| through other | Fair value | |||
| comprehensive | through profit | |||
| 2022 | Amortised cost | income | and loss | Total |
| Group | £m | £m | £m | £m |
| Financial assets | ||||
Cash and balances with the Bank of England | 7,792.2 | — | — | 7,792.2 |
Loans and advances to financial institutions | 622.8 | — | — | 622.8 |
Debt securities | 6.2 | 1,588.6 | — | 1,594.8 |
Loans and advances to customers | 48,014.3 | — | — | 48,014.3 |
Hedge accounting adjustment | (1,595.3) | — | — | (1,595.3) |
Derivative financial instruments | — | — | 2,278.1 | 2,278.1 |
Investment in equity shares | — | — | 5.8 | 5.8 |
Total financial assets | 54,840.2 | 1,588.6 | 2,283.9 | 58,712.7 |
Other non-financial assets | 154.4 | — | — | 154.4 |
Total assets | 54,994.6 | 1,588.6 | 2,283.9 | 58,867.1 |
| Financial liabilities | ||||
Shares | 42,288.7 | — | — | 42,288.7 |
Deposits from banks | 7,542.9 | — | — | 7,542.9 |
Other deposits | 5.0 | — | — | 5.0 |
Amounts owed to other customers | 416.1 | — | — | 416.1 |
Debt securities in issue | 5,243.2 | — | — | 5,243.2 |
Hedge accounting adjustment | (452.5) | — | — | (452.5) |
Derivative financial instruments | — | — | 626.5 | 626.5 |
Subordinated liabilities | 15.4 | — | — | 15.4 |
Subscribed capital | 41.6 | — | — | 41.6 |
Total financial liabilities | 55,100.4 | — | 626.5 | 55,726.9 |
Other non-financial liabilities | 192.5 | — | — | 192.5 |
Total liabilities | 55,292.9 | — | 626.5 | 55,919.4 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Fair value through other comprehensive income: | ||||
UK Government investment securities | 782.7 | 1,020.1 | 733.8 | 946.1 |
Other listed transferable debt securities | 781.5 | 568.5 | 781.5 | 568.5 |
| Amortised cost | ||||
Other listed transferable debt securities | — | 6.2 | — | 6.2 |
Total | 1,564.2 | 1,594.8 | 1,515.3 | 1,520.8 |
| Movements during the year are analysed below: | ||||
At 1 January | 1,594.8 | 676.0 | 1,520.8 | 676.0 |
Additions | 1,947.1 | 1,726.9 | 1,821.1 | 1,526.0 |
Maturities and disposals | (1,993.1) | (752.9) | (1,842.0) | (626.0) |
Changes in fair value | 15.4 | (55.2) | 15.4 | (55.2) |
At 31 December | 1,564.2 | 1,594.8 | 1,515.3 | 1,520.8 |
Coventry Building Society | Annual Report & Accounts 2023 134
Notes to the accounts continued
Financial Statements
13. Loans and advances to customers
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £m | £m | £m | £m | |
Residential mortgages: owner-occupier | 30,944.5 | 28,529.3 | 30,604.8 | 28,150.1 | |
Residential mortgages: buy to let | 19,351.0 | 19,496.2 | 1,388.0 | 1,467.6 | |
| Legacy lending | 11.7 | 13.2 | 7.0 | 8.0 | |
| Total Gross loans and advances to customers (contractual amounts) | 50,307.2 | 48,038.7 | 31,999.8 | 29,625.7 | |
Impairment | 14 | (42.5) | (35.5) | (21.9) | (20.0) |
Total Net loans and advances to customers (contractual amounts) | 50,264.7 | 48,003.2 | 31,977.9 | 29,605.7 | |
EIR, fair value and other adjustments | 11.4 | 11.1 | 24.7 | 29.2 | |
Total | 50,276.1 | 48,014.3 | 32,002.6 | 29,634.9 |
1
1. Legacy lending represents residual small portfolios of unsecured personal loans and commercial mortgages. The credit risk for these is immaterial and therefore not considered further
in this report.
Maturity analysis
The remaining contractual maturity of loans and advances to customers at the Balance Sheet date is as follows:
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £m | £m | £m | £m | |
Repayable in less than one year | 3,511.5 | 3,394.3 | 2,006.0 | 1,925.5 | |
Repayable in more than one year | 46,807.1 | 44,655.5 | 30,018.5 | 27,729.4 | |
50,318.6 | 48,049.8 | 32,024.5 | 29,654.9 | ||
Impairment provision | 14 | (42.5) | (35.5) | (21.9) | (20.0) |
Total | 50,276.1 | 48,014.3 | 32,002.6 | 29,634.9 |
Actual redemption levels experienced by the Group or Society may differ from the contractual analysis.
Pledged assets – loans and advances to customers
Certain loans and advances to customers have been pledged to the Group's asset backed funding programmes or utilised as
whole mortgage loan pools with the Bank of England to enable the Group to obtain secured funding. Loans and advances to
customers pledged to support secured funding and the notes in issue are as follows:
| Notes in issue | |||||
| Held by the | Held by the | Total | |||
| Mortgages | Held by third | Group | Group | Notes in | |
| 2023 | pledged | parties | pledged | unpledged | Issue |
| Group | £m | £m | £m | £m | £m |
| Loans and advances to customers | |||||
| Covered bond programme – Coventry Building Society Covered | |||||
| Bonds LLP | 7,178.5 | 2,960.3 | 1,350.0 | — | 4,310.3 |
| Covered bond programme – Coventry Godiva Covered Bonds LLP | 5,421.3 | — | 4,000.0 | — | 4,000.0 |
| Securitisation programme – Economic Master Issuer plc | 2,081.9 | 1,179.9 | 267.0 | 327.2 | 1,774.1 |
| Whole mortgage loan pools | 5,288.2 | — | 503.5 | 4,784.7 | 5,288.2 |
| Total | 19,969.9 | 4,140.2 | 6,120.5 | 5,111.9 | 15,372.6 |
1
2
| Notes in issue | |||||
| Held by the | Held by the | Total | |||
| Mortgages | Held by third | Group | Group | Notes in | |
| 2022 | pledged | parties | pledged | unpledged | Issue |
| Group | £m | £m | £m | £m | £m |
| Loans and advances to customers | |||||
| Covered bond programme – Coventry Building Society Covered | |||||
| Bonds LLP | 6,613.5 | 3,107.1 | 1,350.0 | — | 4,457.1 |
Covered bond programme – Coventry Godiva Covered Bonds LLP | 5,401.1 | — | 4,000.0 | — | 4,000.0 |
| Securitisation programme – Economic Master Issuer plc | 2,065.9 | 693.2 | 367.0 | 870.0 | 1,930.2 |
| Whole mortgage loan pools | 6,208.0 | — | 2,847.4 | 3,360.5 | 6,207.9 |
Total | 20,288.5 | 3,800.3 | 8,564.4 | 4,230.5 | 16,595.2 |
1
2
1. Notes in issue exclude Class Z securitisation notes (2023: £241.6 million, 2022: £179.6 million), which represent either the first loss tranche in the structure or a required liquidity
reserve, and the Economic Master Issuer plc Sellers Notes (2023: £327.2 million, 2022: £870.3 million). All of these notes are held by the Group unpledged.
2. The whole mortgage loan pools are pre-positioned at the Bank of England. Pools are pledged to the Bank of England when drawings are made directly against the eligible collateral, for
example, under TFSME, subject to a ‘haircut’ as defined by the Bank of England. The amounts under notes in issue are the outstanding balances of mortgages.
Coventry Building Society | Annual Report & Accounts 2023 135
Notes to the accounts continued
Financial Statements
13. Loans and advances to customers continued
Pledged assets – loans and advances to customers continued
Mortgages pledged are not derecognised from the Group or Society Balance Sheets as the Group has retained substantially
all the risks and rewards of ownership. No gain or loss has been recognised on pledging the mortgages to the programmes.
Notes in issue and held by third parties are included within debt securities in issue (note 22).
Notes in issue, held by the Group and pledged, include debt securities issued under the covered bond programmes and
retained by the Society and whole mortgage loan pools, all pledged as collateral.
Notes in issue, held by the Group and unpledged, are other debt securities issued by the programmes to the Society, and
mortgage loan pools that have been pre-positioned at the Bank of England but not utilised. These are held to provide
collateral for potential future use in sale and repurchase agreements or central bank operations.
Notes in issue, and held by the Group, are not recognised on the Group or Society Balance Sheets, thus preventing
inappropriate ‘grossing up’ of the Group and Society Balance Sheets.
Covered bond programmes
The Society operates two covered bond programmes which it uses to provide security for issues of retained and externally
issued covered bonds. Securities issued under the programmes are secured through certain mortgage loans of Coventry
Building Society or of Godiva Mortgages Limited, the Originators. The loans are retained on the Originator’s Balance Sheet
as they retain substantially all the risks and rewards relating to the loan.
At the reporting date, the Society has overcollateralised these programmes as set out in the table above to secure the
ratings of the covered bonds and to provide operational flexibility. The Society maintains the overcollaterisation by adding
loans to the loan portfolios throughout the period. From time to time, the obligation of the Society to provide collateral
may increase due to the formal requirements of the covered bond programmes and the value of the collateral would
depend upon conditions at that time. The Society may also voluntarily contribute collateral to support the covered bond
ratings; no such contributions were made during 2023 or 2022. The Society undertakes various roles in these programmes,
including acting as cash manager and servicer as well as acting as the bank account provider for Coventry Godiva Covered
Bonds LLP (Godiva LLP).
Coventry Building Society Covered Bonds LLP
Coventry Building Society Covered Bonds LLP (CBS LLP) was established in 2008 and provides security for issued notes
secured against certain loans of Coventry Building Society. As at 31 December 2023, the Society had £2,350 million (2022:
£2,450 million) and €2,250 million (2022: €2,250 million) of covered bonds in issue, of which £1,350 million (2022: £1,350
million) were retained by the Group.
During the period, the Society voluntarily repurchased £112.6 million (2022: £86.9 million) of mortgages from CBS LLP to
maintain the quality of the pool and minimise the overcollateralisation requirement.
Coventry Godiva Covered Bonds LLP
Coventry Godiva Covered Bonds LLP was established in 2020 and provides security for issued notes secured against certain
mortgage loans of Godiva Mortgages Limited. As at 31 December 2023, the Society had £4.0 billion (2022: £4.0 billion) of
covered bonds in issue of which all were retained by the Group.
During the period, the Society voluntarily repurchased £55.7 million (2022: £40.7 million) of mortgages from Godiva LLP to
maintain the quality of the pool and minimise the overcollateralisation requirement.
Securitisation
During the period, the Society operated one securitisation vehicle which it uses to obtain collateral and source funding
through the internal and external issuances of listed debt securities secured through certain mortgage loans of Coventry
Building Society, the Originator. The loans are retained on the Originator’s Balance Sheet as it retains substantially all the
risks and rewards relating to the loans. The Society undertakes various roles in these transactions, including acting as cash
manager and servicer as well as acting as the bank account provider for Economic Master Issuer plc.
Economic Master Issuer PLC
Economic Master Issuer plc (EMI) was established in 2019 and has subsequently issued £2.0 billion of listed debt securities
secured against certain mortgage loans of Coventry Building Society. At 31 December 2023, a total of £267.0 million (2022:
£367.0 million) of notes were retained by the Group and £1,279.8 million (2022: £693.2 million) are held by parties external
to the Group. The Society retains a beneficial interest in the pool through its holding of the Sellers Note in the structure
and its obligations in respect of this securitisation vehicle are limited to transferring cash flows from the underlying assets
and maintaining its required minimum sellers share in accordance with the rules of programme.
Coventry Building Society | Annual Report & Accounts 2023 136
Notes to the accounts continued
Financial Statements
13. Loans and advances to customers continued
Pledged assets – loans and advances to customers continued
Economic Master Issuer PLC continued
The fair values of assets that have been pledged and their associated liabilities where recourse is limited to the underlying
asset are presented in the table below:
| Fair value assets | Fair value | Fair value net | Fair value assets | Fair value | Fair value net | |
| pledged | liabilities | position | pledged | liabilities | position | |
| 2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
| £m | £m | £m | £m | £m | £m | |
| Securitisation programme – Economic | ||||||
| Master Issuer plc | 2,001.2 | 1,281.8 | 719.4 | 1,803.6 | 688.7 | 1,114.9 |
14. Impairment on loans and advances to customers
Under IFRS 9, impairment provisions or expected credit losses (ECLs) are required to be calculated on assets held at
amortised cost and fair value through other comprehensive income. For the Society, this includes loans and advances to
customers and mortgage pipeline commitments. Expected credit loss provisions have been deducted from the appropriate
asset values on the balance sheet. Further information on the credit quality of these loans is included in the Risk
Management Report.
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Income Statement | ||||
Charge for the year | 7.0 | 16.9 | 1.9 | 13.8 |
Recoveries of amounts previously written off | (0.1) | (0.3) | (0.1) | (0.2) |
Total charge to the Income Statement | 6.9 | 16.6 | 1.8 | 13.6 |
The table below shows gross loans and advances to customers, ECL provision and resulting coverage ratio split by IFRS 9
stage at 31 December 2023 and at 31 December 2022 for both the Group and Society. For loans in stages 2 and 3, further
analysis of accounts which are past due and not past due is also presented.
| Group | Stage 1 | Stage 2 ‘Deteriorating’ | Stage 3 ‘Default’ | |||
'Performing' | ||||||
| Not past due | Past due | Not past due | Past due | Total | ||
As at 31 December 2023 | £m | £m | £m | £m | £m | £m |
| Gross balances | ||||||
Residential mortgages: owner-occupier | 26,387.7 | 4,271.1 | 107.6 | 52.5 | 125.6 | 30,944.5 |
Residential mortgages: buy to let | 16,324.0 | 2,866.8 | 71.2 | 25.5 | 63.5 | 19,351.0 |
| Legacy lending | 8.9 | 1.8 | 0.4 | 0.4 | 0.2 | 11.7 |
Total | 42,720.6 | 7,139.7 | 179.2 | 78.4 | 189.3 | 50,307.2 |
| ECL | ||||||
Residential mortgages: owner-occupier | 1.5 | 19.8 | 0.4 | 4.1 | 1.9 | 27.7 |
Residential mortgages: buy to let | 0.8 | 8.2 | 0.2 | 2.5 | 2.3 | 14.0 |
| Legacy lending | 0.1 | 0.4 | — | 0.2 | 0.1 | 0.8 |
Total | 2.4 | 28.4 | 0.6 | 6.8 | 4.3 | 42.5 |
| ECL coverage as a % of total balance | ||||||
Residential mortgages: owner-occupier | 0.01 % | 0.46 % | 0.37 % | 7.81 % | 1.51 % | 0.09 % |
Residential mortgages: buy to let | — | 0.29 % | 0.28 % | 9.80 % | 3.62 % | 0.07 % |
| Legacy lending | 1.12 % | 22.22 % | — | 50.00 % | 50.00 % | 6.84 % |
Total coverage | 0.01 % | 0.40 % | 0.33 % | 8.67 % | 2.27 % | 0.08 % |
1
1
1
1. These are legacy books with no new originations since 2010. Pipeline ECL of £0.2 million has been included in residential mortgages.
