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Approved by the Board of Directors on 3 December 2024
Signed of behalf of the Board of Directors.
N S Terrington R J Woodman
Chief Executive Chief Financial Officer
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"dimensions": { "concept": "ifrs-full:DecreaseIncreaseThroughTaxOnSharebasedPaymentTransactions", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-329": { "value": "-12700000", "decimals": -5, "dimensions": { "concept": "ifrs-full:ChangesInEquity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:IssuedCapitalMember", "unit": "iso4217:GBP" } }, "fact-330": { "value": "300000", "decimals": -5, "dimensions": { "concept": "ifrs-full:ChangesInEquity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:SharePremiumMember", "unit": "iso4217:GBP" } }, "fact-331": { "value": "-58900000", "decimals": -5, "dimensions": { "concept": "ifrs-full:ChangesInEquity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:CapitalRedemptionReserveMember", "unit": "iso4217:GBP" } }, "fact-332": { "value": "0", "decimals": -5, "dimensions": { "concept": "ifrs-full:ChangesInEquity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:MergerReserveMember", "unit": "iso4217:GBP" } }, "fact-333": { "value": "92200000", "decimals": -5, "dimensions": { "concept": "ifrs-full:ChangesInEquity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:RetainedEarningsMember", "unit": "iso4217:GBP" } }, "fact-334": { "value": "-27600000", "decimals": -5, "dimensions": { "concept": "ifrs-full:ChangesInEquity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": 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"ifrs-full:ComponentsOfEquityAxis": "ifrs-full:CapitalRedemptionReserveMember", "unit": "iso4217:GBP" } }, "fact-339": { "value": "-70200000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:MergerReserveMember", "unit": "iso4217:GBP" } }, "fact-340": { "value": "1151200000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:RetainedEarningsMember", "unit": "iso4217:GBP" } }, "fact-341": { "value": "-48000000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:TreasurySharesMember", "unit": "iso4217:GBP" } }, "fact-342": { "value": "1417300000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-343": { "value": "228700000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:IssuedCapitalMember", "unit": "iso4217:GBP" } }, "fact-344": { "value": "71400000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:SharePremiumMember", "unit": "iso4217:GBP" } }, "fact-345": { "value": "12900000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:CapitalRedemptionReserveMember", "unit": "iso4217:GBP" } }, "fact-346": { "value": "-70200000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:MergerReserveMember", "unit": "iso4217:GBP" } }, "fact-347": { "value": "1243400000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:RetainedEarningsMember", "unit": "iso4217:GBP" } }, "fact-348": { "value": "-75600000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:TreasurySharesMember", "unit": "iso4217:GBP" } }, "fact-349": { "value": "1410600000", "decimals": -5, "dimensions": { "concept": "ifrs-full:Equity", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-354": { "value": "
1. General information
Paragon Banking Group PLC (the \u2018Company\u2019) is a company domiciled in the United Kingdom and incorporated in England and Wales
under the Companies Act 2006 with company number 2336032. The Company controls a number of subsidiary entities and presents
financial statements on a consolidated basis for the Company and all its subsidiaries (together the \u2018Group\u2019). The address of the
Company\u2019s registered office is 51 Homer Road, Solihull, West Midlands, B91 3QJ. The nature of the Group\u2019s operations and its principal
activities are set out in the Strategic Report in Section A2.
These financial statements are presented in pounds sterling, which is the currency of the economic environment in which the
Group operates.
The remaining notes to the accounts are organised into four sections:
\u2022 Analysis \u2013 providing further analysis and information on the amounts shown in the primary financial statements
\u2022 Employment Costs \u2013 providing information on employee and key management remuneration arrangements including share
schemes and pension arrangements
\u2022 Capital and Financial Risk \u2013 providing information on the Group\u2019s management of operational and regulatory capital and its
principal financial risks
\u2022 Basis of preparation \u2013 providing details of the Group\u2019s accounting policies and of how they have been applied in the preparation of
the financial statements
", "dimensions": { "concept": "ifrs-full:DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-2": { "value": "Paragon Banking Group PLC", "dimensions": { "concept": "ifrs-full:NameOfReportingEntityOrOtherMeansOfIdentification", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-350": { "value": "Paragon Banking Group PLC", "dimensions": { "concept": "ifrs-full:NameOfParentEntity", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-352": { "value": "Paragon Banking Group PLC", "dimensions": { "concept": "ifrs-full:NameOfUltimateParentOfGroup", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-351": { "value": "PLC", "dimensions": { "concept": "ifrs-full:LegalFormOfEntity", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-3": { "value": "United Kingdom", "dimensions": { "concept": "ifrs-full:DomicileOfEntity", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-4": { "value": "England and Wales", "dimensions": { "concept": "ifrs-full:CountryOfIncorporation", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-5": { "value": "51 Homer Road, Solihull, West Midlands, B91 3QJ", "dimensions": { "concept": "ifrs-full:AddressOfRegisteredOfficeOfEntity", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-355": { "value": "
2. Segmental information
The Group analyses its operations, both for internal management reporting and external financial reporting, on the basis of the
markets from which its assets are generated. The segments used at 30 September 2024 are described below:
\u2022 Mortgage Lending, including the Group\u2019s buy-to-let, and owner-occupied first and second charge lending and related activities
\u2022 Commercial Lending, including the Group\u2019s equipment leasing activities, development finance, structured lending and other
offerings targeted towards SME customers, together with its motor finance business
These segments are the same as those used at 30 September 2023.
Dedicated financing and administration costs of each of these businesses, including the interest impacts of fair value hedging, are
allocated to the segment. Shared central costs are not allocated between segments, nor is income from central cash balances or the
carrying costs of unallocated savings balances.
Loans to customers and operating lease assets (other than those related to the internal green car scheme (note 54)) are allocated to
segments as are dedicated securitisation funding arrangements and their related cash balances.
Retail deposits and their related costs are allocated to the segments based on the utilisation of those deposits. Retail deposits raised
in advance of lending are not allocated.
Other assets and liabilities are not allocated between segments.
All the Group\u2019s operations are conducted in the UK, all revenues arise from external customers and there are no inter-segment
revenues. No customer contributes more than 10% of the revenue of the Group.
Financial information about these business segments, prepared on the same basis as used in the consolidated accounts of the
Group, is shown below.
Year ended 30 September 2024
Mortgage Commercial Unallocated Total
Lending Lending items
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Interest receivable
914.9
234.7
165.1
1,314.7
Interest payable
(632.6)
(109.9)
(89.0)
(831.5)
Net interest income
282.3
124.8
76.1
483.2
Other leasing income
-
30.1
0.3
30.4
Related costs
-
(24.0)
(0.2)
(24.2)
Net operating lease income
-
6.1
0.1
6.2
Other income
3.8
3.2
-
7.0
Other operating income
3.8
9.3
0.1
13.2
Total operating income
286.1
134.1
76.2
496.4
Operating expenses
(22.8)
(26.9)
(129.5)
(179.2)
Provisions for losses
(5.6)
(18.9)
-
(24.5)
Segment profit
257.7
88.3
(53.3)
292.7
Year ended 30 September 2023
Mortgage Commercial Unallocated Total
Lending Lending items
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Interest receivable
713.6
207.4
89.6
1,010.6
Interest payable
(436.0)
(71.7)
(54.0)
(561.7)
Net interest income
277.6
135.7
35.6
448.9
Other leasing income
-
27.3
0.1
27.4
Related costs
-
(21.7)
(0.1)
(21.8)
Net operating lease income
-
5.6
-
5.6
Other income
5.6
5.9
-
11.5
Other operating income
5.6
11.5
-
17.1
Total operating income
283.2
147.2
35.6
466.0
Operating expenses
(26.2)
(26.4)
(117.8)
(170.4)
Provisions for losses
(10.4)
(7.6)
-
(18.0)
Segment profit
246.6
113.2
(82.2)
277.6
The segmental profits disclosed above reconcile to the Group results as shown below.
2024
2023
\u00a3m
\u00a3m
Results shown above
292.7
277.6
Fair value items
(38.9)
(77.7)
Operating profit
253.8
199.9
The assets and liabilities attributable to each of the segments at 30 September 2024, 30 September 2023 and 30 September 2022 on
the basis described above were:
Note
Mortgage
Commercial Total
Lending Lending Segments
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Segment assets
Loans to customers
18
13,415.7
2,289.8
15,705.5
Operating lease assets
29
-
43.9
43.9
Securitisation cash
16
107.9
-
107.9
13,523.6
2,333.7
15,857.3
Segment liabilities
Allocated deposits
13,829.3
2,509.9
16,339.2
Securitisation funding
-
-
-
13,829.3
2,509.9
16,339.2
Note
Mortgage
Commercial Total
Lending Lending Segments
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Segment assets
Loans to customers
18
12,902.3
1,972.0
14,874.3
Operating lease assets
29
-
44.3
44.3
Securitisation cash
16
86.1
-
86.1
12,988.4
2,016.3
15,004.7
Segment liabilities
Allocated deposits
13,160.4
2,199.4
15,359.8
Securitisation funding
28.0
-
28.0
13,188.4
2,199.4
15,387.8
Note
Mortgage
Commercial Total
Lending Lending Segments
\u00a3m
\u00a3m
\u00a3m
30 September 2022
Segment assets
Loans to customers
18
12,328.7
1,881.6
14,210.3
Operating lease assets
29
-
41.6
41.6
Securitisation cash
16
240.5
-
240.5
12,569.2
1,923.2
14,492.4
Segment liabilities
Allocated deposits
11,864.7
2,193.7
14,058.4
Securitisation funding
995.3
-
995.3
12,860.0
2,193.7
15,053.7
An analysis of the Group\u2019s financial assets by type and segment is shown in note 18. All the assets shown above were located in the UK.
The additions to non-current assets, excluding financial assets, in the year which are included in segmental assets above, are
investments of \u00a313.1m (2023: \u00a315.3m) in assets held for leasing under operating leases (note 29). These are included in the
Commercial Lending segment. No other fixed asset additions were allocated to segments.
The segmental assets and liabilities may be reconciled to the consolidated balance sheet as shown below.
2024
2023
\u00a3m
\u00a3m
Total segment assets
15,857.3
15,004.7
Unallocated assets
Central cash and investments
2,844.9
2,908.2
Derivative financial instruments
391.8
615.4
Fair value hedging adjustments
(75.2)
(379.3)
Operational property, plant and equipment
27.1
30.4
Retirement benefit obligations
22.2
12.7
Intangible assets
171.5
168.2
Other
30.4
59.9
Total assets
19,270.0
18,420.2
2024
2023
\u00a3m
\u00a3m
Total segment liabilities
16,339.2
15,387.8
Unallocated liabilities
Unallocated retail deposits
(41.2)
(2,094.5)
Derivative financial instruments
99.7
39.9
Central borrowings
1,005.3
3,058.4
Tax liabilities
13.4
17.7
Other
434.1
600.3
Total liabilities
17,850.5
17,009.6
", "dimensions": { "concept": "ifrs-full:DisclosureOfEntitysReportableSegmentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-356": { "value": "
3. Revenue
Note
2024
2023
\u00a3m
\u00a3m
Interest receivable
4
1,314.7
1,010.6
Operating lease income
6
30.4
27.4
Other income
7
7.0
11.5
Total revenue
1,352.1
1,049.5
Arising from:
Mortgage Lending
918.7
719.2
Commercial Lending
268.0
240.6
Total revenue from segments
1,186.7
959.8
Unallocated revenue
165.4
89.7
Total revenue
1,352.1
1,049.5
", "dimensions": { "concept": "ifrs-full:DisclosureOfRevenueExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-357": { "value": "
4. Interest receivable
Interest receivable is analysed as follows.