Coventry Building Society | Annual Report & Accounts 2023 137
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
| Society | Stage 1 | Stage 2 ‘Deteriorating’ | Stage 3 ‘Default’ | |||
| 'Performing' | ||||||
| Not past due | Past due | Not past due | Past due | Total | ||
As at 31 December 2023 | £m | £m | £m | £m | £m | £m |
| Gross balances | ||||||
Residential mortgages: owner-occupier | 26,152.2 | 4,203.8 | 102.7 | 39.9 | 106.2 | 30,604.8 |
Residential mortgages: buy to Let | 1,224.9 | 142.4 | 6.4 | 5.7 | 8.6 | 1,388.0 |
| Legacy lending | 5.7 | 1.0 | 0.1 | 0.1 | 0.1 | 7.0 |
Total | 27,382.8 | 4,347.2 | 109.2 | 45.7 | 114.9 | 31,999.8 |
| ECL | ||||||
Residential mortgages: owner-occupier | 1.2 | 13.7 | 0.4 | 3.4 | 1.5 | 20.2 |
Residential mortgages: buy to Let | 0.1 | 0.4 | — | 0.3 | 0.5 | 1.3 |
| Legacy lending | 0.1 | 0.2 | — | — | 0.1 | 0.4 |
Total | 1.4 | 14.3 | 0.4 | 3.7 | 2.1 | 21.9 |
| ECL coverage as a % of total balance | ||||||
Residential mortgages: owner-occupier | — | 0.33 % | 0.39 % | 8.52 % | 1.41 % | 0.07 % |
Residential mortgages: buy to Let | 0.01 % | 0.28 % | — | 5.26 % | 5.81 % | 0.09 % |
| Legacy lending | 1.75 % | 20.00 % | — | — | 100.00 % | 5.71 % |
Total coverage | 0.01 % | 0.33 % | 0.37 % | 8.10 % | 1.83 % | 0.07 % |
1
1
1
1. These are legacy books with no new originations since 2010. Pipeline ECL of £0.2 million has been included in residential mortgages.
| Group | Stage 1 | Stage 2 ‘Deteriorating’ | Stage 3 ‘Default’ | |||
| 'Performing' | ||||||
| Not past due | Past due | Not past due | Past due | Total | ||
As at 31 December 2022 | £m | £m | £m | £m | £m | £m |
| Gross balances | ||||||
Residential mortgages: owner-occupier | 25,591.5 | 2,731.7 | 65.1 | 58.2 | 82.8 | 28,529.3 |
Residential mortgages: buy to let | 17,768.4 | 1,623.3 | 44.0 | 25.5 | 35.0 | 19,496.2 |
| Legacy lending | 10.4 | 2.1 | 0.2 | 0.4 | 0.1 | 13.2 |
Total | 43,370.3 | 4,357.1 | 109.3 | 84.1 | 117.9 | 48,038.7 |
| ECL | ||||||
Residential mortgages: owner-occupier | 3.7 | 17.1 | 0.3 | 2.5 | 1.0 | 24.6 |
Residential mortgages: buy to let | 1.2 | 5.6 | 0.1 | 1.9 | 1.3 | 10.1 |
| Legacy lending | 0.1 | 0.4 | — | 0.2 | 0.1 | 0.8 |
Total | 5.0 | 23.1 | 0.4 | 4.6 | 2.4 | 35.5 |
| ECL coverage as a % of total balance | ||||||
Residential mortgages: owner-occupier | 0.01 % | 0.63 % | 0.46 % | 4.30 % | 1.21 % | 0.08 % |
Residential mortgages: buy to let | 0.01 % | 0.34 % | 0.23 % | 7.45 % | 3.71 % | 0.05 % |
| Legacy lending | 0.96 % | 19.05 % | — | 50.00 % | 100.00 % | 6.06 % |
| Total coverage | 0.01 % | 0.53 % | 0.37 % | 5.47 % | 2.04 % | 0.07 % |
1
1
1
1. Relates to legacy books with no new originations since 2010.
Coventry Building Society | Annual Report & Accounts 2023 138
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
| Society | Stage 1 | Stage 2 ‘Deteriorating’ | Stage 3 ‘Default’ | |||
| 'Performing' | ||||||
| Not past due | Past due | Not past due | Past due | Total | ||
As at 31 December 2022 | £m | £m | £m | £m | £m | £m |
| Gross balances | ||||||
Residential mortgages: owner-occupier | 25,313.6 | 2,671.5 | 58.4 | 38.4 | 68.2 | 28,150.1 |
Residential mortgages: buy to Let | 1,358.0 | 95.9 | 5.0 | 3.9 | 4.8 | 1,467.6 |
| Legacy lending | 6.7 | 1.0 | 0.1 | 0.1 | 0.1 | 8.0 |
Total | 26,678.3 | 2,768.4 | 63.5 | 42.4 | 73.1 | 29,625.7 |
| ECL | ||||||
Residential mortgages: owner-occupier | 3.5 | 12.7 | 0.2 | 1.7 | 0.7 | 18.8 |
Residential mortgages: buy to Let | 0.1 | 0.4 | — | 0.2 | 0.2 | 0.9 |
| Legacy lending | 0.1 | 0.2 | — | — | — | 0.3 |
Total | 3.7 | 13.3 | 0.2 | 1.9 | 0.9 | 20.0 |
| ECL coverage as a % of total balance | ||||||
Residential mortgages: owner-occupier | 0.01 % | 0.48 % | 0.34 % | 4.43 % | 1.03 % | 0.07 % |
Residential mortgages: buy to Let | 0.01 % | 0.42 % | — | 5.13 % | 4.17 % | 0.06 % |
| Legacy lending | 1.49 % | 20.00 % | — | — | — | 3.75 % |
Total coverage | 0.01 % | 0.48 % | 0.31 % | 4.48 % | 1.23 % | 0.07 % |
1
1
1
1. Relates to legacy books with no new originations since 2010.
At 31 December 2023, 85.0% of the Society’s loans and advances to customers were within the stage 1 ‘performing’
category (2022: 90.3%). This proportion fell during 2023 as a result of the continuing elevated risk arising from the
affordability pressures driven by the cost of living challenges and a higher interest rate environment moving accounts into
stage 2 as part of the post model adjustment criteria.
At the reporting date, 14.5% of loans are in stage 2 and 0.5% in stage 3 (2022: 9.3% in stage 2 and 0.4% in stage 3). Cure
periods are applied to accounts in stages 2 and 3 which have hit certain quantitative triggers such as arrears. These cure
periods delay transition of loans to a lower credit risk classification (i.e. from stage 3 to stage 2 or from stage 2 to stage 1)
by requiring a period of sustained performance before a loan is reassessed. As a result, loans can be recorded in stage 2 or
stage 3 despite otherwise performing at the reporting date.
Stage 2 balances were £7,318.9 million (2022: £4,466.4 million) and of these £179.2 million or 2.4% (2022: £109.3 million,
2.4%) are in arrears by 30 days or more. At 31 December 2023, 81% or £5,894.2 million of the loans in stage 2 are present as
a result of the SICR criteria established to reflect the cost of living affordability risk and are the driver of the higher level of
loans in stage 2. All of these accounts were paid up to date as at 31 December 2023 and remain in stage 2 as a result of
indicators of increased risk.
Of the £267.7 million (2022: £202.0 million) of loans which are classified as stage 3 at the reporting date, 51.9% or £139.0
million were three months or more in arrears (2022: 58.4%, £117.9 million), and 29.3% (£78.4 million) were paid up to date
(2022: 41.6%, £84.1 million). At 31 December 2023, the number of properties which were in possession remained low; a
total of £4.7 million of stage 3 loans were in possession (2022: £4.1 million), representing 25 individual properties (2022: 27
properties).
ECL coverage ratios
This coverage ratio (ECL provision / gross loans and advances to customers) is 8 basis points (2022: 7 basis points).
31 Dec 2023 | 31 Dec 2022 | ||
Total ECL provision | £m | 42.5 | 35.5 |
Total gross loans and advances to customers before ECL and EIR | £m | 50,307.2 | 48,038.7 |
ECL coverage ratio | % | 0.08 | 0.07 |
The increase in ECL in the period resulted in the coverage rising to 70.8 times (2022: 50.7 times) the gross impairment
losses before recoveries in the last 12 months as shown below.
| Year ended | Year ended 31 | ||
| 31 Dec 2023 | Dec 2022 | ||
Impairment losses before recoveries | £m | 0.6 | 0.7 |
Total ECL provision | £m | 42.5 | 35.5 |
ECL coverage | Years | 70.8 | 50.7 |
Coventry Building Society | Annual Report & Accounts 2023 139
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
ECL before judgemental adjustments | 18.1 | 16.1 | 7.0 | 6.5 |
| Judgemental adjustments | ||||
Impact of cost of living risk | 18.4 | 14.2 | 11.8 | 10.6 |
Impact of cladding risk | 1.6 | 2.5 | 0.7 | 1.8 |
Other judgemental adjustments | 4.4 | 2.7 | 2.4 | 1.1 |
24.4 | 19.4 | 14.9 | 13.5 | |
Total reported ECL | 42.5 | 35.5 | 21.9 | 20.0 |
Coventry Building Society | Annual Report & Accounts 2023 140
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Stage 1 | Stage 2 | Stage 3 | Total | |||||
| Provision | Provision | Provision | ||||||
| Gross | 12 month | Gross | lifetime | Gross | lifetime | Gross | ||
| balance | ECL | balance | ECL | balance | ECL | balance | Provision | |
| Group | £m | £m | £m | £m | £m | £m | £m | £m |
At 1 January 2023 | 43,370.3 | 5.0 | 4,466.4 | 23.5 | 202.0 | 7.0 | 48,038.7 | 35.5 |
| Movements with Income | ||||||||
| Statement impact | ||||||||
| Transfers from Stage 1 to Stage 2 | (5,309.0) | (1.6) | 5,309.0 | 4.1 | — | — | — | 2.5 |
| Transfers from Stage 1 to Stage 3 | (73.2) | — | — | — | 73.2 | 1.4 | — | 1.4 |
| Transfers from Stage 2 to Stage 3 | — | — | (101.5) | (0.5) | 101.5 | 0.5 | — | — |
| Transfers from Stage 3 to Stage 2 | — | — | 29.9 | 0.3 | (29.9) | (0.3) | — | — |
| Transfers from Stage 3 to Stage 1 | 11.4 | — | — | — | (11.4) | — | — | — |
| Transfers from Stage 2 to Stage 1 | 1,634.6 | 0.1 | (1,634.6) | (0.6) | — | — | — | (0.5) |
Net movement arising from transfer of stages | (3,736.2) | (1.5) | 3,602.8 | 3.3 | 133.4 | 1.6 | — | 3.4 |
| New loans originated | 8,235.8 | 4.0 | 11.2 | — | 0.1 | — | 8,247.1 | 4.0 |
Remeasurement of ECL due to changes in risk parameters | — | (2.3) | — | 0.1 | — | 1.9 | — | (0.3) |
| Increase/(decrease) in post model | ||||||||
| adjustments | — | (0.6) | — | 3.3 | — | 2.2 | — | 4.9 |
| Loans derecognised in the period | (3,252.8) | (2.3) | (599.1) | (1.1) | (59.1) | (0.9) | (3,911.0) | (4.3) |
| Other items impacting Income | ||||||||
| Statement reversal | — | 0.1 | — | (0.1) | — | (0.4) | — | (0.4) |
| Net write offs directly to Income | ||||||||
| Statement | — | — | — | — | (0.3) | — | (0.3) | |
Income Statement charge for the period | (2.6) | 5.5 | 4.1 | 7.0 | ||||
| Repayment and charges | (1,896.5) | — | (162.4) | — | (7.9) | — | (2,066.8) | — |
| Net write offs and other ECL | ||||||||
| movements | — | — | — | — | (0.8) | — | (0.8) | |
At 31 December 2023 | 42,720.6 | 2.4 | 7,318.9 | 29.0 | 267.7 | 11.1 | 50,307.2 | 42.5 |
Coventry Building Society | Annual Report & Accounts 2023 141
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Movements in gross exposure and ECL provision continued
Stage 1 | Stage 2 | Stage 3 | Total | |||||
| Provision | Provision | Provision | ||||||
| Gross | 12 month | Gross | lifetime | Gross | lifetime | Gross | ||
| balance | ECL | balance | ECL | balance | ECL | balance | Provision | |
| Society | £m | £m | £m | £m | £m | £m | £m | £m |
At 1 January 2023 | 26,678.3 | 3.7 | 2,831.9 | 13.5 | 115.5 | 2.8 | 29,625.7 | 20.0 |
| Movements with Income | ||||||||
| Statement impact | ||||||||
Transfers from Stage 1 to Stage 2 | (3,310.3) | (1.3) | 3,310.3 | 1.5 | — | — | — | 0.2 |
Transfers from Stage 1 to Stage 3 | (42.0) | — | — | — | 42.0 | 0.8 | — | 0.8 |
Transfers from Stage 2 to Stage 3 | — | — | (58.8) | (0.2) | 58.8 | 0.2 | — | — |
Transfers from Stage 3 to Stage 2 | — | — | 16.4 | 0.1 | (16.4) | (0.1) | — | — |
Transfers from Stage 3 to Stage 1 | 4.2 | — | — | — | (4.2) | — | — | — |
Transfers from Stage 2 to Stage 1 | 1,063.0 | 0.1 | (1,063.0) | (0.3) | — | (0.1) | — | (0.3) |
Net movement arising from transfer of stages | (2,285.1) | (1.2) | 2,204.9 | 1.1 | 80.2 | 0.8 | — | 0.7 |
| New loans originated | 6,745.8 | 3.8 | 9.3 | — | 0.1 | — | 6,755.2 | 3.8 |
Remeasurement of ECL due to changes in risk parameters | — | (2.3) | — | (0.4) | — | 0.9 | — | (1.8) |
| Increase/(decrease) in post model | ||||||||
| adjustments | — | (0.5) | — | 0.7 | — | 1.7 | — | 1.9 |
| Loans derecognised in the period | (2,168.1) | (2.1) | (441.9) | (0.2) | (28.0) | (0.3) | (2,638.0) | (2.6) |
| Other items impacting Income | ||||||||
| Statement reversal | — | — | — | — | — | — | ||
| Net write offs directly to Income | ||||||||
| Statement | — | — | — | — | — | (0.1) | — | (0.1) |
Income Statement charge for the period | (2.3) | 1.2 | 3.0 | 1.9 | ||||
| Repayment and charges | (1,588.1) | — | (147.8) | — | (7.1) | — | (1,743.0) | — |
| Net write offs and other ECL | ||||||||
| movements | — | — | — | — | (0.1) | — | (0.1) | — |
At 31 December 2023 | 27,382.8 | 1.4 | 4,456.4 | 14.7 | 160.6 | 5.8 | 31,999.8 | 21.9 |
1
1. New mortgages originated in stages 2 and 3 relate to further advances on accounts which are performing at the date of origination but are in the 12 month cure period for IFRS 9
staging.