Note
2024
2023
\u00a3m
\u00a3m
Interest receivable in respect of
Loans and receivables
819.8
642.9
Finance leases
73.4
59.6
Invoice finance income
5.8
4.3
Interest on loans to customers
899.0
706.8
Effect of fair value hedging of loan assets
245.8
210.0
Interest on loans to customers after hedging
1,144.8
916.8
Pension scheme surplus
60
0.8
0.4
Investment securities
8.0
-
Effect of fair value hedging of securities
2.4
-
Other interest receivable
158.7
93.4
Total interest on financial assets
1,314.7
1,010.6
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial assets held at amortised cost
992.3
740.6
Finance leases
73.4
59.6
Pension scheme surplus
0.8
0.4
Derivative financial instruments held at fair value
248.2
210.0
1,314.7
1,010.6
Other interest receivable relates principally to cash deposits at central and retail banks.
5. Interest payable and similar charges
Note
2024
2023
\u00a3m
\u00a3m
On financial liabilities
Retail deposits
667.0
334.1
Effect of fair value hedging of deposits
33.6
54.4
Interest on retail deposits after hedging
700.6
388.5
Asset backed loan notes
2.6
10.9
Bank loans and overdrafts
14.1
34.8
Corporate bonds
6.6
6.6
Effect of fair value hedging of bonds
1.8
0.6
Retail bonds
5.7
6.5
Central bank facilities
95.2
111.9
Sale and repurchase agreements
4.0
0.7
Total interest on financial liabilities
830.6
560.5
Discounting on lease liabilities
0.3
0.3
Other finance costs
0.6
0.9
831.5
561.7
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial liabilities held at amortised cost
795.2
505.5
Derivative financial instruments held at fair value
35.4
55.0
Other items
0.9
1.2
831.5
561.7
Amounts payable in respect of bank loans and overdrafts include interest and fees payable in respect of collateral amounts received
in respect of derivative financial instruments (note 40).
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-487": { "value": "4. Interest receivable Interest receivable is analysed as follows.
Note
2024
2023
\u00a3m
\u00a3m
Interest receivable in respect of
Loans and receivables
819.8
642.9
Finance leases
73.4
59.6
Invoice finance income
5.8
4.3
Interest on loans to customers
899.0
706.8
Effect of fair value hedging of loan assets
245.8
210.0
Interest on loans to customers after hedging
1,144.8
916.8
Pension scheme surplus
60
0.8
0.4
Investment securities
8.0
-
Effect of fair value hedging of securities
2.4
-
Other interest receivable
158.7
93.4
Total interest on financial assets
1,314.7
1,010.6
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial assets held at amortised cost
992.3
740.6
Finance leases
73.4
59.6
Pension scheme surplus
0.8
0.4
Derivative financial instruments held at fair value
248.2
210.0
1,314.7
1,010.6
Other interest receivable relates principally to cash deposits at central and retail banks. ", "dimensions": { "concept": "ifrs-full:DisclosureOfFinanceIncomeExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-457": { "value": "4. Interest receivable Interest receivable is analysed as follows.
Note
2024
2023
\u00a3m
\u00a3m
Interest receivable in respect of
Loans and receivables
819.8
642.9
Finance leases
73.4
59.6
Invoice finance income
5.8
4.3
Interest on loans to customers
899.0
706.8
Effect of fair value hedging of loan assets
245.8
210.0
Interest on loans to customers after hedging
1,144.8
916.8
Pension scheme surplus
60
0.8
0.4
Investment securities
8.0
-
Effect of fair value hedging of securities
2.4
-
Other interest receivable
158.7
93.4
Total interest on financial assets
1,314.7
1,010.6
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial assets held at amortised cost
992.3
740.6
Finance leases
73.4
59.6
Pension scheme surplus
0.8
0.4
Derivative financial instruments held at fair value
248.2
210.0
1,314.7
1,010.6
Other interest receivable relates principally to cash deposits at central and retail banks. 5. Interest payable and similar charges
Note
2024
2023
\u00a3m
\u00a3m
On financial liabilities
Retail deposits
667.0
334.1
Effect of fair value hedging of deposits
33.6
54.4
Interest on retail deposits after hedging
700.6
388.5
Asset backed loan notes
2.6
10.9
Bank loans and overdrafts
14.1
34.8
Corporate bonds
6.6
6.6
Effect of fair value hedging of bonds
1.8
0.6
Retail bonds
5.7
6.5
Central bank facilities
95.2
111.9
Sale and repurchase agreements
4.0
0.7
Total interest on financial liabilities
830.6
560.5
Discounting on lease liabilities
0.3
0.3
Other finance costs
0.6
0.9
831.5
561.7
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial liabilities held at amortised cost
795.2
505.5
Derivative financial instruments held at fair value
35.4
55.0
Other items
0.9
1.2
831.5
561.7
Amounts payable in respect of bank loans and overdrafts include interest and fees payable in respect of collateral amounts received in respect of derivative financial instruments (note 40).", "dimensions": { "concept": "ifrs-full:DisclosureOfFinanceIncomeExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-415": { "value": "4. Interest receivable Interest receivable is analysed as follows.
Note
2024
2023
\u00a3m
\u00a3m
Interest receivable in respect of
Loans and receivables
819.8
642.9
Finance leases
73.4
59.6
Invoice finance income
5.8
4.3
Interest on loans to customers
899.0
706.8
Effect of fair value hedging of loan assets
245.8
210.0
Interest on loans to customers after hedging
1,144.8
916.8
Pension scheme surplus
60
0.8
0.4
Investment securities
8.0
-
Effect of fair value hedging of securities
2.4
-
Other interest receivable
158.7
93.4
Total interest on financial assets
1,314.7
1,010.6
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial assets held at amortised cost
992.3
740.6
Finance leases
73.4
59.6
Pension scheme surplus
0.8
0.4
Derivative financial instruments held at fair value
248.2
210.0
1,314.7
1,010.6
Other interest receivable relates principally to cash deposits at central and retail banks. ", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-502": { "value": "5. Interest payable and similar charges
Note
2024
2023
\u00a3m
\u00a3m
On financial liabilities
Retail deposits
667.0
334.1
Effect of fair value hedging of deposits
33.6
54.4
Interest on retail deposits after hedging
700.6
388.5
Asset backed loan notes
2.6
10.9
Bank loans and overdrafts
14.1
34.8
Corporate bonds
6.6
6.6
Effect of fair value hedging of bonds
1.8
0.6
Retail bonds
5.7
6.5
Central bank facilities
95.2
111.9
Sale and repurchase agreements
4.0
0.7
Total interest on financial liabilities
830.6
560.5
Discounting on lease liabilities
0.3
0.3
Other finance costs
0.6
0.9
831.5
561.7
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial liabilities held at amortised cost
795.2
505.5
Derivative financial instruments held at fair value
35.4
55.0
Other items
0.9
1.2
831.5
561.7
Amounts payable in respect of bank loans and overdrafts include interest and fees payable in respect of collateral amounts received in respect of derivative financial instruments (note 40).", "dimensions": { "concept": "ifrs-full:DisclosureOfBorrowingCostsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-488": { "value": "5. Interest payable and similar charges
Note
2024
2023
\u00a3m
\u00a3m
On financial liabilities
Retail deposits
667.0
334.1
Effect of fair value hedging of deposits
33.6
54.4
Interest on retail deposits after hedging
700.6
388.5
Asset backed loan notes
2.6
10.9
Bank loans and overdrafts
14.1
34.8
Corporate bonds
6.6
6.6
Effect of fair value hedging of bonds
1.8
0.6
Retail bonds
5.7
6.5
Central bank facilities
95.2
111.9
Sale and repurchase agreements
4.0
0.7
Total interest on financial liabilities
830.6
560.5
Discounting on lease liabilities
0.3
0.3
Other finance costs
0.6
0.9
831.5
561.7
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial liabilities held at amortised cost
795.2
505.5
Derivative financial instruments held at fair value
35.4
55.0
Other items
0.9
1.2
831.5
561.7
Amounts payable in respect of bank loans and overdrafts include interest and fees payable in respect of collateral amounts received in respect of derivative financial instruments (note 40).", "dimensions": { "concept": "ifrs-full:DisclosureOfFinanceCostExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-416": { "value": "5. Interest payable and similar charges
Note
2024
2023
\u00a3m
\u00a3m
On financial liabilities
Retail deposits
667.0
334.1
Effect of fair value hedging of deposits
33.6
54.4
Interest on retail deposits after hedging
700.6
388.5
Asset backed loan notes
2.6
10.9
Bank loans and overdrafts
14.1
34.8
Corporate bonds
6.6
6.6
Effect of fair value hedging of bonds
1.8
0.6
Retail bonds
5.7
6.5
Central bank facilities
95.2
111.9
Sale and repurchase agreements
4.0
0.7
Total interest on financial liabilities
830.6
560.5
Discounting on lease liabilities
0.3
0.3
Other finance costs
0.6
0.9
831.5
561.7
The above amounts relate to:
2024
2023
\u00a3m
\u00a3m
Financial liabilities held at amortised cost
795.2
505.5
Derivative financial instruments held at fair value
35.4
55.0
Other items
0.9
1.2
831.5
561.7
Amounts payable in respect of bank loans and overdrafts include interest and fees payable in respect of collateral amounts received in respect of derivative financial instruments (note 40).", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-358": { "value": "
6. Net operating lease income
Note
2024
2023
\u00a3m
\u00a3m
Income
Operating lease rentals
21.3
19.5
Maintenance income
9.1
7.9
Total operating lease income
30.4
27.4
Costs
Depreciation of lease assets
29
(11.6)
(10.7)
Maintenance salaries
57
(3.7)
(3.2)
Other maintenance costs
(8.9)
(7.9)
Total operating lease costs
(24.2)
(21.8)
Net operating lease income
6.2
5.6
7. Other income
2024
2023
\u00a3m
\u00a3m
Loan account fee income
4.5
4.8
Broker commissions
1.6
2.1
Third party servicing
0.7
4.3
Other income
0.2
0.3
7.0
11.5
All loan account fee income arises from financial assets held at amortised cost.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-515": { "value": "6. Net operating lease income
Note
2024
2023
\u00a3m
\u00a3m
Income
Operating lease rentals
21.3
19.5
Maintenance income
9.1
7.9
Total operating lease income
30.4
27.4
Costs
Depreciation of lease assets
29
(11.6)
(10.7)
Maintenance salaries
57
(3.7)
(3.2)
Other maintenance costs
(8.9)
(7.9)
Total operating lease costs
(24.2)
(21.8)
Net operating lease income
6.2
5.6
7. Other income
2024
2023
\u00a3m
\u00a3m
Loan account fee income
4.5
4.8
Broker commissions
1.6
2.1
Third party servicing
0.7
4.3
Other income
0.2
0.3
7.0
11.5
All loan account fee income arises from financial assets held at amortised cost. 8. Operating expenses
Note
2024
2023
\u00a3m
\u00a3m
Employment costs
57
111.1
108.3
Auditor remuneration
9
3.6
2.9
Bank of England Levy
2.1
-
Amortisation of intangible assets
30
1.2
1.8
Depreciation of operational assets
29
5.4
3.9
TBMC closure
10
-
2.0
Restructuring costs
-
2.6
Other administrative costs
55.8
48.9
179.2
170.4
Restructuring costs in 2023 arose from a strategic review of the Group\u2019s operational structures and resources carried out in the year and include consultancy costs and redundancy-related expenses. The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on the first day of each annual Levy period. The Group incurred no costs in respect of short-term operating leases in the year (2023: none). ", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-458": { "value": "6. Net operating lease income
Note
2024
2023
\u00a3m
\u00a3m
Income
Operating lease rentals
21.3
19.5
Maintenance income
9.1
7.9
Total operating lease income
30.4
27.4
Costs
Depreciation of lease assets
29
(11.6)
(10.7)
Maintenance salaries
57
(3.7)
(3.2)
Other maintenance costs
(8.9)
(7.9)
Total operating lease costs
(24.2)
(21.8)
Net operating lease income
6.2
5.6
8. Operating expenses
Note
2024
2023
\u00a3m
\u00a3m
Employment costs
57
111.1
108.3
Auditor remuneration
9
3.6
2.9
Bank of England Levy
2.1
-
Amortisation of intangible assets
30
1.2
1.8
Depreciation of operational assets
29
5.4
3.9
TBMC closure
10
-
2.0
Restructuring costs
-
2.6
Other administrative costs
55.8
48.9
179.2
170.4
Restructuring costs in 2023 arose from a strategic review of the Group\u2019s operational structures and resources carried out in the year and include consultancy costs and redundancy-related expenses. The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on the first day of each annual Levy period. The Group incurred no costs in respect of short-term operating leases in the year (2023: none). 29. Property, plant and equipment (a) The Group
Leased Land and Plant and Total
assets buildings machinery
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost
At 1 October 2022
72.2
35.7
14.0
121.9
Additions
15.9
1.4
2.6
19.9
Disposals
(6.6)
(0.1)
(1.9)
(8.6)
At 30 September 2023
81.5
37.0
14.7
133.2
Additions
13.6
0.3
2.5
16.4
Disposals
(7.1)
(0.8)
(2.2)
(10.1)
At 30 September 2024
88.0
36.5
15.0
139.5
Accumulated depreciation
At 1 October 2022
30.6
8.8
11.1
50.5
Charge for the year
10.7
2.2
1.7
14.6
On disposals
(4.6)
(0.1)
(1.9)
(6.6)
At 30 September 2023
36.7
10.9
10.9
58.5
Charge for the year
11.6
3.7
1.7
17.0
On disposals
(4.9)
(0.7)
(1.4)
(7.0)
At 30 September 2024
43.4
13.9
11.2
68.5
Net book value
At 30 September 2024
44.6
22.6
3.8
71.0
At 30 September 2023
44.8
26.1
3.8
74.7
At 30 September 2022
41.6
26.9
2.9
71.4
Land and buildings and plant and machinery shown above are used within the Group\u2019s business. Leased assets includes \u00a330.4m in respect of assets leased to customers under operating leases (2023: \u00a331.3m), \u00a30.7m of vehicles leased to employees under the Group\u2019s green car salary sacrifice scheme (2023: \u00a30.5m) and \u00a313.5m of assets available for hire (2023: \u00a313.0m).
The carrying values of right of use of assets, in respect of leases where the Group is the lessee, included in property, plant and
equipment are set out below.
Leased Land and Plant and Total
assets buildings machinery
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost
At 1 October 2022
-
11.6
1.8
13.4
Additions
0.6
1.0
1.4
3.0
Disposals
-
(0.1)
(0.4)
(0.5)
At 30 September 2023
0.6
12.5
2.8
15.9
Additions
0.5
0.3
1.6
2.4
Disposals
-
(0.8)
(1.6)
(2.4)
At 30 September 2024
1.1
12.0
2.8
15.9
Accumulated depreciation
At 1 October 2022
-
3.7
1.1
4.8
Charge for the year
0.1
1.7
0.7
2.5
On disposals
-
(0.1)
(0.4)
(0.5)
At 30 September 2023
0.1
5.3
1.4
6.8
Charge for the year
0.3
3.1
0.7
4.1
On disposals
-
(0.8)
(0.9)
(1.7)
At 30 September 2024
0.4
7.6
1.2
9.2
Net book value
At 30 September 2024
0.7
4.4
1.6
6.7
At 30 September 2023
0.5
7.2
1.4
9.1
At 30 September 2022
-
7.9
0.7
8.6
During the year ended 30 September 2018, the Group entered into a transaction with the Paragon Pension Plan, effectively granting a
first charge over its freehold head office building as security for its agreed contributions under the recovery plan. The carrying value of
the assets subject to this charge was \u00a316.4m (2023: \u00a316.8m).
Depreciation on property, plant and equipment is included in the Group\u2019s profit and loss account as set out below.
Note
2024
2023
\u00a3m
\u00a3m
Operating expenses
8
5.4
3.9
Leasing costs
6
11.6
10.7
Total depreciation
17.0
14.6
Depreciation of \u00a311.4m included in leasing costs (2023: \u00a310.6m) is attributable to the Commercial Lending segment described in
note 2. No other depreciation is allocated to a segment.
(b) The Company
The property, plant and equipment balance of the Company represents a right of use asset in respect of a building leased from a
fellow group entity. The carrying value of this asset is set out below.
Land and
buildings
\u00a3m
Cost
At 1 October 2022, 30 September 2023 and 30 September 2024
18.8
Accumulated depreciation
At 1 October 2022
4.2
Charge for the year
1.4
On disposals
-
At 30 September 2023
5.6
Charge for the year
1.4
On disposals
-
At 30 September 2024
7.0
Net book value
At 30 September 2024
11.8
At 30 September 2023
13.2
At 30 September 2022
14.6
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepreciationAndAmortisationExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-417": { "value": "6. Net operating lease income
Note
2024
2023
\u00a3m
\u00a3m
Income
Operating lease rentals
21.3
19.5
Maintenance income
9.1
7.9
Total operating lease income
30.4
27.4
Costs
Depreciation of lease assets
29
(11.6)
(10.7)
Maintenance salaries
57
(3.7)
(3.2)
Other maintenance costs
(8.9)
(7.9)
Total operating lease costs
(24.2)
(21.8)
Net operating lease income
6.2
5.6
19. Finance lease receivables
The Group\u2019s finance leases can be analysed as shown below.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Motor finance
331.4
297.7
261.3
Asset finance
633.2
559.1
498.8
BBB sponsored schemes
31.0
50.5
65.1
Carrying value
995.6
907.3
825.2
The minimum lease payments due under these loan agreements are:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts receivable
Within one year
279.4
318.5
284.7
Within one to two years
285.0
269.9
244.4
Within two to three years
255.4
218.7
189.5
Within three to four years
190.9
143.5
136.5
Within four to five years
104.8
67.1
60.5
After five years
104.1
60.2
46.2
1,219.6
1,077.9
961.8
Less: future finance income
(213.1)
(158.1)
(119.8)
Present value
1,006.5
919.8
842.0
The present values of those payments, net of provisions for impairment, carried in the accounts are:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts receivable
Within one year
230.5
272.9
248.7
Within two to five years
690.5
597.0
554.0
After five years
85.5
49.9
39.3
Present value
1,006.5
919.8
842.0
Allowance for uncollectible amounts
(10.9)
(12.5)
(16.8)
Carrying value
995.6
907.3
825.2
42. Lease payables
The Group\u2019s lease liabilities arise under the leasing arrangements described in note 54. Related right of use assets are shown in note 29.
The Group
The Company
2024
2023
2024
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Leasing liabilities falling due:
In more than five years
-
0.5
5.2
6.7
In more than two but less than five years
2.9
3.4
4.4
4.3
In more than one year but less than two years
2.1
2.4
1.4
1.4
In more than one year (note 40)
5.0
6.3
11.0
12.4
In less than one year (note 40)
2.9
2.6
1.4
1.3
7.9
8.9
12.4
13.7
54. Leasing arrangements
(a) As Lessor
The Group, through its motor finance and asset finance businesses, leases assets under both finance and operating leases. In respect
of certain of these assets, the Group also provides maintenance services to the lessee.
It also leases green motor vehicles to its employees under a salary sacrifice scheme.
Disclosures in respect of these balances are set out in these financial statements as follows
Disclosure
Note
Investment in finance leases
19
Finance income on net investment in finance leases
4
Assets leased under operating leases
29
Operating lease income
6
The undiscounted future minimum lease payments receivable by the Group under operating lease arrangements may be analysed
as follows:
2024
2023
\u00a3m
\u00a3m
Amounts falling due:
Within one year
10.2
14.5
Within one to two years
9.0
9.3
Within two to three years
6.3
5.8
Within three to four years
4.5
3.5
Within four to five years
2.9
1.6
After more than five years
2.6
0.3
35.5
35.0
(b) As Lessee
The Group\u2019s use of leases as a lessee relates to the rental of office buildings and company cars, together with the procurement of
vehicles for leasing to employees under its green car scheme. Under IFRS 16 these have been accounted for as right of use assets and
corresponding lease liabilities.
The average term of the current building leases from inception or acquisition is 7 years (2023: 8 years) with rents subject to review
every five years, while the average term of the vehicle leases is 4 years (2023: 3 years).
The Company\u2019s use of leases as lessee is limited to the rental of an office building from a subsidiary entity. The lease term from
inception is 15 years.
Disclosures relating to these leases are set out in these financial statements as follows.
Disclosure
Note
Depreciation on right of use assets
29
Interest expense on lease liabilities
5
Expense relating to short-term leases
8
Additions to right of use assets
29
Carrying amount of right of use assets
29
Maturity analysis of lease liabilities
64
Salary sacrifice amounts of \u00a30.3m in respect of the green car scheme (2023: \u00a30.1m) are included within operating lease income
(note 6). There was no other subleasing of right of use assets and the total cash flows relating to leasing as a lessee were
\u00a33.0m (2023: \u00a32.3m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfLeasesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-418": { "value": "7. Other income
2024
2023
\u00a3m
\u00a3m
Loan account fee income
4.5
4.8
Broker commissions
1.6
2.1
Third party servicing
0.7
4.3
Other income
0.2
0.3
7.0
11.5
All loan account fee income arises from financial assets held at amortised cost. ", "dimensions": { "concept": "ifrs-full:DisclosureOfFeeAndCommissionIncomeExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-359": { "value": "
8. Operating expenses
Note
2024
2023
\u00a3m
\u00a3m
Employment costs
57
111.1
108.3
Auditor remuneration
9
3.6
2.9
Bank of England Levy
2.1
-
Amortisation of intangible assets
30
1.2
1.8
Depreciation of operational assets
29
5.4
3.9
TBMC closure
10
-
2.0
Restructuring costs
-
2.6
Other administrative costs
55.8
48.9
179.2
170.4
Restructuring costs in 2023 arose from a strategic review of the Group\u2019s operational structures and resources carried out in the year
and include consultancy costs and redundancy-related expenses.
The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on
the first day of each annual Levy period.
The Group incurred no costs in respect of short-term operating leases in the year (2023: none).