Coventry Building Society | Annual Report & Accounts 2023 142
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Movements in gross exposure and ECL provision continued
A reconciliation of movements in gross exposures and impairment provision split by IFRS 9 stage from 1 January 2022 to 31
December 2022 is set out in the following table for the Group and Society.
Stage 1 | Stage 2 | Stage 3 | Total | |||||
| Gross | Provision 12 | Gross | Provision | Gross | Provision | Gross | ||
| balance | month ECL | balance | lifetime ECL | balance | lifetime ECL | balance | Provision | |
| Group | £m | £m | £m | £m | £m | £m | £m | £m |
| At 1 January 2022 | 43,200.8 | 3.7 | 3,226.2 | 9.0 | 189.0 | 6.2 | 46,616.0 | 18.9 |
| Movements with Income | ||||||||
| Statement impact | ||||||||
| Transfers from Stage 1 to Stage 2 | (3,803.4) | (0.4) | 3,803.4 | 2.0 | — | — | — | 1.6 |
| Transfers from Stage 1 to Stage 3 | (38.7) | — | — | — | 38.7 | 0.7 | — | 0.7 |
| Transfers from Stage 2 to Stage 3 | — | — | (76.1) | (0.5) | 76.1 | 0.5 | — | — |
| Transfers from Stage 3 to Stage 2 | — | — | 28.3 | 0.2 | (28.3) | (0.2) | — | — |
| Transfers from Stage 3 to Stage 1 | 12.3 | — | — | — | (12.3) | (0.1) | — | (0.1) |
| Transfers from Stage 2 to Stage 1 | 1,993.9 | 0.1 | (1,993.9) | (0.5) | — | — | — | (0.4) |
Net movement arising from transfer of stages | (1,835.9) | (0.3) | 1,761.7 | 1.2 | 74.2 | 0.9 | — | 1.8 |
| New loans originated | 8,877.5 | 3.4 | 21.1 | — | 0.1 | — | 8,898.7 | 3.4 |
Remeasurement of ECL due to changes in risk parameters | — | 1.5 | — | 1.2 | — | 1.4 | — | 4.1 |
| Increase/(decrease) in post model | ||||||||
| adjustments | — | (1.6) | — | 12.5 | — | (0.8) | — | 10.1 |
| Loans derecognised in the period | (4,986.0) | (1.7) | (420.2) | (0.4) | (50.9) | (0.4) | (5,457.1) | (2.5) |
| Other items impacting Income | ||||||||
| Statement reversal | — | — | — | — | — | (0.1) | — | (0.1) |
| Net write offs directly to Income | ||||||||
| Statement | — | — | — | — | (0.2) | — | (0.2) | |
Income Statement charge for the period | 1.3 | 14.5 | 0.8 | 16.6 | ||||
| Repayment and charges | (1,886.1) | — | (122.4) | — | (9.7) | — | (2,018.2) | — |
| Net write offs and other ECL | ||||||||
| movements | — | — | — | — | (0.7) | — | (0.7) | — |
At 31 December 2022 | 43,370.3 | 5.0 | 4,466.4 | 23.5 | 202.0 | 7.0 | 48,038.7 | 35.5 |
1
1. New mortgages originated in stages 2 and 3 relate to further advances on accounts which are performing at the date of origination but are in the 12 month cure period for IFRS 9
staging.
Coventry Building Society | Annual Report & Accounts 2023 143
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Movements in gross exposure and ECL provision continued
Stage 1 | Stage 2 | Stage 3 | Total | |||||
| Gross | Provision 12 | Gross | Provision | Gross | Provision | Gross | ||
| balance | month ECL | balance | lifetime ECL | balance | lifetime ECL | balance | Provision | |
| Society | £m | £m | £m | £m | £m | £m | £m | £m |
| At 1 January 2022 | 26,295.0 | 1.4 | 2,117.1 | 2.2 | 106.0 | 2.8 | 28,518.1 | 6.4 |
| Movements with Income | ||||||||
| Statement impact | ||||||||
| Transfers from Stage 1 to Stage 2 | (2,437.8) | (0.2) | 2,437.8 | 1.3 | — | — | — | 1.1 |
| Transfers from Stage 1 to Stage 3 | (17.7) | — | — | — | 17.7 | 0.3 | — | 0.3 |
| Transfers from Stage 2 to Stage 3 | — | — | (45.8) | (0.3) | 45.8 | 0.3 | — | — |
| Transfers from Stage 3 to Stage 2 | — | — | 16.0 | 0.1 | (16.0) | (0.1) | — | — |
| Transfers from Stage 3 to Stage 1 | 7.5 | — | — | — | (7.5) | — | — | — |
| Transfers from Stage 2 to Stage 1 | 1,339.7 | 0.1 | (1,339.7) | (0.2) | — | — | — | (0.1) |
Net movement arising from transfer of stages | (1,108.3) | (0.1) | 1,068.3 | 0.9 | 40.0 | 0.5 | — | 1.3 |
| New loans originated | 6,131.5 | 2.8 | 16.3 | — | 0.1 | — | 6,147.9 | 2.8 |
Remeasurement of ECL due to changes in risk parameters | — | 1.5 | — | 0.2 | — | 0.4 | — | 2.1 |
| Increase/(decrease) in post model | ||||||||
| adjustments | — | (0.5) | — | 10.3 | — | (0.5) | — | 9.3 |
| Loans derecognised in the period | (3,015.2) | (1.4) | (261.3) | (0.1) | (23.0) | (0.1) | (3,299.5) | (1.6) |
| Other items impacting Income | ||||||||
| Statement reversal | — | — | — | — | — | (0.1) | — | (0.1) |
| Net write offs directly to Income | ||||||||
| Statement | — | — | — | — | — | (0.2) | — | (0.2) |
Income Statement charge for the period | 2.3 | 11.3 | — | 13.6 | ||||
| Repayment and charges | (1,624.7) | — | (108.5) | — | (7.3) | — | (1,740.5) | — |
| Net write offs and other ECL | ||||||||
| movements | — | — | — | — | (0.3) | — | (0.3) | — |
At 31 December 2022 | 26,678.3 | 3.7 | 2,831.9 | 13.5 | 115.5 | 2.8 | 29,625.7 | 20.0 |
Coventry Building Society | Annual Report & Accounts 2023 144
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Significant accounting assumptions and estimates – forward-looking information incorporated in
the ECL models continued
Scenario | Weighting |
| Base | |
| This is the central scenario used to support the business planning of the Society. Disinflationary trends continue, leading | 55 % |
to central banks pivoting to lower interest rates. Unemployment remains low, allowing house prices to remain more resilient. | |
| Downside | |
| A deteriorating cost of living crisis driven by a reversal of inflationary pressures. Central banks resume interest rate | 25 % |
| hikes, slowing the economy, which increases the level of unemployment and causes house prices to fall. The elevated | |
| level of inflation isn’t expected to return to the Bank of England’s 2% target within the first five years. | |
| Severe downside | |
| Based on the Internal Capital Adequacy Assessment Process (ICAAP) Annual Cyclical Scenario (ACS). This scenario | |
| embodies a significant rise in inflation across advanced economies accompanied by a sharp tightening in global financial | |
conditions, as energy supply issues recommence and combine with cost shocks in other markets. This tightening is more severe than the Global Financial Crisis and the base rate in the UK rises rapidly against a peak inflation of 17%, causing | 10 % |
| GDP to shrink. As unemployment rises considerably, house prices fall by 31% at the lowest point, before a moderate | |
| recovery begins. | |
| Upside | |
Supply-side inflation declines as geopolitical tensions subside, restoring a more orderly level of target inflation and allowing the Bank to reduce interest rates as conditions ease. Unemployment continues to be low and stable, and house | 10 % |
| prices continue to grow at a moderate rate. |
Coventry Building Society | Annual Report & Accounts 2023 145
(40)%
(20)%
—%
20%
40%
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Significant accounting assumptions and estimates – forward-looking information incorporated in
the ECL models continued
Macroeconomic assumptions continued
31 December 2023 | 31 December 2022 | ||||||
| Unemployment | HPI | HPI | |||||
| Weighting | % | % | Weighting | Unemployment % | % | ||
| Base | 2024 | 55 % | 4.7 | (5.0) | 55 % | 4.7 | (6.0) |
2025 | 4.7 | — | 5.2 | (3.0) | |||
| Downside | 2024 | 25 % | 6.5 | (7.5) | 25 % | 6.5 | (7.5) |
2025 | 6.8 | (9.5) | 7.3 | (9.5) | |||
| Severe Downside | 2024 | 10 % | 7.6 | (10.4) | 10 % | 7.6 | (10.4) |
2025 | 8.3 | (15.2) | 8.3 | (15.2) | |||
| Upside | 2024 | 10 % | 4.2 | 2.0 | 10 % | 3.9 | 2.5 |
2025 | 4.0 | 3.0 | 3.9 | 4.0 |
| Peak to | Average to | ||||||||
| Scenario/ | 2024 | 2025 | 2026 | 2027 | 2028 | trough | Range | 31 Dec 2028 | |
| weighting | % | % | % | % | % | % | % | % | |
Unemployment | 4.7 | 4.7 | 4.7 | 4.6 | 4.6 | 0.4 | 4.3 - 4.7 | 4.6 | |
Base | HPI | (5.0) | 0.0 | 2.0 | 2.5 | 2.5 | 6.8 | (5.0) - 1.8 | 0.4 |
55% | GDP | 0.4 | 1.3 | 1.5 | 1.5 | 1.5 | 6.4 | 0.0 - 6.4 | 1.2 |
Base Rate | 4.50 | 3.25 | 3.25 | 3.25 | 3.25 | 2.00 | 3.25 - 5.25 | 3.7 | |
Unemployment | 6.5 | 6.8 | 6.5 | 6.3 | 6.0 | 2.3 | 4.5 - 6.8 | 6.2 | |
Downside | HPI | (7.5) | (9.5) | (4.5) | 0.0 | 3.0 | 19.5 | (20.1) - (0.6) | (3.8) |
25% | GDP | (2.5) | 0.0 | 1.3 | 1.3 | 1.4 | 4.0 | (2.5) - 1.5 | 0.3 |
Base Rate | 6.25 | 6.25 | 6.25 | 6.25 | 6.00 | 1.00 | 5.25 - 6.25 | 6.2 | |
| Severe | Unemployment | 7.6 | 8.3 | 7.7 | 7.1 | 6.5 | 4.2 | 4.3 - 8.5 | 7.2 |
| downside | HPI | (10.4) | (15.2) | (8.3) | 7.2 | 6.6 | 30.9 | (31.0) - (0.1) | (4.5) |
| 10% | GDP | (5.0) | 1.2 | 1.2 | 1.2 | 1.2 | 4.9 | (5.0) - (0.1) | (0.1) |
Base Rate | 7.50 | 7.25 | 6.50 | 5.75 | 4.75 | 2.75 | 4.75 - 7.50 | 6.4 | |
Unemployment | 4.2 | 4.0 | 3.9 | 3.9 | 3.9 | 0.4 | 3.9 - 4.3 | 4.0 | |
Upside | HPI | 2.0 | 3.0 | 4.0 | 4.0 | 4.0 | 18.0 | 0.2 - 18.2 | 3.4 |
10% | GDP | 1.5 | 2.0 | 3.0 | 3.5 | 4.0 | 14.7 | 0.1 - 14.8 | 2.8 |
Base Rate | 4.25 | 3.00 | 3.00 | 3.00 | 3.00 | 2.25 | 3.00 - 5.25 | 3.5 |
Coventry Building Society | Annual Report & Accounts 2023 146
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Key economic assumptions as at 31 December 2023 continued
31 December 2023 | Scenarios | ||||
Weighted | Base | Downside | Severe Downside | Upside | |
Stage 1 Gross balances (£m) | 42,720.6 | 43,720.8 | 42,694.3 | 42,613.4 | 45,133.1 |
Stage 1 ECL (£m) | 2.4 | 0.9 | 4.8 | 6.8 | 0.5 |
Stage 1 ECL coverage (%) | 0.01 % | — | 0.01 % | 0.02 % | — |
Stage 2 Gross balances (£m) | 7,318.9 | 6,318.7 | 7,345.2 | 7,426.1 | 4,906.4 |
Stage 2 ECL (£m) | 29.0 | 14.9 | 42.3 | 57.7 | 8.1 |
Stage 2 ECL coverage (%) | 0.40 % | 0.24 % | 0.58 % | 0.78 % | 0.17 % |
Stage 3 Gross balances (£m) | 267.7 | 267.7 | 267.7 | 267.7 | 267.7 |
Stage 3 ECL (£m) | 11.1 | 10.3 | 12.5 | 14.1 | 9.1 |
Stage 3 ECL coverage (%) | 4.15 % | 3.85 % | 4.67 % | 5.27 % | 3.39 % |
Total Gross balances (£m) | 50,307.2 | 50,307.2 | 50,307.2 | 50,307.2 | 50,307.2 |
Total ECL (£m) | 42.5 | 26.1 | 59.6 | 78.6 | 17.7 |
Total ECL coverage (%) | 0.08 % | 0.05 % | 0.12 % | 0.16 % | 0.04 % |
31 December 2022 | Scenarios | ||||
Weighted | Base | Downside | Severe Downside | Upside | |
Stage 1 Gross balances (£m) | 43,370.3 | 43,756.6 | 43,316.5 | 43,240.4 | 45,151.8 |
Stage 1 ECL (£m) | 5.0 | 3.3 | 5.7 | 10.7 | 1.3 |
Stage 1 ECL coverage (%) | 0.01 % | 0.01 % | 0.01 % | 0.02 % | — |
Stage 2 Gross balances (£m) | 4,466.4 | 4,080.1 | 4,520.2 | 4,596.3 | 2,684.9 |
| Stage 2 ECL (£m) | 23.5 | 17.5 | 30.3 | 42.0 | 6.5 |
Stage 2 ECL coverage (%) | 0.53 % | 0.43 % | 0.67 % | 0.91 % | 0.24 % |
Stage 3 Gross balances (£m) | 202.0 | 202.0 | 202.0 | 202.0 | 202.0 |
Stage 3 ECL (£m) | 7.0 | 6.6 | 7.6 | 8.8 | 5.5 |
Stage 3 ECL coverage (%) | 3.47 % | 3.27 % | 3.76 % | 4.36 % | 2.72 % |
Total Gross balances (£m) | 48,038.7 | 48,038.7 | 48,038.7 | 48,038.7 | 48,038.7 |
Total ECL (£m) | 35.5 | 27.4 | 43.6 | 61.5 | 13.3 |
Total ECL coverage (%) | 0.07 % | 0.06 % | 0.09 % | 0.13 % | 0.03 % |
2023 | 2022 | |||||
| Stage 2 | Provision | Stage 2 | Provision | |||
| balance | lifetime ECL | Total | balance | lifetime ECL | Total | |
| £m | £m | £m | £m | £m | £m | |
Quantitative criteria | 512.9 | (1.5) | 511.4 | 505.7 | (1.8) | 503.9 |
Backstop criteria (arrears of one monthly payment) | 208.0 | (0.3) | 207.7 | 167.6 | (0.2) | 167.4 |
Forbearance applied | 13.3 | — | 13.3 | 15.5 | — | 15.5 |
Other qualitative criteria | 6,584.7 | (27.2) | 6,557.5 | 3,777.6 | (21.5) | 3,756.1 |
Total | 7,318.9 | (29.0) | 7,289.9 | 4,466.4 | (23.5) | 4,442.9 |
Coventry Building Society | Annual Report & Accounts 2023 147
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Other credit risk information continued
Other balances relate to accounts which have missed direct debit payments or county court judgements. See note 1 to the
accounts for more information on the SICR criteria applied for stage 2 allocation.
The Society updates its security values using the Nationwide Building Society quarterly regional HPI. Part of the risk
assessment of the portfolio also includes an initial individual revaluation of security using automated valuation model (AVM)
values.
The LTV distribution of the mortgage book by IFRS 9 stage widened slightly during 2023, with 87% of the mortgage book
having an LTV of 75% or lower (2022: 91%). The increase in the higher LTV bandings was driven by increased lending in this
area in the year, including first time buyers. However, the overall average LTV (balance weighted) of the book increased
marginally from 51% to 54% during the year. This is shown by IFRS 9 stage below:
| Stage 1 | Stage 2 | Stage 3 | |||
| As at 31 December 2023 | Performing | Deteriorating | Default | Impairment | Total |
| Indexed loan to value | £m | £m | £m | £m | £m |
<50% | 19,423.5 | 542.0 | 116.4 | (1.5) | 20,080.4 |
50% to 65% | 13,696.3 | 2,184.6 | 84.8 | (9.3) | 15,956.4 |
65% to 75% | 4,983.1 | 2,702.4 | 43.2 | (10.7) | 7,718.0 |
75% to 85% | 3,078.7 | 1,196.2 | 13.8 | (8.9) | 4,279.8 |
85% to 90% | 819.4 | 355.7 | 3.6 | (3.2) | 1,175.5 |
90% to 95% | 566.4 | 253.9 | 2.1 | (3.0) | 819.4 |
95% to 100% | 143.0 | 79.8 | 0.8 | (1.2) | 222.4 |
> 100% | 1.3 | 3.0 | 2.7 | (1.8) | 5.2 |
Unsecured loans | 8.9 | 1.3 | 0.3 | (0.6) | 9.9 |
Mortgage pipeline | — | — | — | (0.2) | (0.2) |
| Other | — | — | — | (2.1) | (2.1) |
Total | 42,720.6 | 7,318.9 | 267.7 | (42.5) | 50,264.7 |
1
1. Other includes expected credit losses which are not directly attributable to underlying accounts and therefore are not allocated across loan to value bandings.
| Stage 1 | Stage 2 | Stage 3 | |||
| As at 31 December 2022 | Performing | Deteriorating | Default | Impairment | Total |
| Indexed loan to value | £m | £m | £m | £m | £m |
<50% | 21,086.7 | 639.6 | 108.4 | (1.7) | 21,833.0 |
50% to 65% | 13,991.3 | 1,607.8 | 63.3 | (7.9) | 15,654.5 |
65% to 75% | 4,873.0 | 1,513.6 | 21.4 | (9.7) | 6,398.3 |
75% to 85% | 2,198.7 | 573.6 | 4.7 | (8.3) | 2,768.7 |
85% to 90% | 603.2 | 117.3 | 1.0 | (2.7) | 718.8 |
90% to 95% | 468.1 | 12.0 | 0.8 | (1.0) | 479.9 |
95% to 100% | 137.8 | 0.8 | — | (0.2) | 138.4 |
> 100% | 1.1 | 0.4 | 2.1 | (1.2) | 2.4 |
Unsecured loans | 10.4 | 1.3 | 0.3 | (0.6) | 11.4 |
Mortgage pipeline | — | — | — | (0.6) | (0.6) |
| Other | — | — | — | (1.6) | (1.6) |
Total | 43,370.3 | 4,466.4 | 202.0 | (35.5) | 48,003.2 |
1
1. Other includes expected credit losses which are not directly attributable to underlying accounts and therefore are not allocated across loan to value bandings.
The credit quality of the mortgage book remains high, and performance continues to be strong.
The probability of default (PD) tables below have been updated in the year to incorporate the distribution of the Group's
credit exposure by internal risk grade and their respective average PD of the Society’s loans over their life (e.g. PD of less
than or equal to 0.25 indicates a 0.25% chance of default over the life of the loan). These internal risk grades are used in
the assessment of SICR as well as within the calculation of regulatory expected losses and capital under the IRB approach.
Further information on SICR criteria and the differences between the IFRS 9 ECL calculation and regulatory expected losses
can be found in note 1 to the accounts. Default includes cases which are three or more months in arrears or have been
three or more months in arrears at some point in the last 12 months in addition to cases which have a specified unlikeliness
to pay indicator.
Loan balances are reflected in the respective PD bands of the account as modelled through the Society’s standard IFRS 9
impairment models. Impairments reflected in all PD bands in the year have increased and further adjustments have been
made to represent the affordability stress recognised with the cost of living PMA. More information on PMAs is outlined on
page 140.
Coventry Building Society | Annual Report & Accounts 2023 148
Notes to the accounts continued
Financial Statements
14. Impairment on loans and advances to customers continued
Other credit risk information continued
| Average lifetime | Stage 1 | Stage 2 | Stage 3 | |||
| As at 31 December 2023 | Probability of | Performing | Deteriorating | Default | Impairment | Total |
| Risk grades | default (%) | £m | £m | £m | £m | £m |
| Performing | ||||||
A-C | 0.11 % | 37,951.9 | 4,136.8 | — | (11.3) | 42,077.4 |
D-F | 1.13 % | 4,577.2 | 2,615.4 | — | (10.5) | 7,182.1 |
G-J | 11.49 % | 41.1 | 511.4 | — | (2.0) | 550.5 |
Non-performing | — | |||||
K | 27.99 % | — | 30.8 | — | (0.2) | 30.6 |
Default and possession | 100.00 % | — | — | 265.4 | (9.1) | 256.3 |
| Other | Not applicable | 150.4 | 24.5 | 2.3 | (9.2) | 168.0 |
Mortgage pipeline | Not applicable | — | (0.2) | (0.2) | ||
Total | 42,720.6 | 7,318.9 | 267.7 | (42.5) | 50,264.7 |
1
1. Other includes equity release mortgages and other loans where credit risk is assessed using alternative calculation methods and their respective ECLs or where ECLs are not directly
attributable to underlying accounts and therefore are not allocated across risk grades or to default.
| Average lifetime | Stage 1 | Stage 2 | Stage 3 | |||
| As at 31 December 2022 | Probability of | Performing | Deteriorating | Default | Impairment | Total |
| Risk grades | default (%) | £m | £m | £m | £m | £m |
| Performing | ||||||
A-C | 0.23 % | 38,840.2 | 2,467.2 | — | (10.6) | 41,296.8 |
D-F | 2.28 % | 4,316.2 | 1,620.8 | — | (9.7) | 5,927.3 |
G-J | 21.90 % | 46.6 | 343.9 | — | (2.0) | 388.5 |
| Non-performing | ||||||
K | 43.72 % | — | 16.8 | — | (0.2) | 16.6 |
Default and possession | 100.00 % | — | — | 197.5 | (5.3) | 192.2 |
| Other | Not applicable | 167.3 | 17.7 | 4.5 | (7.1) | 182.4 |
Mortgage pipeline | Not applicable | — | — | — | (0.6) | (0.6) |
Total | 43,370.3 | 4,466.4 | 202.0 | (35.5) | 48,003.2 |
1
1. Other includes equity release mortgages and other loans where credit risk is assessed using alternative calculation methods and their respective ECLs or where ECLs are not directly
attributable to underlying accounts and therefore are not allocated across risk grades or to default.
Coventry Building Society | Annual Report & Accounts 2023 149
Notes to the accounts continued
Financial Statements
15. Taxation
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Current tax | ||||
UK corporation tax | 92.7 | 71.4 | 74.1 | 50.8 |
UK corporation tax – adjustment in respect of prior years | (1.9) | 2.7 | (1.9) | 2.5 |
Total current tax | 90.8 | 74.1 | 72.2 | 53.3 |
| Deferred tax | ||||
Current year | 26.9 | 9.3 | 26.9 | 8.1 |
Adjustment in respect of prior years | 4.7 | 0.9 | 4.7 | 0.9 |
Total deferred tax | 31.6 | 10.2 | 31.6 | 9.0 |
Total | 122.4 | 84.3 | 103.8 | 62.3 |
A reconciliation between the actual tax expense and tax that would be due if the UK standard corporation tax rate of 23.5%
(2022: 19.0%) was applied to the profit before tax without adjustment is as follows:
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Profit before tax (PBT) | 473.5 | 370.5 | 399.7 | 261.6 |
Tax at UK standard rate of corporation tax on PBT of 23.5% (2022: 19.0%) | 111.3 | 70.4 | 93.9 | 49.7 |
| Recurring items | ||||
| Surcharge on banking profits | 8.4 | 13.5 | 8.4 | 13.5 |
| Tax credit on Additional Tier 1 capital distribution | (6.7) | (5.4) | (6.7) | (5.4) |
| Expenses not deductible for tax purposes | (20.3) | (7.1) | (21.5) | (7.0) |
| Non-recurring items | ||||
| Adjustments in respect of prior years (current tax) | (1.9) | 2.7 | (1.9) | 2.5 |
Other (current tax) | — | — | — | — |
Total current tax | 90.8 | 74.1 | 72.2 | 53.3 |
Movements in deferred taxes | 26.7 | 9.5 | 26.7 | 8.3 |
| Adjustments in respect of prior years (deferred tax) | 4.7 | 0.9 | 4.7 | 0.9 |
Deferred tax arising from rate change | 0.2 | (0.2) | 0.2 | (0.2) |
Total | 122.4 | 84.3 | 103.8 | 62.3 |
1
2
3
4
4
1. Banking companies and building societies are required to pay a surcharge of 3% from 1 April 2023 (previously 8%) on their taxable profits in addition to the main rate of corporation
tax, subject to an annual allowance of £100 million from 1 April 2023 (previously £25 million). Only the profits of the Society are subject to the surcharge.
2. The Society's AT 1 capital instrument is categorised as a Hybrid Capital Instrument (HCI) and is taxable under the HCI regime. Under the HCI regime, the distributions made to holders
of the Society’s AT 1 instruments are deductible for tax purposes.
3. Some business expenses, although entirely appropriate for inclusion the Society’s accounts, are not allowed as a deduction against taxable income when calculating the Society’s tax
liability. Examples of these expenses included are related to cash flow hedge reserve adjustment, capital expenditure (which is subject to capital allowances instead) and client
entertaining.
4. These adjustments largely relate to the differences between the calculated tax charge in the prior year's Balance Sheet and the final tax charge calculated upon completion of the
prior year's corporation tax return.
The effective tax rate for the year is 25.9% (2022: 22.8%) for the Group and 26.0% (2022: 23.8%) for the Society. The
effective tax rates for 2023 are above the UK standard corporation tax rate due to the £8.4 million (2022: £13.5 million)
surcharge on banking profits, offset by the £6.7 million (2022: £5.4 million) tax credit in relation to distributions to holders
of the Group’s AT 1 instrument and higher timing differences on treatment of cash flow hedge movements, which are not
deductible for tax purposes.
The UK corporation tax rate has increased from 19% to 25% with effect from 1 April 2023. The deferred tax liabilities at 31
December 2023 has been calculated based on these rates, reflecting the expected timing of reversal of the related timing
differences.
In addition, with effect from 1 April 2023, the Bank Corporation Tax Surcharge was reduced from 8% to 3%, and is
chargeable on banking profits in excess of £100 million (previously £25 million), aligned with the rise in the main rate of
Corporation Tax. Therefore, the combined rate of tax on banking profits in excess of £100 million will be 28%. The deferred
tax liabilities at 31 December 2023 have been calculated on these rates, reflecting the expected timing of reversal of the
related timing differences (31 December 2022: 8%).
Coventry Building Society | Annual Report & Accounts 2023 150
Financial Statements
Notes to the accounts continued
15. Taxation continued
In June 2023, the UK Government has enacted new legislation to implement the global minimum top-up tax in the UK.
However, since the newly enacted tax legislation in the UK is only effective from 1 January 2024, there is no current tax
impact for the year ended 31 December 2023. Under the new legislation, the Society is liable to pay a domestic top-up tax
for the difference between its global anti-base erosion effective tax rate in the UK and the 15% minimum rate. The Society
has assessed the impact of the legislation with support from its tax advisers and does not expect to be subject to a top-up
tax.
The Society publishes its tax strategy on the website at www.thecoventry.co.uk.