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-511": { "value": "8. Operating expenses
Note
2024
2023
\u00a3m
\u00a3m
Employment costs
57
111.1
108.3
Auditor remuneration
9
3.6
2.9
Bank of England Levy
2.1
-
Amortisation of intangible assets
30
1.2
1.8
Depreciation of operational assets
29
5.4
3.9
TBMC closure
10
-
2.0
Restructuring costs
-
2.6
Other administrative costs
55.8
48.9
179.2
170.4
Restructuring costs in 2023 arose from a strategic review of the Group\u2019s operational structures and resources carried out in the year and include consultancy costs and redundancy-related expenses. The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on the first day of each annual Levy period. The Group incurred no costs in respect of short-term operating leases in the year (2023: none). 9. Auditor remuneration The analysis of fees payable to the Company\u2019s auditors (KPMG LLP) and their associates, excluding irrecoverable VAT, required by the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 is set out below.
2024
2023
\u00a3m
\u00a3m
Audit fee of the company
1.1
0.7
Other services
Audit of subsidiary undertakings pursuant to legislation
1.7
1.5
Total audit fees
2.8
2.2
Audit related assurance services
Interim review
0.2
0.2
Other
-
-
Total fees
3.0
2.4
Irrecoverable VAT
0.6
0.5
Total cost to the Group (note 8)
3.6
2.9
Fees paid to the auditors and their associates for non-audit services to the Company are not disclosed because the consolidated accounts of the Group are required to disclose such fees on a consolidated basis. 10. TBMC closure During the year ended 30 September 2023, after a review of strategic priorities, the Group announced the closure of its TBMC mortgage brokerage business, which it considered to be non-core. As a result of this decision the remaining goodwill balance of the TBMC CGU and the other intangible assets relating to the business were derecognised. The total amount expensed to the profit and loss account on the closure is set out below.
Note
2023
\u00a3m
Goodwill derecognised
30
1.6
Intangible assets derecognised
30
0.2
Other closure costs
0.2
Total closure costs
8
2.0
The contribution to profit of the closed business in that year, which was included in the Mortgage Lending segment, was a loss of \u00a30.5m excluding the costs shown above. ", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-503": { "value": "8. Operating expenses
Note
2024
2023
\u00a3m
\u00a3m
Employment costs
57
111.1
108.3
Auditor remuneration
9
3.6
2.9
Bank of England Levy
2.1
-
Amortisation of intangible assets
30
1.2
1.8
Depreciation of operational assets
29
5.4
3.9
TBMC closure
10
-
2.0
Restructuring costs
-
2.6
Other administrative costs
55.8
48.9
179.2
170.4
Restructuring costs in 2023 arose from a strategic review of the Group\u2019s operational structures and resources carried out in the year and include consultancy costs and redundancy-related expenses. The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on the first day of each annual Levy period. The Group incurred no costs in respect of short-term operating leases in the year (2023: none). 9. Auditor remuneration The analysis of fees payable to the Company\u2019s auditors (KPMG LLP) and their associates, excluding irrecoverable VAT, required by the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 is set out below.
2024
2023
\u00a3m
\u00a3m
Audit fee of the company
1.1
0.7
Other services
Audit of subsidiary undertakings pursuant to legislation
1.7
1.5
Total audit fees
2.8
2.2
Audit related assurance services
Interim review
0.2
0.2
Other
-
-
Total fees
3.0
2.4
Irrecoverable VAT
0.6
0.5
Total cost to the Group (note 8)
3.6
2.9
Fees paid to the auditors and their associates for non-audit services to the Company are not disclosed because the consolidated accounts of the Group are required to disclose such fees on a consolidated basis. 10. TBMC closure During the year ended 30 September 2023, after a review of strategic priorities, the Group announced the closure of its TBMC mortgage brokerage business, which it considered to be non-core. As a result of this decision the remaining goodwill balance of the TBMC CGU and the other intangible assets relating to the business were derecognised. The total amount expensed to the profit and loss account on the closure is set out below.
Note
2023
\u00a3m
Goodwill derecognised
30
1.6
Intangible assets derecognised
30
0.2
Other closure costs
0.2
Total closure costs
8
2.0
The contribution to profit of the closed business in that year, which was included in the Mortgage Lending segment, was a loss of \u00a30.5m excluding the costs shown above. ", "dimensions": { "concept": "ifrs-full:DisclosureOfGeneralAndAdministrativeExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-419": { "value": "8. Operating expenses
Note
2024
2023
\u00a3m
\u00a3m
Employment costs
57
111.1
108.3
Auditor remuneration
9
3.6
2.9
Bank of England Levy
2.1
-
Amortisation of intangible assets
30
1.2
1.8
Depreciation of operational assets
29
5.4
3.9
TBMC closure
10
-
2.0
Restructuring costs
-
2.6
Other administrative costs
55.8
48.9
179.2
170.4
Restructuring costs in 2023 arose from a strategic review of the Group\u2019s operational structures and resources carried out in the year and include consultancy costs and redundancy-related expenses. The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on the first day of each annual Levy period. The Group incurred no costs in respect of short-term operating leases in the year (2023: none). ", "dimensions": { "concept": "ifrs-full:DisclosureOfProfitLossFromOperatingActivitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-360": { "value": "
9. Auditor remuneration
The analysis of fees payable to the Company\u2019s auditors (KPMG LLP) and their associates, excluding irrecoverable VAT, required by the
Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 is set out below.
2024
2023
\u00a3m
\u00a3m
Audit fee of the company
1.1
0.7
Other services
Audit of subsidiary undertakings pursuant to legislation
1.7
1.5
Total audit fees
2.8
2.2
Audit related assurance services
Interim review
0.2
0.2
Other
-
-
Total fees
3.0
2.4
Irrecoverable VAT
0.6
0.5
Total cost to the Group (note 8)
3.6
2.9
Fees paid to the auditors and their associates for non-audit services to the Company are not disclosed because the consolidated
accounts of the Group are required to disclose such fees on a consolidated basis.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAuditorsRemunerationExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-361": { "value": "10. TBMC closure During the year ended 30 September 2023, after a review of strategic priorities, the Group announced the closure of its TBMC mortgage brokerage business, which it considered to be non-core. As a result of this decision the remaining goodwill balance of the TBMC CGU and the other intangible assets relating to the business were derecognised. The total amount expensed to the profit and loss account on the closure is set out below. Note 2023 \u00a3m Goodwill derecognised 30 1.6 Intangible assets derecognised 30 0.2 Other closure costs 0.2 Total closure costs 8 2.0 The contribution to profit of the closed business in that year, which was included in the Mortgage Lending segment, was a loss of \u00a30.5m excluding the costs shown above. ", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfTBMCClosure", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-362": { "value": "11. Loan impairments provisions charged to income The amounts charged to the profit and loss account in the year are analysed as follows. Mortgage Commercial Total Lending Lending \u00a3m \u00a3m \u00a3m 30 September 2024 Provided in period (note 23) 6.0 20.4 26.4 Recovery of written off amounts (0.4) (1.5) (1.9) 5.6 18.9 24.5 Of which Loan accounts 5.6 17.9 23.5 Finance leases - 1.0 1.0 5.6 18.9 24.5 30 September 2023 Provided in period (note 23) 10.8 8.3 19.1 Recovery of written off amounts (0.4) (0.7) (1.1) 10.4 7.6 18.0 Of which Loan accounts 10.4 10.5 20.9 Finance leases - (2.9) (2.9) 10.4 7.6 18.0", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfLoansImpairmentsProvisionsChargedCreditedToIncome", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-459": { "value": "
12. Fair value net (losses)
2024
2023
\u00a3m
\u00a3m
Ineffectiveness of fair value hedges (note 26)
Portfolio hedges of interest rate risk
Deposit hedge
7.3
7.8
Loan hedge
(3.1)
(23.7)
4.2
(15.9)
Individual hedges of interest rate risk
-
-
4.2
(15.9)
Other hedging movements
(26.2)
(53.5)
Net (losses) on other derivatives
(16.9)
(8.3)
Total net (loss)
(38.9)
(77.7)
The fair value net (loss) represents the accounting volatility on derivative instruments which are matching risk exposures on an
economic basis, generated by the requirements of IAS 39. Some accounting volatility arises on these items due to accounting
ineffectiveness on designated hedges, or because hedge accounting has not been adopted or is not achievable on certain items.
The losses and gains are primarily due to timing differences in income recognition between the derivative instruments and the
economically hedged assets and liabilities. Such differences will reverse over time and have no impact on the cash flows of the Group.
The impact of hedging arrangements on the Group\u2019s balance sheet is summarised in note 26 which also provides a full description of
the Group\u2019s use of derivative financial instruments for hedging purposes.
26. Derivative financial instruments and hedge accounting
Introduction
The Group uses derivative financial instruments such as interest rate swaps for risk management purposes only. Each such derivative
contract is entered into for economic hedging purposes to manage a particular identified risk (as described in notes 62 to 65) and any
gains or losses arising are incidental to this objective. No trading in derivative financial instruments is undertaken.
Hedge accounting is applied where appropriate, though some derivatives, while forming part of an economic hedge relationship, do
not qualify for this accounting treatment under the IAS 39 rules, particularly where the hedged risk relates to an off balance sheet
item. In other cases, hedge accounting has not been adopted either because natural accounting offsets are expected or because
complying with the IAS 39 hedge accounting rules would be particularly onerous.
The Group\u2019s hedging arrangements can be analysed for accounting purposes between:
\u2022 Fair value hedges of portfolio interest rate risk, which are used to manage the interest rate risk inherent in fixed rate lending and
deposit taking
\u2022 Fair value hedges of interest rate risk relating to individual financial assets or liabilities.
An economic hedge of the interest rate risk in fixed rate lending must also address pipeline exposures, where future lending at a given
fixed rate is anticipated. However, such pre-hedging arrangements do not qualify as hedges for accounting purposes.
In addition, the Group utilises currency derivatives to hedge its exposure on the small amount of its lending denominated in foreign
currencies. These are not treated as hedges for accounting purposes due to the low level of exposure.
While the Group utilises economic hedging strategies to mitigate the impact of the changes in market interest rates on its capital
base, these activities do not give rise to accounting entries.
The analysis below splits derivatives between those accounted for within portfolio fair value hedges and those which, despite
representing an economic hedge, are not accounted for as hedges.
2024
2024
2023
2023
Assets
Liabilities
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives in hedge accounting relationships
Fair value portfolio hedges
Interest rate swaps
Fixed to floating
216.3
(44.7)
519.0
(5.1)
Floating to fixed
123.8
(1.7)
76.2
(27.0)
Total derivatives in portfolio fair value hedging relationships
340.1
(46.4)
595.2
(32.1)
Individual fair value hedges
Fixed to floating
5.9
(8.4)
-
-
Floating to fixed
0.3
-
-
(3.7)
Total derivatives in hedge accounting relationships
346.3
(54.8)
595.2
(35.8)
Other derivatives
Interest rate swaps
45.5
(44.9)
20.2
(4.1)
Currency futures
-
-
-
-
Total recognised derivative assets / (liabilities)
391.8
(99.7)
615.4
(39.9)
The credit risk inherent in the derivative financial assets shown above is discussed in note 63.
The balances held on the Group\u2019s balance sheet relating to the hedging of interest rate risk on its fixed rate customer loan and deposit balances are summarised below.