Tax on items reported through the Statements of Comprehensive Income is as follows:
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| Statements of Comprehensive Income | £m | £m | £m | £m |
| Tax charge / (credit) on remeasurement of defined benefit pension plan | 0.1 | (7.5) | 0.1 | (7.5) |
| Tax credit on fair value through other comprehensive income movements | (1.4) | — | (1.4) | — |
| Tax (credit)/ charge on cash flow hedges | (9.7) | 93.2 | (13.6) | 98.4 |
| Effect of change in corporation tax rate | 0.9 | 2.1 | 0.9 | 2.2 |
| Total | (10.1) | 87.8 | (14.0) | 93.1 |
| Shares | Loans | Total | |
| Society | £m | £m | £m |
At 1 January 2023 | 8.0 | 17,871.7 | 17,879.7 |
Additions | — | (204.0) | (204.0) |
At 31 December 2023 | 8.0 | 17,667.7 | 17,675.7 |
Subsidiary undertakings | Principal activity |
Godiva Mortgages Limited | Mortgage lending |
ITL Mortgages Limited | Mortgage lending |
Coventry Financial Services Limited | Non-trading |
Coventry Property Services Limited | Non-trading |
Godiva Financial Services Limited | Non-trading |
Godiva Housing Developments Limited | Non-trading |
Godiva Savings Limited | Non-trading |
Godiva Securities and Investments Limited | Non-trading |
Consolidated structured entities | Principal activity |
Coventry Building Society Covered Bonds LLP | Mortgage acquisition and guarantor of covered bonds |
Coventry Godiva Covered Bonds LLP | Mortgage acquisition and guarantor of covered bonds |
Economic Master Issuer plc | Funding vehicle |
Consolidated entities | Registered office |
Godiva Mortgages Limited | Coventry House, Harry Weston Road, Binley, Coventry CV3 2TQ |
ITL Mortgages Limited | Coventry House, Harry Weston Road, Binley, Coventry, CV3 2TQ |
Coventry Building Society Covered Bonds LLP | Oakfield House, Harry Weston Road, Coventry CV3 2TQ |
Coventry Godiva Covered Bonds LLP | Oakfield House, Harry Weston Road, Coventry CV3 2TQ |
Economic Master Issuer plc | 10th Floor 5 Churchill Place, London E14 5HU |
Coventry Building Society | Annual Report & Accounts 2023 151
Notes to the accounts continued
Financial Statements
| Externally | Internally | Externally | Internally | |||
| acquired | developed | Total | acquired | developed | Total | |
| 2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
| Group and Society | £m | £m | £m | £m | £m | £m |
| Cost | ||||||
At 1 January | 2.5 | 70.6 | 73.1 | 14.6 | 90.2 | 104.8 |
Additions | 2.6 | 16.6 | 19.2 | 0.2 | 19.8 | 20.0 |
Retirements | — | (0.1) | (0.1) | (12.3) | (39.4) | (51.7) |
At 31 December | 5.1 | 87.1 | 92.2 | 2.5 | 70.6 | 73.1 |
| Amortisation | ||||||
At 1 January | 0.5 | 29.3 | 29.8 | 11.7 | 57.4 | 69.1 |
Charge for the year | 3.3 | 9.6 | 12.9 | 1.1 | 10.7 | 11.8 |
Retirements | — | (0.1) | (0.1) | (12.3) | (38.8) | (51.1) |
At 31 December | 3.8 | 38.8 | 42.6 | 0.5 | 29.3 | 29.8 |
Net book value at 31 December | 1.3 | 48.3 | 49.6 | 2.0 | 41.3 | 43.3 |
| Equipment, | ||||
| fixtures and | Right-of-use | |||
| Land and buildings | fitting | asset | Total | |
| Group and Society | £m | £m | £m | £m |
| Cost | ||||
| At 1 January 2023 | 18.3 | 59.9 | 27.9 | 106.1 |
| Additions | 0.1 | 3.5 | 0.2 | 3.8 |
| Disposals | (3.6) | (0.5) | (1.4) | (5.5) |
| At 31 December 2023 | 14.8 | 62.9 | 26.7 | 104.4 |
| Depreciation | ||||
| At 1 January 2023 | 4.1 | 26.0 | 12.8 | 42.9 |
| Charge for the year | 0.5 | 9.2 | 3.5 | 13.2 |
| Depreciation on disposals | (1.2) | (0.5) | (1.0) | (2.7) |
| At 31 December 2023 | 3.4 | 34.7 | 15.3 | 53.4 |
| Net book value at 31 December 2023 | 11.4 | 28.2 | 11.4 | 51.0 |
| Equipment, | ||||
| fixtures and | Right-of-use | |||
| Land and buildings | fitting | asset | Total | |
| Group and Society | £m | £m | £m | £m |
| Cost | ||||
At 1 January 2022 | 20.9 | 84.2 | 33.4 | 138.5 |
Additions | — | 6.7 | 2.3 | 9.0 |
Disposals | (2.6) | (31.0) | (7.8) | (41.4) |
At 31 December 2022 | 18.3 | 59.9 | 27.9 | 106.1 |
| Depreciation | ||||
At 1 January 2022 | 5.4 | 43.1 | 13.9 | 62.4 |
Charge for the year | 0.8 | 10.9 | 5.2 | 16.9 |
Depreciation on disposals | (2.1) | (28.0) | (6.3) | (36.4) |
At 31 December 2022 | 4.1 | 26.0 | 12.8 | 42.9 |
Net book value at 31 December 2022 | 14.2 | 33.9 | 15.1 | 63.2 |
Coventry Building Society | Annual Report & Accounts 2023 152
Notes to the accounts continued
Financial Statements
18. Property, plant and equipment continued
| 2023 | 2022 | |
| Group and Society | £m | £m |
At 31 December | 11.4 | 14.2 |
| 2023 | 2022 | |
| Total | Total | |
| Right-of-use asset: | £m | £m |
Property | 9.1 | 11.9 |
Enhanced data infrastructure | 2.0 | 2.5 |
Cars and leased equipment | 0.3 | 0.7 |
Total | 11.4 | 15.1 |
Coventry Building Society | Annual Report & Accounts 2023 153
Notes to the accounts continued
Financial Statements
19. Pension scheme continued
| 2023 | 2022 | |
| Group and Society | £m | £m |
Present value of funded obligation | (149.5) | (157.4) |
Fair value of plan assets | 153.2 | 160.7 |
Funded status/pension benefit surplus | 3.7 | 3.3 |
| 2023 | 2022 | |
| Group and Society | £m | £m |
| Present value of obligation | ||
As at 1 January | (157.4) | (235.1) |
Past service cost | — | 1.0 |
Loss on settlements | — | (0.2) |
Interest expense | (7.7) | (4.2) |
Benefit payments from plan assets | 7.0 | 7.3 |
Settlement payments from plan assets | — | 2.0 |
| Remeasurements: | ||
Effects of changes in demographic assumptions | (1.9) | (1.7) |
| Effects of changes in financial assumptions | 6.7 | 99.3 |
| Effects of experience adjustments | 3.8 | (25.8) |
| As at 31 December | (149.5) | (157.4) |
| Fair value of plan assets | ||
| As at 1 January | 160.7 | 264.4 |
| Interest income | 7.9 | 4.7 |
Employer contributions | 0.2 | 0.2 |
Benefit payments from plan assets | (7.0) | (7.3) |
Settlement payments from plan assets | — | (1.9) |
Return on assets | (8.6) | (99.4) |
As at 31 December | 153.2 | 160.7 |
Pension benefit surplus | 3.7 | 3.3 |
| The movement in the Pension Benefit Surplus is analysed below: | ||
Pension benefit surplus as at 1 January | 3.3 | 29.3 |
Amount recognised in the income statement | 0.2 | 1.3 |
Employer contributions | 0.2 | 0.2 |
| Remeasurement gains/(losses) | — | (27.5) |
| Pension benefit surplus as at 31 December | 3.7 | 3.3 |
Coventry Building Society | Annual Report & Accounts 2023 154
Notes to the accounts continued
Financial Statements
19. Pension scheme continued
| 2023 | 2022 | |
| Group and Society | £m | £m |
| Amount recognised in Other Comprehensive Income: | ||
Return on plan assets | (8.6) | (99.4) |
Effect of changes in demographic assumptions | (1.9) | (1.7) |
| Effect of changes in financial assumptions | 6.7 | 99.3 |
Effect of experience adjustments | 3.8 | (25.8) |
| Remeasurement gain/(loss) of pension benefit surplus | — | (27.6) |
| Amount recognised in the income statement: | ||
Past service cost | — | 1.0 |
Loss on settlements | — | (0.2) |
Interest expense on defined benefit obligation | (7.7) | (4.2) |
Interest income on plan assets | 7.9 | 4.7 |
Net interest income | 0.2 | 1.3 |
| Group and Society | 2023 | 2022 |
| £m | £m | |
| Quoted | ||
Corporate bonds and liability matching | 79.6 | 75.0 |
Diversified growth funds | 26.0 | 1.1 |
Direct lending | 8.1 | 7.1 |
Equities | 0.3 | — |
Cash | 4.0 | 2.1 |
| Unquoted | ||
Corporate bonds and liability matching | 16.9 | 42.6 |
Property | 18.3 | 32.8 |
Total | 153.2 | 160.7 |
2023 | 2022 | |
| Weighted average assumptions used to determine benefit obligation at | % | % |
Discount rate | 4.80 | 5.00 |
Rate of pensionable salary increase | — | — |
Rates of inflation (Retail Prices Index) | 3.05 | 3.15 |
Rates of inflation (Consumer Prices Index) | 2.40 | 2.46 |
2023 | 2022 | |
| Weighted average assumptions used to determine net pension cost for the year ended | % | % |
Discount rate | 4.80 | 1.80 |
Rate of pensionable salary increase | — | — |
Rates of inflation (Retail Prices Index) | 3.05 | 3.25 |
Rates of inflation (Consumer Prices Index) | 2.40 | 2.53 |
2023 | 2022 | |||
| Weighted average life expectancy for mortality tables used to determine benefit | ||||
| obligation | Male | Female | Male | Female |
Member age 60 (current life expectancy) | 25.9 | 28.7 | 26.7 | 29.3 |
Member age 45 (life expectancy at age 60) | 27.0 | 29.8 | 27.8 | 30.4 |
Coventry Building Society | Annual Report & Accounts 2023 155
Notes to the accounts continued
Financial Statements
19. Pension scheme continued
| Change in | Increase in | Increase in | Decrease in | Decrease in | |
| assumption | assumption | assumption | assumption | assumption | |
| Impact on present value of obligation: | % | £m | % | £m | |
Discount rate | 0.50 % | (6.3) | (9.4) | 7.0 | 10.4 |
| Rates of inflation (Retail Prices Index and Consumer | |||||
Prices Index) | 0.25 % | 1.9 | 2.9 | (2.2) | (3.3) |
Life expectancy | 1 year | 2.7 | 4.1 | (2.6) | (3.9) |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Deferred tax liabilities/ (assets) | ||||
Cash flow hedges | 97.4 | 106.4 | 96.1 | 109.2 |
Other derivatives | 31.9 | 5.8 | 30.7 | 4.6 |
Defined benefit pension plan surplus | 1.0 | 0.8 | 1.0 | 0.8 |
Transfer of engagements – fair value adjustments | — | 0.1 | — | — |
Investment in equity shares | 2.2 | 0.4 | 2.2 | 0.4 |
Fair value through other comprehensive income | 0.4 | 1.8 | 0.5 | 1.8 |
Excess of capital allowances over depreciation | (3.6) | (6.3) | (3.6) | (6.3) |
Provisions | (0.8) | (0.7) | (0.8) | (0.7) |
IFRS 16 transitional adjustments | (0.1) | (0.1) | (0.1) | (0.1) |
Research and development intangible assets | 4.7 | 3.5 | 4.7 | 3.5 |
Total | 133.1 | 111.7 | 130.7 | 113.2 |
21. Deposits from banks
A maturity analysis for the Group's deposits from banks is included in the Risk Management Report Liquidity and Funding
section.
For the Group and Society, deposits from banks includes £3,450.0 million (2022: £5,250.0 million) drawn down against the
Bank of England Term Funding Scheme with additional incentives for SMEs (TFSME).
Deposits from banks also includes £494.3 million (2022: £251.8 million) in respect of sale and repurchase agreements
(repos) of on-balance sheet notes in issue relating to the Coventry Building Society Covered Bonds LLP programme (see note
13) at 31 December 2023.