Note
2024
2023
\u00a3m
\u00a3m
Derivative financial instruments
Assets
391.8
615.4
Liabilities
(99.7)
(39.9)
292.1
575.5
Fair value hedging adjustments
On loans to customers
18
(75.2)
(379.3)
On investment securities
17
7.7
-
On retail deposits
33
(16.7)
30.9
On borrowings
(0.3)
3.7
(84.5)
(344.7)
Net balance sheet position
207.6
230.8
Collateral balances
Posted (in sundry assets)
27
-
-
Received (in sundry liabilities)
40
(103.6)
(383.4)
(103.6)
(383.4)
(a) Fair value macro hedges Background and hedging objectives The Group\u2019s fair value hedges of portfolios of interest rate risk (\u2018macro hedges\u2019) arise from its management of the interest rate risk inherent in its fixed rate lending and deposit taking activities. These activities would expose the Group to movement in market interest rates if not hedged. This position arises naturally where fixed rate loans are funded with floating or variable rate borrowings, as in the Group\u2019s securitisation transactions, but may also arise where retail deposit funding is used. Where possible the Group takes advantage of natural hedging between fixed rate assets and deposits, but it is unlikely that a precise match for value and tenor of the instruments could be achieved leaving unmatched items on both sides. This is referred to as repricing or duration risk and is controlled within limits under the Group\u2019s interest rate risk management process, described in note 63. In order to manage these exposures, they are hedged with financial derivatives and form part of the Group\u2019s portfolio hedging arrangements. Duration risk is monitored regularly to ensure mismatches or gaps remain within limits set by policy. Responsibility to direct and oversee structural interest rate risk management has been delegated by the Board to the Executive Risk Committee (\u2018ERC\u2019) and by ERC to the Asset and Liability Committee (\u2018ALCO\u2019). A hedging strategy is developed for each fixed product considering behavioural characteristics, such as whether a customer is likely to prepay before contractual maturity. This is reviewed from time-to-time with any changes agreed with ALCO. In order to manage potential exposure to changes in interest rates between the point at which fixed rate products are priced and the advance date, it may be necessary to undertake pre-hedging of assets in the pipeline. Interest rate swaps used to pre-hedge pipeline loan exposures, which are not yet recognised on the balance sheet, can cause unmatched fair value costs or credits to arise until both sides of the hedge can be recognised within the interest rate portfolio hedging arrangement, generally a few months after the inception of the derivative contract. In managing interest rate exposure, Treasury may use interest rate swaps, forward rate agreements, swaptions or interest rate caps and floors. However, interest rate swaps are the most generally used instruments. This policy creates two macro hedges: \u2022 The \u2018loan hedge\u2019 matching fixed rate buy-to-let mortgage assets, or other fixed rate assets, with interest rate swaps to convert the interest receivable to a floating rate \u2022 The \u2018deposit hedge\u2019 matching fixed rate deposits with interest rate swaps which operates in the opposite direction, converting the fixed rate interest payable to floating rate amounts During the year the Group has continued to hedge interest rate risk on fixed rate CBILS and BBLS exposures using SONIA-linked balance guaranteed swaps, which are included in the loan hedge. The designation of the macro hedges is updated, on a month-by-month basis, using software which compares the overall tenor, value and rate positions in order that the expected fair value movement of the designated swaps matches the expected interest rate risk related movement in the fair value of the relevant assets or liabilities as closely as possible over the designation period. The software applies regression analysis techniques to the potential impact of changes in expected interest rates over the designation period to maximise expected hedge effectiveness on a prospective basis. The value of the portfolio of loans or deposits selected is then designated, as a monetary amount of interest rate risk, as the hedged item, while the portfolio of swaps selected are designated as the hedging instruments. Any swaps not selected in this process are disclosed as derivatives not in hedging relationships. These will generally be swaps taken out to pre-hedge the pipeline of fixed rate mortgage offers, which will match with the related loans when they complete. At the end of each designation period the Group will assess the effectiveness of each hedge retrospectively, based on fair value movements (relating to interest rate risk components only) which have occurred in the period. Movements are compared to pre-determined test thresholds using regression techniques to determine whether the hedge was effective in the period. Potential sources of ineffectiveness The Group has identified the following possible sources of hedge ineffectiveness in its portfolio hedges of interest rate risk: \u2022 The maturity profile of the hedging instruments may not exactly match that of the hedged items, particularly where hedged items settle early \u2022 The use of derivatives as a hedge of interest rate risk additionally exposes the Group to the derivative counterparties\u2019 credit risk, which is not matched in the hedged item. This risk is minimised by transacting only with high quality counterparties and through collateralisation arrangements (as described in note 63) \u2022 The use of different discounting curves in measuring fair value changes in the hedged items and hedging instruments \u2022 Difference in the timing of interest payments on the hedged items and settlements on the hedging instruments These sources of ineffectiveness are minimised by the portfolio matching process, which seeks to match the terms of the items as closely as possible. In addition to the hedging ineffectiveness described above, group profit will also be affected by the fair value movements of interest rate swap agreements which were entered into as part of the Group\u2019s interest rate risk hedging strategy but failed to find a match in the hedging portfolio, particularly those relating to the pre-hedging of the lending pipeline. Hedging Instruments The hedging portfolios at 30 September 2024 and 30 September 2023 consist of a large number of sterling denominated swaps. In addition, there are a small number of Balance Guarantee Swaps (\u2018BGS\u2019) in place at both dates. Settlement on all swaps is generally quarterly (monthly for BGS) where: \u2022 One payment is calculated based on a fixed rate of interest and the nominal value of the swap \u2022 An opposite payment is calculated based on the same nominal value but using a floating interest rate set at a fixed margin over the SONIA reference rate On the BGS the nominal value of the swap is linked to the principal value of a pool of assets and reduces in line with redemptions and repayments until maturity. Other interest rate swaps have a fixed nominal value throughout their lives. The Group pays fixed rate and receives floating when hedging exposures from fixed rate assets (in the loan hedge). Conversely, the Group pays floating rate and receives fixed rate when hedging fixed rate deposits, in the deposit hedge.
The principal terms of the hedging instruments are set out below, analysed between the two directions of the swap.
2024
2023
Deposit Hedge
Loan Hedge
Deposit Hedge
Loan Hedge
Average fixed notional interest rate
4.73%
2.53%
4.22%
1.77%
Average notional margin over SONIA
-
-
-
-
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Notional principal value
SONIA BGS
-
17.7
-
31.6
Other SONIA swaps
6,119.2
8,081.2
6,257.0
7,781.8
6,119.2
8,098.9
6,257.0
7,813.4
Maturing
Within one year
4,942.2
1,234.1
5,253.5
1,616.3
Between one and two years
1,097.0
1,930.7
857.5
1,238.0
Between two and five years
80.0
4,916.4
146.0
4,959.1
More than five years
-
17.7
-
-
6,119.2
8,098.9
6,257.0
7,813.4
Fair value
122.1
171.6
49.2
513.9
The values included above for BGS are analysed by their contractual maturity dates although, due to the terms of the instruments, it is
likely that the balance outstanding will reduce more quickly.
The changes in the levels of hedging shown above arise from the growth in the Group\u2019s loan book and the decline in the fixed rate
deposit book in the year. The changes in fair value are a result of moves in market implied interest rates compared to the rates on the
fixed legs of the swaps.
Accounting impacts
Movements affecting the portfolio fair value hedges during the year are set out below.
2024
2023
Deposit hedge
Loan hedge
Deposit hedge
Loan hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedging instruments
Interest rate swaps
Included in derivative financial assets
123.8
216.3
76.2
519.0
Included in derivative financial liabilities
(1.7)
(44.7)
(27.0)
(5.1)
122.1
171.6
49.2
513.9
Notional principal value
6,119.2
8,098.9
6,257.0
7,813.4
Change in fair value used in calculating hedge ineffectiveness
48.7
(339.6)
77.7
(262.2)
2024
2023
Deposit hedge
Loan hedge
Deposit hedge
Loan hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedged items
Fixed rate deposits
Monetary amount of risk relating to Retail Deposits
5,568.6
-
5,758.1
-
Fixed rate loans
Monetary amount of risk relating to Loans to Customers
-
8,135.2
-
8,043.5
Accumulated amount of fair value hedge adjustments included on balance
(16.7)
(75.2)
30.9
(379.3)
sheet (notes 33 and 18)*
Of which: amounts related to discontinued hedging relationships
(0.6)
73.4
(4.3)
108.2
being amortised
Change in fair value used in recognising hedge ineffectiveness
(41.4)
336.5
(69.9)
238.5
Hedge ineffectiveness recognised
Included in fair value gains / (losses) in the profit and loss account (note 12)
7.3
(3.1)
7.8
(23.7)
* Under the IAS 39 rules relating to fair value hedge accounting for portfolios of interest rate risk, the change in the fair value of the hedged items attributable to the hedged risk is
shown as \u2018fair value adjustments from portfolio hedging\u2019 next to the carrying value of the hedged assets or liabilities in the appropriate note.
(b) Fair value micro hedges
Background and hedging objectives
The Group\u2019s individual fair value hedges of interest rate risk (\u2018micro hedges\u2019) relate to its long-term fixed interest rate liabilities and its
investments in fixed rate securities. The structure of these borrowings and investments exposes the Group to interest rate risk, in the
event of an adverse movement in market interest rates and it hedges against such movements.
In each case the hedge takes the form of a single interest rate swap which is intended to be in place for the expected fixed rate
period of the related borrowing or investment. The terms of the fixed rate leg of the derivative match the terms of the borrowing or
investment as far as possible and each hedging relationship was designated at the point at which the swap contract was entered into.
Each hedging relationship is tested for effectiveness on a monthly basis by comparing the movements in the calculated fair value of
the hedged item to the fair value movement in the derivative hedge.
Potential sources of ineffectiveness
In its interest rate hedging for individual items the Group seeks to minimise hedge ineffectiveness by aligning the terms of the hedging
instrument as closely as possible with those of the hedged item. The notional amount of the derivative matches that of the hedged
item and settlements are due on the same days and at the same intervals.
Nonetheless, the Group has identified the following possible sources of hedge ineffectiveness in its hedges of interest rate risk:
\u2022 The use of derivatives as a hedge of interest rate risk additionally exposes the Group to the derivative counterparties\u2019 credit risk,
which is not matched in the hedged item. This risk is minimised by transacting only with high quality counterparties and through
collateralisation arrangements (as described in note 63)
\u2022 The small difference between the fixed rate of interest charged on the hedged item and the fixed rate leg of the derivative, where
the impact of discounting will mean that movements in present values of the two flows are not exactly parallel
\u2022 The use of different discounting curves in measuring fair value changes in the hedged items and hedging instruments
Hedging instrument
The financial derivatives used in the Group\u2019s individual fair value hedges are sterling denominated interest rate swaps, with a single
derivative used to hedge each individual asset or liability. Settlement is twice yearly, on the same days as payments for the associated
hedged item fall due. For derivatives hedging liabilities, payments received by the Group are calculated based on a fixed rate of
interest, while payments made are calculated based on a floating interest rate set by reference to the compound SONIA reference
rate. For derivatives hedging assets, the converse is true.
The principal terms of the hedging instruments are set out below, analysed by the two directions of the swaps.