Coventry Building Society | Annual Report & Accounts 2023 156
Notes to the accounts continued
Financial Statements
| Non-cash flows | ||||||
| Foreign | Change in | |||||
| exchange | accrued | |||||
| 2023 | Opening | Cash flows | movements | interest | Amortisation | Closing |
| Group | £m | £m | £m | £m | £m | £m |
Medium term notes | 1,451.9 | (310.2) | — | 2.2 | 1.1 | 1,145.0 |
Covered bonds | 3,099.6 | (101.0) | (45.5) | (0.7) | 1.8 | 2,954.2 |
Residential Mortgage Backed Securities | 691.7 | 585.1 | — | 0.5 | 1.0 | 1,278.3 |
Total | 5,243.2 | 173.9 | (45.5) | 2.0 | 3.9 | 5,377.5 |
| Non-cash flows | ||||||
| Foreign | ||||||
| exchange | Change in | |||||
| 2022 | Opening | Cash flows | movements | accrued interest | Amortisation | Closing |
| Group | £m | £m | £m | £m | £m | £m |
Medium term notes | 1,856.5 | (400.0) | — | (6.2) | 1.6 | 1,451.9 |
Covered bonds | 2,565.0 | 434.6 | 89.3 | 8.6 | 2.1 | 3,099.6 |
Residential Mortgage Backed Securities | 830.8 | (140.2) | — | 0.3 | 0.8 | 691.7 |
Total | 5,252.3 | (105.6) | 89.3 | 2.7 | 4.5 | 5,243.2 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Accrued interest | 19.3 | 17.8 | 18.3 | 17.5 |
| Other debt securities | ||||
In not more than one year | 432.7 | 1,659.5 | 432.7 | 1,449.6 |
In more than one year | 4,925.5 | 3,565.9 | 3,645.4 | 3,082.4 |
Total | 5,377.5 | 5,243.2 | 4,096.4 | 4,549.5 |
Coventry Building Society | Annual Report & Accounts 2023 157
Notes to the accounts continued
Financial Statements
23. Derivative financial instruments continued
Risk management strategy continued
2023 | 2022 | |||||
| Notional | Fair value | Fair value | Notional | Fair value | Fair value | |
| amount | assets | liabilities | amount | assets | liabilities | |
| Group | £m | £m | £m | £m | £m | £m |
| Derivatives designated as fair value hedges: | ||||||
| Interest rate risk | 52,278.3 | 1,431.7 | 455.6 | 48,205.1 | 2,166.1 | 579.5 |
| Derivatives designated as cash flow hedges: | ||||||
| Interest rate risk | 11,143.2 | 67.6 | 109.5 | 7,129.3 | 81.5 | 31.7 |
| Foreign exchange risk | 1,952.1 | 5.3 | 19.7 | 1,952.1 | 23.4 | 9.0 |
| Other derivatives: | ||||||
| Interest rate risk | 1,252.1 | 8.9 | 9.4 | 549.0 | 7.1 | 6.3 |
| Total derivatives | 66,625.7 | 1,513.5 | 594.2 | 57,835.5 | 2,278.1 | 626.5 |
Coventry Building Society | Annual Report & Accounts 2023 158
Notes to the accounts continued
Financial Statements
23. Derivative financial instruments continued
Hedging instruments continued
2023 | 2022 | |||||
| Notional | Fair value | Fair value | Notional | Fair value | Fair value | |
| amount | assets | liabilities | amount | assets | liabilities | |
| Society | £m | £m | £m | £m | £m | £m |
| Derivatives designated as fair value hedges: | ||||||
| Interest rate risk | 52,278.3 | 1,431.7 | 455.6 | 48,205.1 | 2,166.1 | 579.5 |
| Derivatives designated as cash flow hedges: | ||||||
| Interest rate risk | 11,143.2 | 67.6 | 109.5 | 7,129.3 | 81.5 | 31.7 |
| Other derivatives | ||||||
| Interest rate basis swaps | 1,252.1 | 8.9 | 9.4 | 549.0 | 7.1 | 6.3 |
| Total derivatives | 64,673.6 | 1,508.2 | 574.5 | 55,883.4 | 2,254.7 | 617.5 |
| Maturity | |||||
| Up to one | One to three | Three months | One to five | More than five | |
| 2023 | month | months | to one year | years | years |
| Group | £m | £m | £m | £m | £m |
| Interest rate risk: | |||||
Contract/ notional amount | 435.2 | 296.1 | 20,375.3 | 39,591.0 | 3,976.0 |
Average fixed interest rate | 1.5 % | 2.5 % | 3.8 % | 3.1 % | 3.6 % |
| Foreign exchange risk: | |||||
Contract/ notional amount | 428.0 | — | — | 1,524.1 | — |
Average fixed interest rate | 1.8 % | — | — | 2.1 % | — |
Average £/€ exchange rate | 0.9 | — | — | 0.9 | — |
| Maturity | |||||
| Up to one | One to three | Three months | One to five | More than five | |
| 2023 | month | months | to one year | years | years |
| Society | £m | £m | £m | £m | £m |
| Interest rate risk: | |||||
Contract/ notional amount | 435.2 | 296.1 | 20,375.3 | 39,591.0 | 3,976.0 |
Average fixed interest rate | 1.5 % | 2.5 % | 3.8 % | 3.1 % | 3.6 % |
Coventry Building Society | Annual Report & Accounts 2023 159
Notes to the accounts continued
Financial Statements
23. Derivative financial instruments continued
Hedging instruments continued
| Maturity | |||||
| Up to one | One to three | Three months | One to five | More than five | |
| 2022 | month | months | to one year | years | years |
| Group | £m | £m | £m | £m | £m |
| Interest rate risk: | |||||
Contract/ notional amount | 1,198.6 | 1,547.8 | 18,129.0 | 31,354.4 | 3,853.7 |
Average fixed interest rate | 1.0 % | 0.4 % | 1.7 % | 1.6 % | 3.0 % |
| Foreign exchange risk: | |||||
Contract/ notional amount | — | — | — | 1,306.7 | 645.4 |
Average fixed interest rate | — | — | — | 2.6 % | 1.0 % |
Average £/€ exchange rate | — | — | — | 0.90 | 0.90 |
| Maturity | |||||
| Up to one | One to three | Three months | One to five | More than five | |
| 2022 | month | months | to one year | years | years |
| Society | £m | £m | £m | £m | £m |
| Interest rate risk: | |||||
Contract/ notional amount | 1,198.6 | 1,547.8 | 18,129.0 | 31,354.4 | 3,853.7 |
Average fixed interest rate | 1.0 % | 0.4 % | 1.7 % | 1.6 % | 3.0 % |
| Accumulated amount of fair | ||||
| Carrying amount of hedged | value adjustments on the | |||
| item | hedged item | |||
| 2023 | Assets | Liabilities | Assets | Liabilities |
| Group and Society | £m | £m | £m | £m |
| Fair value hedges: | ||||
| Interest rate | 44,048.4 | (23,740.7) | (467.6) | 68.1 |
| Accumulated amount of fair | ||||
| Carrying amount of hedged | value adjustments on the | |||
| item | hedged item | |||
| 2022 | Assets | Liabilities | Assets | Liabilities |
| Group and Society | £m | £m | £m | £m |
| Fair value hedges: | ||||
| Interest rate | 41,740.2 | (18,940.5) | (1,647.8) | 452.5 |
Coventry Building Society | Annual Report & Accounts 2023 160
Notes to the accounts continued
Financial Statements
23. Derivative financial instruments continued
Hedged items continued
| Amounts reclassified from | ||||||
| Changes in Fair Value | reserves to Income Statement | |||||
| Hedged item | Hedged item | |||||
| for | Gains/(losses) | Hedged cash | for affected | Recognised in | ||
| Hedging | ineffectiveness | recognised in | flows will no | Income | Income | |
| 2023 | derivative | assessment | OCI | longer occur | Statement | Statement |
| Group | £m | £m | £m | £m | £m | £m |
| Derivatives designated as cash flow hedges: | ||||||
Foreign exchange | (32.1) | (31.7) | (31.7) | — | (45.6) | (0.4) |
Foreign exchange and interest rate | — | — | — | — | — | — |
Interest rate | 51.4 | 50.5 | 50.5 | 100.2 | — | 101.1 |
| Amounts reclassified from | ||||||
| Changes in Fair Value | reserves to Income Statement | |||||
| Hedged item | Hedged item | |||||
| for | Gains/(losses) | Hedged cash | for affected | Recognised in | ||
| Hedging | ineffectiveness | recognised in | flows will no | Income | Income | |
| 2022 | derivative | assessment | OCI | longer occur | Statement | Statement |
| Group | £m | £m | £m | £m | £m | £m |
| Derivatives designated as cash flow hedges: | ||||||
Foreign exchange | 73.5 | 73.2 | 73.2 | — | 92.1 | 0.3 |
Foreign exchange and interest rate | — | — | — | — | — | — |
Interest rate | 424.3 | 394.3 | 394.3 | 29.7 | — | 30.0 |
| Amounts reclassified from | ||||||
| Changes in Fair Value | reserves to Income Statement | |||||
| Hedged item | Hedged item | |||||
| for | Gains/(losses) | Hedged cash | for affected | Recognised in | ||
| Hedging | ineffectivene | recognised in | flows will no | Income | Income | |
| 2023 | derivative | ss assessment | OCI | longer occur | Statement | Statement |
| Society | £m | £m | £m | £m | £m | £m |
| Derivatives designated as cash flow hedges: | ||||||
Interest rate | 51.4 | 50.5 | 50.5 | 100.2 | — | 101.1 |
| Amounts reclassified from | ||||||
| Changes in Fair Value | reserves to Income Statement | |||||
| Hedged item | Hedged item | |||||
| for | Gains/(losses) | Hedged cash | for affected | Recognised in | ||
| Hedging | ineffectivenes | recognised in | flows will no | Income | Income | |
| 2022 | derivative | s assessment | OCI | longer occur | Statement | Statement |
| Society | £m | £m | £m | £m | £m | £m |
| Derivatives designated as cash flow hedges: | ||||||
| Interest rate | 424.3 | 394.3 | 394.3 | 29.7 | — | 30.0 |
Coventry Building Society | Annual Report & Accounts 2023 161
Notes to the accounts continued
Financial Statements
24. Provisions for liabilities and charges
During the normal course of business, the Group receives complaints from customers in relation to past sales and ongoing
administration. The Group is also subject to enquiries from and discussions with its regulators, including the Financial
Ombudsman Service (FOS), on a range of matters.
As at 31 December 2023, £0.4 million (2022: £0.4 million) is recognised as a provision in respect of such redress matters.
The Group continues to monitor ongoing legal cases and makes assessment on potential exposure based on available
information and expected outcomes. The Group does not expect the ultimate resolution of any current complaints,
threatened or actual legal proceedings, regulatory or other matters to have a material adverse impact on its financial
position. Therefore there are no matters which require disclosure as a contingent liability at the balance sheet date.
25. Subordinated liabilities
| 2023 | 2022 | |
| Group and Society | £m | £m |
| Subordinated liabilities owed to note holders are as follows: | ||
Fixed rate subordinated notes 2032 - 7.54% | 15.4 | 15.4 |
Total | 15.4 | 15.4 |
All the subordinated liabilities are denominated in sterling and are repayable in the years stated, or earlier in accordance
with their terms at the option of the Society, subject to prior consent of the Prudential Regulation Authority (PRA).
The subordinated notes rank equally with each other and behind all other creditors of the Society and the claims of
Shareholding Members, other than holders of Permanent Interest Bearing Shares (PIBS) and Perpetual Capital Securities
(PCS), for both principal and interest.
The fixed rate subordinated notes 2032 – 7.54% can be called at the option of the Society in August 2027 in accordance with
their terms, subject to prior consent of the PRA.
| 2023 | 2022 | |
| Group and Society | £m | £m |
| Subscribed capital owed to permanent interest holding members is as follows: | ||
Permanent Interest Bearing Shares - 1992 - 12 1/8% | 41.6 | 41.6 |
Total | 41.6 | 41.6 |
Coventry Building Society | Annual Report & Accounts 2023 162
Notes to the accounts continued
Financial Statements
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Undrawn mortgage loan facilities | 20.2 | 23.1 | 20.2 | 23.1 |
| 2023 | 2022 | |
| Group and Society | £m | £m |
Capital expenditure contracted but not provided for in the accounts | 0.5 | 0.8 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Other taxation and social security | 8.3 | 5.9 | 8.3 | 5.9 |
Lease liabilities | 14.8 | 19.5 | 14.8 | 19.5 |
Other creditors | 6.1 | 5.1 | 5.9 | 5.1 |
Amounts due to connected undertakings | — | — | 1,231.0 | 647.3 |
Total | 29.2 | 30.5 | 1,260.0 | 677.8 |
| 2023 | 2022 | |
| Group and Society | £m | £m |
| Amounts falling due: | ||
Less than three months | 1.2 | 1.3 |
Greater than three months and less than one year | 3.5 | 3.8 |
Between one and five years | 8.5 | 12.0 |
After five years | 2.2 | 3.3 |
| Total | 15.4 | 20.4 |
Coventry Building Society | Annual Report & Accounts 2023 163
Financial Statements
Notes to the accounts continued
| 2023 | 2023 | 2022 | 2022 | |
| Carrying | Fair | Carrying | Fair | |
| amount | value | amount | value | |
| Group | £m | £m | £m | £m |
| Financial assets | ||||
Loans and advances to credit institutions | 787.9 | 787.8 | 622.8 | 622.8 |
| Loans and advances to customers | 50,276.1 | 48,915.1 | 48,014.3 | 45,854.5 |
Debt securities | — | — | 6.2 | 5.5 |
| Financial liabilities | ||||
| Shares | 47,582.3 | 46,497.0 | 42,288.7 | 40,713.3 |
Deposits from banks | 5,230.7 | 5,230.4 | 7,542.9 | 7,542.8 |
Other deposits | — | — | 5.0 | 5.0 |
Amounts owed to other customers | 237.3 | 237.4 | 416.1 | 415.9 |
Debt securities in issue | 5,377.5 | 5,221.3 | 5,243.2 | 4,935.8 |
Subordinated liabilities | 15.4 | 20.2 | 15.4 | 17.5 |
Subscribed capital | 41.6 | 66.1 | 41.6 | 62.5 |
Coventry Building Society | Annual Report & Accounts 2023 164
Notes to the accounts continued
Financial Statements
30. Financial instruments – fair value of financial assets and liabilities
continued
Fair value of assets held at amortised cost continued
| 2023 | Level 1 | Level 2 | Level 3 | Total |
| Group | £m | £m | £m | £m |
| Financial assets | ||||
| Derivative financial instruments: | ||||
Interest rate swaps | — | 1,508.2 | — | 1,508.2 |
Cross currency swaps | — | 5.3 | — | 5.3 |
Total | — | 1,513.5 | — | 1,513.5 |
| Debt securities: | ||||
UK Government investment securities | 782.7 | — | — | 782.7 |
Other listed transferable debt securities | 627.1 | 154.4 | — | 781.5 |
Total | 1,409.8 | 154.4 | — | 1,564.2 |
| Investment in equity shares: | ||||
Investment in equity shares | 0.8 | — | 6.0 | 6.8 |
Total | 0.8 | — | 6.0 | 6.8 |
| Financial liabilities | ||||
| Derivative financial instruments: | ||||
Interest rate swaps | — | 572.9 | 1.6 | 574.5 |
Cross currency swaps | — | 19.7 | — | 19.7 |
Total | — | 592.6 | 1.6 | 594.2 |
Coventry Building Society | Annual Report & Accounts 2023 165
Notes to the accounts continued
Financial Statements
30. Financial instruments – fair value of financial assets and liabilities
continued
Fair value of assets held at fair value continued
| 2022 | Level 1 | Level 2 | Level 3 | Total |
| Group | £m | £m | £m | £m |
| Financial assets | ||||
| Derivative financial instruments: | ||||
Interest rate swaps | — | 2,254.7 | — | 2,254.7 |
Cross currency swaps | — | 23.4 | — | 23.4 |
Total | — | 2,278.1 | — | 2,278.1 |
| Debt securities: | ||||
UK Government investment securities | 1,020.1 | — | — | 1,020.1 |
Other listed transferable debt securities | 481.8 | 86.7 | — | 568.5 |
Total | 1,501.9 | 86.7 | — | 1,588.6 |
| Investment in equity shares: | ||||
Investment in equity shares | 0.7 | — | 5.1 | 5.8 |
Total | 0.7 | — | 5.1 | 5.8 |
| Financial liabilities | ||||
| Derivative financial instruments: | ||||
Interest rate swaps | — | 616.3 | 1.3 | 617.6 |
Cross currency swaps | — | 8.9 | — | 8.9 |
Total | — | 625.2 | 1.3 | 626.5 |
Coventry Building Society | Annual Report & Accounts 2023 166
Notes to the accounts continued
Financial Statements
30. Financial instruments – fair value of financial assets and liabilities
continued
Financial instruments recorded at fair value continued
Level 3: Derivatives continued
| Derivative | Derivative | |||
| Investment in | financial | Investment in | financial | |
| equity shares | instruments | equity shares | instruments | |
| 2023 | 2023 | 2022 | 2022 | |
| Group and Society | £m | £m | £m | £m |
As at 1 January | 5.1 | (1.3) | 4.3 | (6.6) |
| Gains/(losses) recognised in the Income Statement | ||||
Interest payable and similar expense | — | — | — | (0.6) |
Net unrealised gains | 0.9 | (0.4) | 0.8 | 5.2 |
Settlements | — | 0.1 | — | 0.7 |
As at 31 December | 6.0 | (1.6) | 5.1 | (1.3) |
Coventry Building Society | Annual Report & Accounts 2023 167
Notes to the accounts continued
Financial Statements
31. Offsetting financial assets and liabilities continued
| 2023 | ||||
| Master netting | ||||
| 2022 | Gross amounts | arrangements | Financial collateral | Net amount |
| Group | £m | £m | £m | £m |
| Financial assets | ||||
Derivative financial instruments | 2,278.1 | (616.2) | (1,648.8) | 13.1 |
Reverse Repurchase Agreements | 93.8 | — | (88.2) | 5.6 |
Total financial assets | 2,371.9 | (616.2) | (1,737.0) | 18.7 |
| Financial liabilities | ||||
Derivative financial instruments | 626.5 | (616.2) | (0.6) | 9.7 |
Repurchase agreements | 345.6 | — | (340.6) | 5.0 |
Total financial liabilities | 972.1 | (616.2) | (341.2) | 14.7 |
| Master netting | Financial | |||
| 2023 | Gross amounts | arrangements | collateral | Net amount |
| Society | £m | £m | £m | £m |
| Financial assets | ||||
Derivative financial instruments | 1,508.2 | (572.9) | (925.0) | 10.3 |
Reverse Repurchase Agreements | 313.4 | — | (313.4) | — |
Total financial assets | 1,821.6 | (572.9) | (1,238.4) | 10.3 |
| Financial liabilities | ||||
Derivative financial instruments | 574.5 | (572.9) | (1.4) | 0.2 |
Repurchase agreements | 807.6 | — | (807.6) | — |
Total financial liabilities | 1,382.1 | (572.9) | (809.0) | 0.2 |
| Master netting | ||||
| 2022 | Gross amounts | arrangements | Financial collateral | Net amount |
| Society | £m | £m | £m | £m |
| Financial assets | ||||
Derivative financial instruments | 2,254.7 | (616.2) | (1,638.1) | 0.4 |
Reverse Repurchase Agreements | 93.8 | — | (88.2) | 5.6 |
Total financial assets | 2,348.5 | (616.2) | (1,726.3) | 6.0 |
| Financial liabilities | ||||
| Derivative financial instruments | 617.5 | (616.2) | (0.6) | 0.7 |
Reverse Repurchase Agreements | 345.6 | — | (340.6) | 5.0 |
Total financial liabilities | 963.1 | (616.2) | (341.2) | 5.7 |
Coventry Building Society | Annual Report & Accounts 2023 168
Notes to the accounts continued
Financial Statements
31. Offsetting financial assets and liabilities continued
32. Capital management
As at 31 December 2023, and throughout the year, the Group complied in full with the capital requirements that were in
force. Further information on the Group's capital resources and capital management can be found in the Capital section of
the Risk Management Report.
| 2023 | 2022 | |
| £m | £m | |
| Loans payable to the Society | ||
Loans outstanding as at 1 January | 17,871.7 | 17,544.7 |
Movement during the year | (204.0) | 327.0 |
Loans outstanding as at 31 December | 17,667.7 | 17,871.7 |
| Loans and deposits payable by the Society | ||
Deposits outstanding at 1 January | 647.3 | 783.0 |
| Movement during the year | 583.7 | (135.7) |
Deposits outstanding at 31 December | 1,231.0 | 647.3 |
| Net interest income | ||
Interest receivable | 470.5 | 292.3 |
Interest payable | (67.9) | (16.3) |
Total | 402.6 | 276.0 |
| Other income and expenses | ||
Fees and expenses paid to the Society | 54.2 | 45.9 |
Coventry Building Society | Annual Report & Accounts 2023 169
Notes to the accounts continued
Financial Statements
33. Related party transactions (continued)
| No. of directors | Amounts in | No. of directors | Amounts in | |
| and connected | relation to | and connected | relation to | |
| persons | directors and | persons | directors and | |
| connected persons | connected persons | |||
| 2023 | 2023 | 2022 | 2022 | |
| Number | £m | Number | £m | |
| Loans and advances | ||||
Net movement | — | — | — | (0.1) |
Balance outstanding | 2 | 0.4 | 2 | 0.4 |
| Share and deposit accounts | ||||
Net movement | (4) | (0.7) | (4) | 0.4 |
Balance outstanding | 12 | 0.4 | 16 | 1.1 |
34. Cash flows from financing activities
For the purposes of the Statements of Cash Flows, debt securities in issue, subordinated liabilities and subscribed capital
are classified as liabilities arising from financing activities. The table below provides a reconciliation of movements in
liabilities arising from financing activities.
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
At 1 January | 5,300.2 | 5,309.2 | 4,606.5 | 4,475.5 |
| Cash flows: | ||||
Net proceeds from issue of debt securities | 1,887.0 | 434.3 | 1,036.8 | 434.4 |
Repayment of debt securities in issue | (1,713.1) | (540.0) | (1,450.0) | (400.0) |
Repurchase of subordinated liabilities | — | — | — | — |
| Non-cash flows: | ||||
Amortisation of premium/ discount on issue | 3.9 | 4.7 | 4.0 | 4.9 |
Accrued interest movements | 2.0 | 2.7 | 1.6 | 2.4 |
Foreign exchange movements | (45.5) | 89.3 | (45.5) | 89.3 |
At 31 December | 5,434.5 | 5,300.2 | 4,153.4 | 4,606.5 |
Coventry Building Society | Annual Report & Accounts 2023 170
Notes to the accounts continued
Financial Statements
Coventry Building Society | Annual Report & Accounts 2023 171
Other Information
Other Information
In this section, you will find
our Annual Business Statement
and glossary of terms
Annual Business Statement 172
Glossary 174
For the year ended 31 December 2023
1. Statutory percentages
2023 2022 Statutory
limits
% % %
Lending limit 2.3 1.6 25.0
Funding limit 17.6 23.4 50.0
The above percentages have been calculated in accordance with the provisions of the Building Societies Act 1986 as
amended by the Building Societies Act 1997.
The lending limit measures the proportion of the business assets not in the form of loans fully secured on residential
property and is calculated as (X-Y)/X where:
X = business assets, being the total assets of the Group plus loan impairment less liquid assets, intangible assets and
property, plant and equipment. The value of X used is the value at 31 December 2023.
Y = the principal value of, and interest accrued on, loans owed to the Group which are fully secured on residential
property. The value of Y used is the value at 31 December 2023.
The funding limit measures the proportion of shares and borrowings not in the form of shares held by individuals and is
calculated as (X-Y)/X where:
X = shares and borrowings, being the aggregate of:
I. The principal value of, and interest accrued on, shares in the Society.
II. The principal value of, and interest accrued on, the amounts deposited with the Society or any subsidiary undertaking,
by banks, credit institutions and other customers.
III. The principal value of, and interest accrued on, the amounts of debt securities of the Society or any subsidiary
undertaking.
Y = the principal value of, and interest accrued on, shares in the Society held by individuals other than bare trustees (or, in
Scotland, simple trustees) for bodies corporate or for persons that include bodies corporate.
2. Other percentages
2023
%
2022
%
As a percentage of shares and borrowings:
Gross capital 5.65 5.46
Free capital 5.48 5.27
Liquid assets 18.7 18.2
As a percentage of mean total assets:
Profit for the financial year 0.58 0.50
Management expenses 0.51 0.52
Net profit as a percentage of total Balance Sheet 0.56 0.49
Shares and borrowings represents the total of shares, deposits from banks, other deposits, amounts owed to other
customers and debt securities in issue.
Gross capital represents the aggregate of reserves, other equity instruments, subordinated liabilities and subscribed
capital.
Free capital represents the aggregate of gross capital and collective impairment less intangible assets and property, plant
and equipment.
Coventry Building Society | Annual Report & Accounts 2023 172
Annual Business Statement
Other Information
3. Principal Office
Principal Office is: Coventry House, Harry Weston Road, Binley, Coventry CV3 2TQ .
4. Information relating to directors at 31 December 2023:
Name (Date of birth) Occupation Other directorships and appointments
Date of appointment
as a director of the
Society
Iraj Amiri, BSc, MSc, ACA Non-Executive
Director
Development Bank of Wales plc 28.06.2018
(20.02.1954) AON UK Limited
Stephen Hughes, CIMA Building Society Godiva Mortgages Limited
20.04.2020
(05.05.1972) Chief Executive ITL Mortgages Limited
BSA Council
The Money and Pension Service
The Pennies Foundation
Joanne Kenrick, LLB
Non-Executive
Director
Dwr Cymru Cyfyngedig 06.11.2017
(21.09.1966) Glas Cymru Holdings Cyfyngedig
Global Charities
Global Charities (Trading) Limited
Rhapsody Court Freehold Limited
Sirius Real Estate Ltd
Vitality Health Limited
Shamira Mohammed, ACA
Non-Executive
Director
Pezula Limited 01.05.2019
(17.11.1968)
Vanessa Murden Non-Executive None 23.01.2023
(19.12.1969) Director
Brendan O’Connor, MBA
Non-Executive
Director
Ford Credit Europe Bank plc 18.01.2021
(21.06.1965)
Lee Raybould, FCCA Building Society Godiva Mortgages Limited 06.04.2021
(05.03.1973) Chief Financial Officer ITL Mortgages Limited
Arkose Funding Limited
Martin Stewart, MEng
Non-Executive
Director
Clayton Stewart Properties Limited 01.09.2018
(08.09.1966) Clayton Stewart Limited
Northern Bank Limited
David Thorburn, LLB, MCIBS
Non-Executive
Director
EY UK LLP 28.04.2022
(09.01.1958) Chartered Bank Institute 2025 Foundation
Foundation for Governance Research and
Education
Documents may be served on the above named directors at: Coventry Building Society, c/o PwC LLP, One Chamberlain
Square, Birmingham, B3 3AX.
The Society has entered into service contracts with the following directors: Stephen Hughes (Chief Executive); and Lee
Raybould (Chief Financial Officer). These are terminable by the individual on six months’ notice and by the Society on one
year’s notice.
Coventry Building Society | Annual Report & Accounts 2023 173
Annual Business Statement continued
Other Information
Alternative Performance Measures
The Society reports its results using a number of financial measures which are not driven by accounting standards (non-IFRS
measures). These measures are used to understand our performance and are used internally when assessing the Society's
results.
Glossary
The following glossary defines terminology within the Annual Report & Accounts to assist the reader and to facilitate
comparison with publications by other institutions:
Additional Tier 1 (AT 1) capital
Capital that meets certain criteria set out in CRD IV. In particular, the criteria
require that upon the occurrence of a trigger event, the AT 1 capital instrument
converts to a form of Common Equity Tier 1 capital or the principal is written
down on a permanent basis; or grandfathered instruments such as Permanent
Interest Bearing Shares (PIBS).
Arrears
The financial value of unpaid obligations, which arise when contractual payments
are not paid as they fall due.
Basel 3.1
The Basel Committee's final implementation of its Basel III Banking Supervision
reforms, published in December 2017, addressing credit risk and operational risk.
The proposal will update the risk weighted asset calculation and improve
comparability across firms and is effective from July 2025.
Basis point
One hundredth of a percent (0.01 percent). Used when quoting movements in
interest rates and yields on securities.
Buy to let mortgage A mortgage secured on a residential property that is rented out to tenants.
Capital Conservation Buffer (CCoB)
A CRD V risk adjusted capital requirement for all banks that can be used to
absorb losses whilst avoiding breaching minimum capital requirements.
Capital requirements
Amount of capital required to be held by the Group to cover the risk of losses
and to protect against excessive leverage. The level is set by regulators and the
firm’s own assessment of its risk profile.
Capital Requirements Regulation and
Capital Requirements Directive V
(CRD V)
CRD V is the European Union legislation (part regulation and part directive)
which came into force to implement Basel III, revising the capital requirements
framework and introducing liquidity requirements, which regulators use when
supervising firms.
Capital resources
Capital comprising the general reserve, fair value through other comprehensive
income reserve, eligible Additional Tier 1 capital less all required regulatory
adjustments.
Collateral Security pledged by the borrower to the lender in case of default.
Coventry Building Society | Annual Report & Accounts 2023 174
Measure Definition Calculation
Cost to income ratio A measure of costs relative to income more
generally used by banks. Unlike cost to mean asset
ratio, this ratio will be impacted by significant
changes in interest rates or widening margins.
Administrative expenses, depreciation and
amortisation as a percentage of total income.
Cost to mean asset
ratio
A measure of cost efficiency through the ratio of
the Society's operating expenses in relation to its
balance sheet assets. This ratio is not impacted by
changes in interest rates and as such, aids
comparability of the Society's efficiency in times of
significant interest rate changes.
Administrative expenses, depreciation and
amortisation as a percentage of average total
assets.
Member value This measure is widely used across the building
society sector.
The Society’s average month end savings rate
compared to the CACI savings database for
market average rate for savings accounts,
excluding current accounts and offset savings.
Net interest margin A measure of profitability which is used throughout
the building society sector.
Net interest income as a percentage of average
total assets. Net interest income is the
difference between interest receivable on
assets and interest payable on liabilities.
Glossary
Other Information
Common Equity Tier 1 (CET 1)
Common Equity Tier 1 capital comprises general reserve and the fair value
through other comprehensive income reserve, less regulatory deductions.
Common Equity Tier 1 must absorb losses on a going concern basis. The CET 1
ratio is calculated as CET 1 capital as a percentage of risk weighted assets.
Conduct risk
The risk that the Society’s behaviour and decision making fails to deliver good
customer outcomes.
Contractual maturity
The date in the terms of a financial instrument on which the last payment or
receipt under the contract is due for settlement.
Core Capital Deferred Shares (CCDS)
A form of Common Equity Tier 1 (CET 1) capital. The Society’s Perpetual Capital
Securities (PCS) convert into CCDS.
Countercyclical Buffer (CCyB)
A CRD V risk adjusted capital requirement for all banks that is varied over the
financial cycle to match the resilience of the banking system to the scale of risks
faced.
Countercyclical Leverage Buffer
(CCLB)
A leverage capital requirement under the UK leverage regime that is set at 35%
of the corresponding risk adjusted Countercyclical Buffer (CCyB).
Covered bonds
Debt securities that are backed by both the resources of the issuer and a
portfolio of mortgages that are segregated from the issuer’s other assets solely
for the benefit of the holders of the covered bonds. The Society issues covered
bonds as part of its funding activities.
Credit risk
The risk that borrowers or counterparties do not meet their financial obligations
to the Society as they fall due. Within this class, the Society considers risks
arising from retail credit risk and treasury credit risk to be individual principal
risk categories.
Credit valuation adjustment
An adjustment to the valuation of financial instruments held at fair value to
reflect the creditworthiness of the counterparty.
Debt securities
Transferable instruments creating or acknowledging indebtedness of credit
institutions, public bodies or other undertakings.
Debt securities in issue
Liabilities of the Group that are transferable by external investors that operate
within the global financial markets.
Defined benefit obligation
The present value of expected future payments required to settle the obligations
of a defined benefit pension scheme resulting from past employee service.
Derivative financial instrument
(swap)
A contract or agreement which derives its value or cash flows from changes in an
underlying index such as an interest rate, foreign exchange rate or market index.
The most common type of derivative instruments are interest rate swaps.
Effective Interest Rate (EIR)
The rate of interest earned over the life of an instrument that is equivalent to
the discounted rate of projected cash flows of the instrument, adjusted for
compounding.
Encumbered assets
Assets used to secure liabilities or otherwise pledged. This excludes loans and
advances to customers that, although technically encumbered, are held in
respect of undrawn self-issued notes under the Group’s covered bond and
securitisation programmes.
Enterprise Risk Management
Framework (ERMF)
A Board approved framework which provides the context, guidance and
principles needed for cohesive risk management activity across the Society and
its subsidiaries.
Economic Value
Measure of the change in the net present value of interest rate sensitive
instruments over their remaining life resulting from a 100 basis points (1%)
(EV100), or 200 basis points (2%) (EV200) parallel shock to the yield curve.
Expected credit loss (ECL)
The present value of all cash shortfalls over the expected life of a financial
instrument. The term is used for the accounting for impairment provisions under
the IFRS 9 standard. ECLs may arise over a 12 month or lifetime basis.
Expected loss
A calculation under the IRB approach to estimate the potential losses on current
exposures due to expected defaults over a 12 month time period.
Exposure The quantified potential for loss that might occur as a result of a risk occurring.
Exposure at default (EAD) A calculation of the amount expected to be outstanding at the time of default.