2024
2023
Asset hedges
Liability hedge
Asset hedges
Liability hedge
Average fixed notional interest rate
4.50%
3.99%
-
3.99%
Average notional margin over SONIA
-
-
-
-
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Notional principal value
SONIA swaps
400.0
150.0
-
150.0
400.0
150.0
-
150.0
Maturing
Within one year
-
-
-
-
Between one and two years
-
150.0
-
-
Between two and five years
-
-
-
150.0
More than five years
400.0
-
-
-
400.0
150.0
-
150.0
Fair value
(2.5)
0.3
-
(3.7)
Accounting impacts
Movements affecting the micro fair value hedges during the year are set out below.
2024
2023
Asset hedges
Liability hedge
Asset hedges
Liability hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedging instruments
Interest rate swaps
Included in derivative financial assets
5.9
0.3
-
-
Included in derivative financial liabilities
(8.4)
-
-
(3.7)
(2.5)
0.3
-
(3.7)
Notional principal value
400.0
150.0
-
150.0
Change in fair value used in calculating hedge ineffectiveness
(4.3)
4.0
-
(3.7)
2024
2023
Asset hedges
Liability hedge
Asset hedges
Liability hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedged items
Fixed rate borrowings
Corporate bond
-
(150.0)
-
(150.0)
Fixed rate assets
Investment securities
400.0
-
-
-
400.0
(150.0)
-
(150.0)
Accumulated amount of fair value hedge adjustments included in
carrying value
4.3
(4.0)
-
3.7
Of which: amounts related to discontinued hedging relationships
-
-
-
-
being amortised
Change in fair value used in recognising hedge ineffectiveness
4.3
(4.0)
-
3.7
Hedge ineffectiveness recognised
Included in fair value gains / (losses) in the profit and loss account
-
-
-
-
(note 12)
(c) Derivatives not in a hedge relationship
The Group\u2019s other derivatives comprise:
\u2022 Interest rate swaps which are economically part of the Group\u2019s portfolio hedging arrangements but failed to find a match in the
hedge designation, particularly including swaps pre-hedging interest rate risk on the new lending pipeline
\u2022 Currency futures, economically hedging exposures on lending denominated in currency, where hedge accounting has not been
adopted due to the size of the exposure
The principal terms of these derivatives are set out below.
Interest rate swaps
2024
2023
Pay fixed
Pay floating
Pay fixed
Pay floating
Average fixed notional interest rate
2.22%
2.58%
3.88%
5.52%
Average notional margin over SONIA
-
-
-
-
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Notional principal value
SONIA swaps
1,058.1
1,184.7
708.0
722.6
1,058.1
1,184.7
708.0
722.6
Maturing
Within one year
78.0
385.0
7.5
583.5
Between one and two years
218.6
209.6
23.5
126.0
Between two and five years
761.5
590.1
457.0
13.1
More than five years
-
-
220.0
-
1,058.1
1,184.7
708.0
722.6
Fair value
44.2
(43.6)
15.2
0.9
Currency futures
2024
2023
US dollar futures
Average future exchange rate
1.34
1.22
\u00a3m
\u00a3m
Notional principal value
4.5
7.6
Maturing
Within one year
4.5
7.6
Between one and two years
-
-
Between two and five years
-
-
4.5
7.6
Fair value
-
-
", "dimensions": { "concept": "ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-489": { "value": "12. Fair value net (losses)
2024
2023
\u00a3m
\u00a3m
Ineffectiveness of fair value hedges (note 26)
Portfolio hedges of interest rate risk
Deposit hedge
7.3
7.8
Loan hedge
(3.1)
(23.7)
4.2
(15.9)
Individual hedges of interest rate risk
-
-
4.2
(15.9)
Other hedging movements
(26.2)
(53.5)
Net (losses) on other derivatives
(16.9)
(8.3)
Total net (loss)
(38.9)
(77.7)
The fair value net (loss) represents the accounting volatility on derivative instruments which are matching risk exposures on an economic basis, generated by the requirements of IAS 39. Some accounting volatility arises on these items due to accounting ineffectiveness on designated hedges, or because hedge accounting has not been adopted or is not achievable on certain items. The losses and gains are primarily due to timing differences in income recognition between the derivative instruments and the economically hedged assets and liabilities. Such differences will reverse over time and have no impact on the cash flows of the Group. The impact of hedging arrangements on the Group\u2019s balance sheet is summarised in note 26 which also provides a full description of the Group\u2019s use of derivative financial instruments for hedging purposes. 26. Derivative financial instruments and hedge accounting Introduction The Group uses derivative financial instruments such as interest rate swaps for risk management purposes only. Each such derivative contract is entered into for economic hedging purposes to manage a particular identified risk (as described in notes 62 to 65) and any gains or losses arising are incidental to this objective. No trading in derivative financial instruments is undertaken. Hedge accounting is applied where appropriate, though some derivatives, while forming part of an economic hedge relationship, do not qualify for this accounting treatment under the IAS 39 rules, particularly where the hedged risk relates to an off balance sheet item. In other cases, hedge accounting has not been adopted either because natural accounting offsets are expected or because complying with the IAS 39 hedge accounting rules would be particularly onerous. The Group\u2019s hedging arrangements can be analysed for accounting purposes between: \u2022 Fair value hedges of portfolio interest rate risk, which are used to manage the interest rate risk inherent in fixed rate lending and deposit taking \u2022 Fair value hedges of interest rate risk relating to individual financial assets or liabilities. An economic hedge of the interest rate risk in fixed rate lending must also address pipeline exposures, where future lending at a given fixed rate is anticipated. However, such pre-hedging arrangements do not qualify as hedges for accounting purposes. In addition, the Group utilises currency derivatives to hedge its exposure on the small amount of its lending denominated in foreign currencies. These are not treated as hedges for accounting purposes due to the low level of exposure. While the Group utilises economic hedging strategies to mitigate the impact of the changes in market interest rates on its capital base, these activities do not give rise to accounting entries. The analysis below splits derivatives between those accounted for within portfolio fair value hedges and those which, despite representing an economic hedge, are not accounted for as hedges.
2024
2024
2023
2023
Assets
Liabilities
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives in hedge accounting relationships
Fair value portfolio hedges
Interest rate swaps
Fixed to floating
216.3
(44.7)
519.0
(5.1)
Floating to fixed
123.8
(1.7)
76.2
(27.0)
Total derivatives in portfolio fair value hedging relationships
340.1
(46.4)
595.2
(32.1)
Individual fair value hedges
Fixed to floating
5.9
(8.4)
-
-
Floating to fixed
0.3
-
-
(3.7)
Total derivatives in hedge accounting relationships
346.3
(54.8)
595.2
(35.8)
Other derivatives
Interest rate swaps
45.5
(44.9)
20.2
(4.1)
Currency futures
-
-
-
-
Total recognised derivative assets / (liabilities)
391.8
(99.7)
615.4
(39.9)
The credit risk inherent in the derivative financial assets shown above is discussed in note 63.
The balances held on the Group\u2019s balance sheet relating to the hedging of interest rate risk on its fixed rate customer loan and deposit
balances are summarised below.
Note
2024
2023
\u00a3m
\u00a3m
Derivative financial instruments
Assets
391.8
615.4
Liabilities
(99.7)
(39.9)
292.1
575.5
Fair value hedging adjustments
On loans to customers
18
(75.2)
(379.3)
On investment securities
17
7.7
-
On retail deposits
33
(16.7)
30.9
On borrowings
(0.3)
3.7
(84.5)
(344.7)
Net balance sheet position
207.6
230.8
Collateral balances
Posted (in sundry assets)
27
-
-
Received (in sundry liabilities)
40
(103.6)
(383.4)
(103.6)
(383.4)
(a) Fair value macro hedges
Background and hedging objectives
The Group\u2019s fair value hedges of portfolios of interest rate risk (\u2018macro hedges\u2019) arise from its management of the interest rate risk
inherent in its fixed rate lending and deposit taking activities. These activities would expose the Group to movement in market interest
rates if not hedged.
This position arises naturally where fixed rate loans are funded with floating or variable rate borrowings, as in the Group\u2019s
securitisation transactions, but may also arise where retail deposit funding is used. Where possible the Group takes advantage of
natural hedging between fixed rate assets and deposits, but it is unlikely that a precise match for value and tenor of the instruments
could be achieved leaving unmatched items on both sides. This is referred to as repricing or duration risk and is controlled within
limits under the Group\u2019s interest rate risk management process, described in note 63. In order to manage these exposures, they are
hedged with financial derivatives and form part of the Group\u2019s portfolio hedging arrangements. Duration risk is monitored regularly to
ensure mismatches or gaps remain within limits set by policy.
Responsibility to direct and oversee structural interest rate risk management has been delegated by the Board to the Executive Risk
Committee (\u2018ERC\u2019) and by ERC to the Asset and Liability Committee (\u2018ALCO\u2019). A hedging strategy is developed for each fixed product
considering behavioural characteristics, such as whether a customer is likely to prepay before contractual maturity. This is reviewed
from time-to-time with any changes agreed with ALCO.
In order to manage potential exposure to changes in interest rates between the point at which fixed rate products are priced and the
advance date, it may be necessary to undertake pre-hedging of assets in the pipeline. Interest rate swaps used to pre-hedge pipeline
loan exposures, which are not yet recognised on the balance sheet, can cause unmatched fair value costs or credits to arise until
both sides of the hedge can be recognised within the interest rate portfolio hedging arrangement, generally a few months after the
inception of the derivative contract.
In managing interest rate exposure, Treasury may use interest rate swaps, forward rate agreements, swaptions or interest rate caps
and floors. However, interest rate swaps are the most generally used instruments.
This policy creates two macro hedges:
\u2022 The \u2018loan hedge\u2019 matching fixed rate buy-to-let mortgage assets, or other fixed rate assets, with interest rate swaps to convert the
interest receivable to a floating rate
\u2022 The \u2018deposit hedge\u2019 matching fixed rate deposits with interest rate swaps which operates in the opposite direction, converting the
fixed rate interest payable to floating rate amounts
During the year the Group has continued to hedge interest rate risk on fixed rate CBILS and BBLS exposures using SONIA-linked
balance guaranteed swaps, which are included in the loan hedge.
The designation of the macro hedges is updated, on a month-by-month basis, using software which compares the overall tenor, value
and rate positions in order that the expected fair value movement of the designated swaps matches the expected interest rate risk
related movement in the fair value of the relevant assets or liabilities as closely as possible over the designation period. The software
applies regression analysis techniques to the potential impact of changes in expected interest rates over the designation period
to maximise expected hedge effectiveness on a prospective basis. The value of the portfolio of loans or deposits selected is then
designated, as a monetary amount of interest rate risk, as the hedged item, while the portfolio of swaps selected are designated as
the hedging instruments.
Any swaps not selected in this process are disclosed as derivatives not in hedging relationships. These will generally be swaps taken
out to pre-hedge the pipeline of fixed rate mortgage offers, which will match with the related loans when they complete.
At the end of each designation period the Group will assess the effectiveness of each hedge retrospectively, based on fair value
movements (relating to interest rate risk components only) which have occurred in the period. Movements are compared to
pre-determined test thresholds using regression techniques to determine whether the hedge was effective in the period.