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Other Information
Fair value
The price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date in
the principal or, in its absence, the most advantageous market to which the
Group has access at that date.
Fair value through other
comprehensive income (FVOCI)
Financial assets held at fair value on the Balance Sheet with changes on the fair
value recognised through other comprehensive income.
Fair value through profit and loss
(FVTPL)
Financial assets held at fair value on the Balance Sheet with changes in fair value
being recognised through the Income Statement.
Financial Conduct Authority (FCA)
A statutory body responsible for the conduct of business regulation and
supervision of UK financial institutions in the UK.
Financial Ombudsman Service
The Financial Ombudsman Service provides an independent and impartial service
to resolve individual complaints that consumers and financial institutions have
been unable to settle themselves.
Forbearance
Forbearance takes place when a concession, which can be temporary or
permanent, is made on the contractual terms of a loan in response to the
borrower’s financial difficulties.
Free capital
The aggregate of gross capital and collective impairment less intangible assets
and property, plant and equipment.
General reserve
The general reserve is the accumulation of historical and current year profits and
includes remeasurements of the defined benefit pension scheme and
distributions to holders of Perpetual Capital Securities (net of tax).
Gross capital
The aggregate of reserves, other equity instruments, subscribed capital and
subordinated liabilities.
Impaired loans Impaired loans are defined as those which are defaulted loans in IFRS 9 stage 3.
Interest rate risk
Interest rate risk arises from the different interest rate characteristics of the
Society’s mortgages and savings products and from other financial instruments.
The Society is subject to the risk that changes in interest rates will cause
material variations in earnings because of differences between interest rates
received and paid on mortgages, deposits and financial instruments.
Internal Capital Adequacy
Assessment Process (ICAAP)
The Society’s own assessment of the amount of capital that it needs to hold to
support all relevant current and future risks. This assessment includes
determination of a number of capital buffers to be held in case of potential
future economic stress, and provides confirmation that the Society has
appropriate processes in place to ensure compliance with regulatory
requirements.
Internal Liquidity Adequacy
Assessment Process (ILAAP)
The Society’s own assessment of the liquidity resources that are required to
remain within the risk tolerances it has set. This will include an evaluation of
potential stresses based on regulatory benchmarks and on Society-specific tests.
Internal Ratings Based (IRB) approach
An advanced approach to measuring capital requirements in respect of credit risk
under Pillar 1. The IRB approach may only be used with permission from the PRA.
ISDA
International Swaps and Derivatives Association is the global trade association for
over-the-counter derivatives and providers of the industry-standard
documentation for derivative transactions.
Leverage ratio
A calculation as part of CRD V which measures the relationship between eligible
Tier 1 capital and exposures to on and off-balance sheet items. UK institutions
are subject to the PRA's interpretation of the leverage ratio - see UK leverage
ratio
Liquid assets
This comprises cash in hand, balances with the Bank of England, debt securities
(including Government investment securities (gilts)), loans to credit institutions
and other liquid assets.
Liquidity and funding risk
Liquidity risk is the risk that the Society has insufficient funds to meet its
obligations as and when they fall due. Funding risk is the inability to access
funding markets or to only do so at excessive cost and/or liquidity risk. Liquidity
and funding risk are the principal risk of the Society.
Liquidity Coverage Ratio (LCR)
A measure which is part of CRD V which aims to ensure that an entity maintains
an adequate level of liquidity to meet its needs for a 30 day period under severe
stress conditions.
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Loan to value (LTV)
The amount of mortgage loan as a percentage of the value of the property.
Average loan to value is either a simple average, or balance weighted. Indexed
loan to value is calculated on the basis of the latest property valuation being
adjusted by the relevant house price index movement since that date.
Loss given default (LGD)
A parameter used to estimate the difference between exposure at default (EAD)
and the net amount of the expected recovery expressed as a percentage of EAD.
Management expenses The aggregate of administrative expenses, depreciation and amortisation.
Market risk
Market risk is defined as the risk of a reduction in Society earnings and/or value
resulting from adverse movements in financial markets.
Medium term notes
Securities offered by a company to investors, through a dealer, across a range of
maturity periods.
Member
A person or individual who holds a share in the Society or has a mortgage loan with
the Society.
Minimum Requirement for own funds
and Eligible Liabilities (MREL)
A requirement under the Bank Recovery and Resolution Directive which requires
deposit takers to hold minimum levels of capital plus debt eligible for bail-in.
Model risk
The risk that an ineffective model or incorrectly interpreted model output leads
to a loss, reputational damage or regulatory censure.
Mortgage backed securities (RMBS)
Asset backed securities that represent interests in a group of mortgages which give
the investor the right to cash received from future mortgage payments of both
principal and interest. These can also be known as Residential mortgage backed
securities (RMBS) where the underlying security is a residential mortgage.
Net interest income
The difference between interest receivable on assets and similar income and
interest paid on liabilities and similar charges.
Net interest margin Net interest income as a percentage of average total assets.
Net Stable Funding Ratio (NSFR)
A ratio which assesses the amount of stable funding in place as a proportion of
the on and off-balance sheet funding requirements of an institution. The
requirement is still to be formally implemented.
Operational risk
The risk of loss arising from inadequate internal processes, systems or people, or
from external events.
Owner-occupier mortgage A mortgage on residential property that is to be occupied by the borrower.
Past due
A financial asset such as a loan is past due when the counterparty has failed to
make a payment when contractually due.
Permanent Interest Bearing Shares
(PIBS)
Unsecured, perpetual deferred shares of the Society offering a fixed coupon. Also
defined as subscribed capital.
Perpetual Capital Securities (PCS)
Securities that pay a non-cumulative coupon at the discretion of the Society and
qualify as Additional Tier 1 capital.
Pillar 1/2/2A/3
Components of the Basel capital framework. Pillar 1 covers the minimum
requirement, Pillar 2 covers capital requirement of risks not covered in Pillar 1
and Pillar 3 covers disclosures.
PRA buffer
A buffer to ensure that banks that are more at risk of loss than the system in
aggregate have additional capital buffers to reflect that risk.
Post Model Adjustment (PMA)
A PMA is applied when the Society considers that a modelled output is not
sufficiently accurate or complete due to there being potential for additional risks
that have not been identified or that cannot be adequately modelled.
Probability of default (PD)
An estimate of the probability that a borrower will default on their credit
obligations over a fixed time period. With respect to impairment provisions under
IFRS 9, 12 month ECLs use 12 month PDs, whilst a lifetime ECL uses the
estimated PD over the remaining contractual life of the loan.
Principal risk
Principal risk is a class of significant inherent risk which could materially
compromise the Society’s ability to grow and provide attractive products to
savings and borrowing members.
Prudential Regulation Authority
(PRA)
The statutory body responsible for the prudential regulation and supervision of
banks, building societies, credit unions, insurers and major investment firms. The
PRA is a subsidiary of the Bank of England.
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Other Information
Retail deposits See Shares.
Reverse stress test
A regulatory stress test that requires a firm to assess scenarios and circumstances
that would render its business model unviable, thereby identifying potential
business vulnerabilities.
Risk appetite
An articulation of the level of risk that the Society is willing to accept in order to
safeguard the interests of the Society’s members, whilst also achieving its
business objectives.
Risk weighted assets (RWAs)
The value of assets, after adjustment to reflect the degree of risk they represent
in accordance with the relevant capital rules.
Sale and repurchase agreement
(repo)
An agreement to sell a financial security together with a commitment by the
seller to repurchase the asset at a specified price on a given date. In substance,
this forms a secured loan, with the difference between the purchase price and
repurchase price being the interest rate.
Securitisation
A pool of loans used to back the issuance of new securities. The loans are
transferred to a structured entity which then issues securities (RMBS) backed by
the assets. The Group has used residential mortgages as the loan pool for
securitisation purposes.
Shares
Funds deposited by a person in a retail savings account with the Society. Such
funds are recorded as liabilities of the Society. These are also referred to as
retail deposits.
Shares and borrowings
The total of shares, deposits from banks, other deposits, amounts due to
customers and debt securities in issue.
Significant increase in credit risk
(SICR)
A significant increase in credit risk on a financial asset is judged to have occurred
when an assessment, using quantitative and qualitative factors, identifies at a
reporting date that the credit risk has increased significantly since the asset was
originally recognised.
SONIA (Sterling Overnight Interbank
Average)
A rate reflecting actual overnight funding rates, at a weighted average overnight
deposit rate for each day.
Stage 1
Assets that under IFRS 9 have not experienced a significant increase in credit risk
since the asset was originally recognised on the Balance Sheet are classed as
stage 1.
Stage 2
Assets that have experienced a significant increase in credit risk since initial
recognition under IFRS 9 are classed as stage 2.
Stage 3
Assets identified as in default and considered credit impaired under IFRS 9 are
classed as stage 3.
Standardised approach
The basic method used to calculate capital requirements for credit and
operational risk.
In this approach, the risk weighting used in the capital calculation is determined
by specified percentages.
Strategic risk
Strategic risk is the risk that changes to business model or macroeconomic,
geopolitical, regulatory or other factors may lead to the business model, strategy
or Strategic Plan becoming inappropriate. This includes the risk of an overly
ambitious Strategic Plan as well as unforeseen market, consumer, competitor or
regulatory changes.
Stress testing
Testing undertaken to provide an understanding of the Society’s resilience to
internal and external shocks.
Structured entity
An entity in which voting or similar rights are not the dominant factor in deciding
control.
Structured entities are consolidated when the substance of the relationship
indicates control.
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Other Information
Subordinated liabilities
A form of Tier 2 capital that is unsecured. Subordinated notes rank equally with
each other and behind all other creditors of the Society and the claims of
Shareholding Members (other than holders of Permanent Interest Bearing Shares
and Perpetual Capital Securities) as to principal and interest.
Subscribed capital See Permanent Interest Bearing Shares.
Systemic Risk Buffer (SRB)
Buffer set for ring-fenced banks and large building societies to reduce their
probability of failure or distress commensurately with the greater cost their
failure or distress would have for the UK economy.
Term Funding Scheme with
additional incentives for SMEs
(TFSME)
A scheme (now closed to new drawings) launched by the Bank of England
designed to boost lending to households and businesses by providing term funding
to banks and building societies participating in the scheme at rates close to Bank
Rate.
Tier 1 capital
A component of regulatory capital comprising Common Equity Tier 1 and
Additional Tier 1 capital.
Tier 2 capital
A component of regulatory capital comprising qualifying subordinated debt and
eligible collective impairment allowances.
Total Capital Requirement (TCR)
The minimum amount of capital the Society should hold as set by the PRA under
Pillar 1 and Pillar 2A and informed by the Internal Capital Adequacy Assessment
Process (ICAAP).
UK leverage ratio
A ratio prescribed by the PRA based on the CRR leverage ratio but modified to
restrict the amount of AT 1 capital that can be included in Tier 1 capital and to
exclude eligible central bank holdings from leverage ratio exposures.
Unencumbered assets
Assets readily available as collateral to secure funding. This includes loans and
advances to customers that, although technically encumbered, are held in
respect of undrawn self-issued notes under the Group’s covered bond and
securitisation programmes and are therefore readily available as collateral to
secure funding or to pledge as collateral against margin calls.
Wholesale funding
Funding received from external counterparties that operate within the global
financial markets (for example, insurance companies, pension funds, large
businesses, financial institutions and sovereign entities).
Write off
To write off a financial asset when it has exhausted all practical recovery efforts
and it is concluded that there is no reasonable expectation of recovery.
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Glossary of terms used in reference to climate risk
Climate Biennial Exploratory Scenario
exercise (CBES)
Bank of England initiative to explore the financial risks posed by climate
change. The exercise will test the resilience of the current business models of
the largest banks, insurers and the financial system to climate-related risks and
therefore the scale of adjustment that will need to be undertaken in coming
decades for the system to remain resilient.
Climate-related risks - physical
The physical risks arising from the direct physical impacts of climate change.
Physical risks from climate change arise from a number of factors, and relate to
specific weather events (such as heatwaves, floods and storms) and longer-term
shifts in the climate (such as changes in precipitation, extreme weather
variability, sea level rise and rising mean temperatures).
Climate-related risks - transition
The transition risks arising from the transition to a low-carbon economy.
Transition risks arise from the process of adjustment towards a Net-Zero Carbon
economy. The UK Government has set a target of achieving Net Zero
greenhouse gas emissions by 2050 to respond to the challenge climate change
poses. A range of factors influence this risk, including: climate-related
developments in policy and regulation, the emergence of disruptive technology
or business models, shifting sentiment and societal preferences and the
potential for 'stranded assets' to be created.
Climate-related opportunities
Refers to the potential positive impacts that climate change may have on the
Society’s business model and the opportunities this may present, for example,
by growing our lending by supporting borrowers who make energy efficiency
improvements on their homes.
Energy Performance Certificate (EPC)
A report that assesses the energy efficiency of a property and recommends
specific ways in which the efficiency of a property could be improved.
Certification is graded from A (most efficient) to G (least efficient).
Greenhouse gas (GHG) emissions
GHGs are atmospheric gases that absorb and emit radiation within the thermal
infrared range and that contribute to the greenhouse effect and global climate
change. Many different GHGs are produced as a result of human activities. The
seven gases mandated under the Kyoto Protocol and to be included in national
inventories under the United Nations Framework Convention on Climate Change
(UNFCCC) - carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O),
hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF)
and nitrogen trifluoride (NF3)
ISO 14064-1 certification
An international standard that quantifies the reporting of greenhouse gas (GHG)
emissions and the verification.
Partnership for Carbon Accounting
Financial (PCAF)
Global partnership of financial institutions that work together to develop and
implement a harmonised approach to assess and disclose the greenhouse gas
emissions associated with their loans and investments.
Representative Concentration Pathway
(RCP)
A method for capturing assumptions about climate change and global mean
temperature increases over the 21st century. Each pathway results in a
different range of global mean temperature, which helps the Society to
understand how its assets will perform under a range of scenarios.
Scope 1 emissions
Scope 1 emissions are direct greenhouse gas (GHG) emissions that occur from
our own operations (e.g. our company vehicles, gas usage & fugitive emissions).
Scope 2 emissions
Scope 2 emissions are indirect GHG emissions associated with the purchase of
our electricity.
Scope 3 emissions
Scope 3 emissions are the result of activities from assets not owned or
controlled by the Society, but that the Society indirectly impacts in its value
chain. Scope 3 emissions include all sources not within an organisation's Scope 1
and 2 boundary and can be separated into the following two categories:
• Upstream Scope 3 emissions: business travel by means not owned or
controlled by the Society, waste disposal and purchased goods & services;
• Downstream Scope 3 emissions: the emissions from the properties financed
through the Society’s operations – i.e. our mortgage customers
Task Force for Climate Related
Financial Disclosures (TCFD)
The Financial Stability Board created the TCFD to improve the quality and
quantity of reporting of climate related financial information, including the
concentration of carbon related assets within the financial sector and the
financial system's exposure to climate related risks.
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Other Information
Glossary continued
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