Potential sources of ineffectiveness
The Group has identified the following possible sources of hedge ineffectiveness in its portfolio hedges of interest rate risk:
\u2022 The maturity profile of the hedging instruments may not exactly match that of the hedged items, particularly where hedged items
settle early
\u2022 The use of derivatives as a hedge of interest rate risk additionally exposes the Group to the derivative counterparties\u2019 credit risk,
which is not matched in the hedged item. This risk is minimised by transacting only with high quality counterparties and through
collateralisation arrangements (as described in note 63)
\u2022 The use of different discounting curves in measuring fair value changes in the hedged items and hedging instruments
\u2022 Difference in the timing of interest payments on the hedged items and settlements on the hedging instruments
These sources of ineffectiveness are minimised by the portfolio matching process, which seeks to match the terms of the items as
closely as possible.
In addition to the hedging ineffectiveness described above, group profit will also be affected by the fair value movements of interest
rate swap agreements which were entered into as part of the Group\u2019s interest rate risk hedging strategy but failed to find a match in
the hedging portfolio, particularly those relating to the pre-hedging of the lending pipeline.
Hedging Instruments
The hedging portfolios at 30 September 2024 and 30 September 2023 consist of a large number of sterling denominated swaps. In
addition, there are a small number of Balance Guarantee Swaps (\u2018BGS\u2019) in place at both dates. Settlement on all swaps is generally
quarterly (monthly for BGS) where:
\u2022 One payment is calculated based on a fixed rate of interest and the nominal value of the swap
\u2022 An opposite payment is calculated based on the same nominal value but using a floating interest rate set at a fixed margin over the
SONIA reference rate
On the BGS the nominal value of the swap is linked to the principal value of a pool of assets and reduces in line with redemptions and
repayments until maturity. Other interest rate swaps have a fixed nominal value throughout their lives.
The Group pays fixed rate and receives floating when hedging exposures from fixed rate assets (in the loan hedge). Conversely, the
Group pays floating rate and receives fixed rate when hedging fixed rate deposits, in the deposit hedge.
The principal terms of the hedging instruments are set out below, analysed between the two directions of the swap.
2024
2023
Deposit Hedge
Loan Hedge
Deposit Hedge
Loan Hedge
Average fixed notional interest rate
4.73%
2.53%
4.22%
1.77%
Average notional margin over SONIA
-
-
-
-
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Notional principal value
SONIA BGS
-
17.7
-
31.6
Other SONIA swaps
6,119.2
8,081.2
6,257.0
7,781.8
6,119.2
8,098.9
6,257.0
7,813.4
Maturing
Within one year
4,942.2
1,234.1
5,253.5
1,616.3
Between one and two years
1,097.0
1,930.7
857.5
1,238.0
Between two and five years
80.0
4,916.4
146.0
4,959.1
More than five years
-
17.7
-
-
6,119.2
8,098.9
6,257.0
7,813.4
Fair value
122.1
171.6
49.2
513.9
The values included above for BGS are analysed by their contractual maturity dates although, due to the terms of the instruments, it is likely that the balance outstanding will reduce more quickly. The changes in the levels of hedging shown above arise from the growth in the Group\u2019s loan book and the decline in the fixed rate deposit book in the year. The changes in fair value are a result of moves in market implied interest rates compared to the rates on the fixed legs of the swaps. Accounting impacts Movements affecting the portfolio fair value hedges during the year are set out below.
2024
2023
Deposit hedge
Loan hedge
Deposit hedge
Loan hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedging instruments
Interest rate swaps
Included in derivative financial assets
123.8
216.3
76.2
519.0
Included in derivative financial liabilities
(1.7)
(44.7)
(27.0)
(5.1)
122.1
171.6
49.2
513.9
Notional principal value
6,119.2
8,098.9
6,257.0
7,813.4
Change in fair value used in calculating hedge ineffectiveness
48.7
(339.6)
77.7
(262.2)
2024
2023
Deposit hedge
Loan hedge
Deposit hedge
Loan hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedged items
Fixed rate deposits
Monetary amount of risk relating to Retail Deposits
5,568.6
-
5,758.1
-
Fixed rate loans
Monetary amount of risk relating to Loans to Customers
-
8,135.2
-
8,043.5
Accumulated amount of fair value hedge adjustments included on balance
(16.7)
(75.2)
30.9
(379.3)
sheet (notes 33 and 18)*
Of which: amounts related to discontinued hedging relationships
(0.6)
73.4
(4.3)
108.2
being amortised
Change in fair value used in recognising hedge ineffectiveness
(41.4)
336.5
(69.9)
238.5
Hedge ineffectiveness recognised
Included in fair value gains / (losses) in the profit and loss account (note 12)
7.3
(3.1)
7.8
(23.7)
* Under the IAS 39 rules relating to fair value hedge accounting for portfolios of interest rate risk, the change in the fair value of the hedged items attributable to the hedged risk is shown as \u2018fair value adjustments from portfolio hedging\u2019 next to the carrying value of the hedged assets or liabilities in the appropriate note. (b) Fair value micro hedges Background and hedging objectives The Group\u2019s individual fair value hedges of interest rate risk (\u2018micro hedges\u2019) relate to its long-term fixed interest rate liabilities and its investments in fixed rate securities. The structure of these borrowings and investments exposes the Group to interest rate risk, in the event of an adverse movement in market interest rates and it hedges against such movements. In each case the hedge takes the form of a single interest rate swap which is intended to be in place for the expected fixed rate period of the related borrowing or investment. The terms of the fixed rate leg of the derivative match the terms of the borrowing or investment as far as possible and each hedging relationship was designated at the point at which the swap contract was entered into. Each hedging relationship is tested for effectiveness on a monthly basis by comparing the movements in the calculated fair value of the hedged item to the fair value movement in the derivative hedge. Potential sources of ineffectiveness In its interest rate hedging for individual items the Group seeks to minimise hedge ineffectiveness by aligning the terms of the hedging instrument as closely as possible with those of the hedged item. The notional amount of the derivative matches that of the hedged item and settlements are due on the same days and at the same intervals. Nonetheless, the Group has identified the following possible sources of hedge ineffectiveness in its hedges of interest rate risk: \u2022 The use of derivatives as a hedge of interest rate risk additionally exposes the Group to the derivative counterparties\u2019 credit risk, which is not matched in the hedged item. This risk is minimised by transacting only with high quality counterparties and through collateralisation arrangements (as described in note 63) \u2022 The small difference between the fixed rate of interest charged on the hedged item and the fixed rate leg of the derivative, where the impact of discounting will mean that movements in present values of the two flows are not exactly parallel \u2022 The use of different discounting curves in measuring fair value changes in the hedged items and hedging instruments Hedging instrument The financial derivatives used in the Group\u2019s individual fair value hedges are sterling denominated interest rate swaps, with a single derivative used to hedge each individual asset or liability. Settlement is twice yearly, on the same days as payments for the associated hedged item fall due. For derivatives hedging liabilities, payments received by the Group are calculated based on a fixed rate of interest, while payments made are calculated based on a floating interest rate set by reference to the compound SONIA reference rate. For derivatives hedging assets, the converse is true. The principal terms of the hedging instruments are set out below, analysed by the two directions of the swaps.
2024
2023
Asset hedges
Liability hedge
Asset hedges
Liability hedge
Average fixed notional interest rate
4.50%
3.99%
-
3.99%
Average notional margin over SONIA
-
-
-
-
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Notional principal value
SONIA swaps
400.0
150.0
-
150.0
400.0
150.0
-
150.0
Maturing
Within one year
-
-
-
-
Between one and two years
-
150.0
-
-
Between two and five years
-
-
-
150.0
More than five years
400.0
-
-
-
400.0
150.0
-
150.0
Fair value
(2.5)
0.3
-
(3.7)
Accounting impacts Movements affecting the micro fair value hedges during the year are set out below.
2024
2023
Asset hedges
Liability hedge
Asset hedges
Liability hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedging instruments
Interest rate swaps
Included in derivative financial assets
5.9
0.3
-
-
Included in derivative financial liabilities
(8.4)
-
-
(3.7)
(2.5)
0.3
-
(3.7)
Notional principal value
400.0
150.0
-
150.0
Change in fair value used in calculating hedge ineffectiveness
(4.3)
4.0
-
(3.7)
2024
2023
Asset hedges
Liability hedge
Asset hedges
Liability hedge
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Hedged items
Fixed rate borrowings
Corporate bond
-
(150.0)
-
(150.0)
Fixed rate assets
Investment securities
400.0
-
-
-
400.0
(150.0)
-
(150.0)
Accumulated amount of fair value hedge adjustments included in
carrying value
4.3
(4.0)
-
3.7
Of which: amounts related to discontinued hedging relationships
-
-
-
-
being amortised
Change in fair value used in recognising hedge ineffectiveness
4.3
(4.0)
-
3.7
Hedge ineffectiveness recognised
Included in fair value gains / (losses) in the profit and loss account
-
-
-
-
(note 12)
", "dimensions": { "concept": "ifrs-full:DisclosureOfHedgeAccountingExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-504": { "value": "12. Fair value net (losses)
2024
2023
\u00a3m
\u00a3m
Ineffectiveness of fair value hedges (note 26)
Portfolio hedges of interest rate risk
Deposit hedge
7.3
7.8
Loan hedge
(3.1)
(23.7)
4.2
(15.9)
Individual hedges of interest rate risk
-
-
4.2
(15.9)
Other hedging movements
(26.2)
(53.5)
Net (losses) on other derivatives
(16.9)
(8.3)
Total net (loss)
(38.9)
(77.7)
The fair value net (loss) represents the accounting volatility on derivative instruments which are matching risk exposures on an economic basis, generated by the requirements of IAS 39. Some accounting volatility arises on these items due to accounting ineffectiveness on designated hedges, or because hedge accounting has not been adopted or is not achievable on certain items. The losses and gains are primarily due to timing differences in income recognition between the derivative instruments and the economically hedged assets and liabilities. Such differences will reverse over time and have no impact on the cash flows of the Group. The impact of hedging arrangements on the Group\u2019s balance sheet is summarised in note 26 which also provides a full description of the Group\u2019s use of derivative financial instruments for hedging purposes. 71. Financial assets and financial liabilities The Group\u2019s financial assets and financial liabilities are valued on one of two bases, defined by IFRS 9: \u2022 Financial assets and liabilities carried at fair value through profit and loss (\u2018FVTPL\u2019) \u2022 Financial assets and liabilities carried at amortised cost IFRS 7 \u2013 \u2018Financial Instruments: Disclosures\u2019 requires that where assets are measured at fair value these measurements should be classified using the fair value hierarchy set out in IFRS 13 \u2013 \u2018Fair Value Measurement\u2019. This hierarchy reflects the inputs used and defines three levels: \u2022 Level 1 measurements are unadjusted market prices \u2022 Level 2 measurements are derived from directly or indirectly observable data, such as market prices or rates \u2022 Level 3 measurements rely on significant inputs which are not derived from observable data As quoted prices are not available for level 2 and 3 measurements, the valuation is derived from cash flow models based, where possible, on independently sourced parameters. The accuracy of the calculation would therefore be affected by unexpected market movements or other variances in the operation of the models, or the assumptions used. The Group had no financial assets or liabilities at 30 September 2024 or 30 September 2023 carried at fair value and valued using level 3 measurements. The Group has not reclassified any of its measurements during the year. The methods by which fair value is established for each class of financial assets and liabilities are set out below. (a) Assets and liabilities carried at fair value The following table summarises the Group\u2019s financial assets and liabilities which are carried at fair value.
Note
2024
2023
\u00a3m
\u00a3m
Financial assets
Derivative financial assets
26
391.8
615.4
Financial liabilities
Derivative financial liabilities
26
99.7
39.9
All of these financial assets and financial liabilities are required to be carried at fair value by IFRS 9. The Company has no financial assets or liabilities carried at fair value. Derivative financial assets and liabilities Derivative financial instruments are stated at their fair values in the accounts. The Group uses a number of techniques to determine the fair values of its derivative assets and liabilities, for which observable prices in active markets are not available. These are principally present value calculations based on estimated future cash flows arising from the instruments, discounted using a market interest rate, adjusted for risk as appropriate. The principal inputs to these valuation models are SONIA sterling benchmark interest rates. In order to determine the fair values, the management applies valuation adjustments to observed data where that data would not fully reflect the attributes of the instrument being valued, such as particular contractual features or the identity of the counterparty. The management reviews the models used on an ongoing basis to ensure that the valuations produced are reasonable and reflect all relevant factors. These valuations are based on market information, and they are therefore classified as level 2 measurements. Details of these assets are given in note 26. (b) Assets and liabilities carried at amortised cost The fair values for financial assets and financial liabilities held at amortised cost, determined in accordance with the methodologies set out below are summarised below.
Note
2024
2024
2023
2023
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Group
Financial assets
Cash
16
2,525.4
2,525.4
2,994.3
2,994.3
Investment securities
17
427.4
422.0
-
-
Loans to customers
18
15,705.5
15,772.5
14,874.3
14,524.0
Sundry financial assets
27
15.8
15.8
46.0
46.0
18,674.1
18,735.7
17,914.6
17,564.3
Financial liabilities
Short-term bank borrowings
0.4
0.4
0.2
0.2
Asset backed loan notes
-
-
28.0
28.0
Retail deposits
33
16,298.0
16,334.2
13,265.3
13,177.3
Corporate and retail bonds
149.9
145.5
258.2
234.8
Sale and repurchase agreements
39
100.0
100.0
50.0
50.0
Other financial liabilities
40
398.1
398.1
608.8
608.8
16,946.4
16,978.2
14,210.5
14,099.1
Note
2024
2024
2023
2023
(restated) (restated)
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Company
Financial assets
Cash
16
18.3
18.3
28.1
28.1
Intra-group cash deposits
27
107.6
107.6
193.6
193.6
Amounts owed to group companies
27
20.9
20.9
35.0
35.0
Sundry financial assets
27
0.1
0.1
0.1
0.1
146.9
146.9
256.8
256.8
Financial liabilities
Corporate and retail bonds
149.6
145.5
261.8
234.8
Amounts owed by group companies
40
23.6
23.6
24.0
24.0
Other financial liabilities
40
25.4
25.4
0.7
0.7
198.6
194.5
286.5
259.5
The fair values of retail deposits and corporate and retail bonds shown above will include amounts for the related accrued interest. Cash, sale and repurchase agreements, bank borrowings and securitisation borrowings The fair values of cash and cash equivalents, sale and repurchase agreements, bank borrowings and asset-backed loan notes, which are carried at amortised cost are considered to be not materially different from their book values. In arriving at that conclusion market inputs have been considered but because all the assets and the sale and repurchase agreements mature within three months of the year end and the interest rates charged on financial liabilities reset to market rates on a quarterly basis, little difference arises. This also applies to the parent company\u2019s loans to its subsidiaries. While the Group\u2019s asset-backed loan notes are listed, the quoted prices for an individual note may not be indicative of the fair value of the issue as a whole, due to the specialised nature of the market in such instruments and the limited number of investors participating in it. As these valuation exercises are not wholly market-based, they are considered to be level 2 measurements. Investment securities The Group\u2019s investment securities are of types for which a liquid market exists, and for which quoted prices are available. It is therefore appropriate to consider that the market price of these assets constitutes a fair value. As this valuation is based on a market price it is considered to be a level 1 measurement. Loans to customers To assess the likely fair value of the Group\u2019s loan assets in the absence of a liquid market, the directors have considered the estimated cash flows expected to arise from the Group\u2019s investments in its loans to customers based on a mixture of market-based inputs, such as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of observable and non-observable inputs these are considered to be level 3 measurements. Corporate debt The Group\u2019s retail and corporate bonds are listed on the London Stock Exchange and there is presently a reasonably liquid market in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a fair value. As this valuation is based on a market price, it is considered to be a level 1 measurement. Retail deposits To assess the likely fair value of the Group\u2019s retail deposit liabilities, the directors have considered the estimated cash flows expected to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs such as withdrawal rates. Given the mixture of observable and non-observable inputs, these are considered to be level 3 measurements. Sundry assets and liabilities Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be materially different to their carrying values. These assets and liabilities are of relatively low value and may be settled at their carrying value at the balance sheet date or shortly thereafter.", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-363": { "value": "
13. Tax charge on profit on ordinary activities
(a) Analysis of charge in the year
2024
2023
\u00a3m
\u00a3m
Current tax
UK Corporation Tax on profits of the period
75.4
73.6
Adjustment in respect of prior periods
(4.5)
(1.1)
Total current tax
70.9
72.5
Deferred tax (note 44)
(3.1)
(26.5)
Tax charge on profit on ordinary activities
67.8
46.0
The standard rate of corporation tax in the UK applicable to the Group in the year was 25.0% (2023: 22.0%), based on legislation
enacted at the year end. During the year ended 30 September 2021, the UK Government enacted legislation increasing the standard
rate of corporation tax in the UK from 19.0% to 25.0% from April 2023. The effect of these changes on deferred tax balances was
accounted for in the year ended 30 September 2021.
The Bank Corporation Tax Surcharge subjects any taxable profits arising in the Group\u2019s banking subsidiary, Paragon Bank PLC
(and no other Group entity), to an additional rate of tax to the extent these profits exceed a threshold. The effect of the surcharge
shown in note (b) below.
In the financial year ended 30 September 2022 the UK Government enacted legislation reducing the rate of the Banking Surcharge
from 8.0% to 3.0%, from April 2023, while increasing the profit threshold at which the surcharge applies to \u00a3100.0m from \u00a325.0m. This
has resulted in the surcharge applying to Paragon Bank in the current year reducing to 3.0% on earnings over \u00a3100.0m. The impact of
this change on deferred tax balances was accounted for in the year ended 30 September 2022. The combination of the standard rate
of tax and the surcharge results in taxable profits in excess of the annual threshold arising in Paragon Bank being taxed at 28.0% in the
current year (2023: 27.5%).
(b) Factors affecting tax charge for the year
Accounting standards require companies to explain the relationship between tax expense and accounting profit. This may be
demonstrated by reconciling the tax charge to the product of the accounting profit and the \u2018applicable rate\u2019, generally the domestic
rate of tax levied on corporate income in the jurisdiction in which the entity operates.
The Group operates wholly in the UK and all the Group\u2019s income arises in UK resident companies. Consequently, it is appropriate to
use the prevailing UK corporation tax rate as the comparator to the effective tax rate. As noted in (a) above, the UK corporation tax
rate applicable to the Group for the year was 25.0% (2023: 22.0%).
The impact of the Banking Surcharge is shown as a difference between tax at this rate and the actual tax charge in the table below.
2024
2023
\u00a3m
\u00a3m
Profit on ordinary activities before taxation
253.8
199.9
Profit on ordinary activities multiplied by the UK standard rate of corporation tax
63.5
44.0
Effects of:
Permanent differences
Recurring disallowable expenditure and similar items
0.2
0.5
Mismatch in timing differences
1.4
(1.3)
Change in rate of taxation on current and deferred tax (excluding Bank Surcharge)
-
(2.1)
Impact of Bank Surcharge on current and deferred tax
1.1
5.1
Prior year charge
1.6
(0.2)
Tax charge for the year
67.8
46.0
The timing difference mismatch arises because tax relief for share based payments is given on a different basis from that on which the
accounting charge for the provision of these awards is recognised under IFRS 2.
Change in rate of taxation includes the effect of providing for deferred tax balances at rates other than the comparator rate. This
includes deferred tax provision on fair value movements in the year, which form the largest part of this balance.
(c) Factors affecting future tax charges
No legislation which will have the effect of changing the rates of tax applicable to the Group from those shown above has currently been
enacted. However, the future direction of UK tax policy will significantly affect the tax payable by the Group, and this remains uncertain.
The Group\u2019s overall future effective tax rate will also be impacted by the future level of the Surcharge and by the proportion of its
taxable profit subject to it.
Various asset leasing businesses are included within the Group\u2019s Commercial Lending division. Whilst such businesses do not, in
general, have significant permanent differences, the taxable profits in a given accounting period are usually significantly different from
the accounting profits due to temporary differences.
At the balance sheet date there were no material tax uncertainties and no significant open matters with the UK tax authorities. The
Group has no material exposure to any other tax jurisdiction.
As a wholly UK based business the Group does not expect to be significantly impacted by the OECD project on Base Erosion and Profit
Shifting (\u2018BEPS\u2019).
28. Current tax assets / liabilities
Current tax in the Group and the Company represents UK corporation tax owed or recoverable.
44. Deferred tax
(a) The Group
The net deferred tax liability for which provision has been made and the movements in that balance are analysed as follows:
Opening Profit and loss Charge / (credit) Closing
balance charge / (credit) to equity balance
Current
Prior
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Year ended 30 September 2024
Accelerated tax depreciation
(8.3)
(0.3)
5.8
-
(2.8)
Retirement benefit obligations
3.1
0.6
-
1.8
5.5
Interest rate hedging
32.8
(13.2)
-
-
19.6
Loans and other derivatives
1.4
(0.1)
(0.1)
-
1.2
Share based payments
(7.5)
0.8
-
(3.0)
(9.7)
Tax losses
(3.0)
2.9
0.1
-
-
Other timing differences
(0.8)
0.2
0.2
-
(0.4)
Total
17.7
(9.1)
6.0
(1.2)
13.4
Year ended 30 September 2023
Accelerated tax depreciation
(6.9)
(5.0)
3.6
-
(8.3)
Retirement benefit obligations
0.5
1.8
-
0.8
3.1
Interest rate hedging
53.2
(20.4)
-
-
32.8
Loans and other derivatives
2.2
(0.8)
-
-
1.4
Share based payments
(3.7)
(2.8)
-
(1.0)
(7.5)
Tax losses
(0.1)
0.1
(3.0)
-
(3.0)
Other timing differences
(0.8)
(0.2)
0.2
-
(0.8)
44.4
(27.3)
0.8
(0.2)
17.7
Balances in respect of interest rate hedging in the table above relate to derivatives hedging interest rate risk in the Group\u2019s loan and
deposit books and related pipelines, and fair value accounting adjustments.
The temporary differences shown above have been provided at the rate prevailing when the Group anticipates these temporary
differences to reverse. In the event that the temporary differences actually reverse in different periods a credit or charge will arise in
a future period to reflect the difference. The timing of reversal of temporary differences will be affected by both matters within the
Group\u2019s control (such as the timing and nature of the refinancing of certain portfolios) and matters outside the Group\u2019s control
(for example, the timing of the Group\u2019s contributions to its defined benefit pension scheme).
If temporary differences reverse within Paragon Bank PLC in a period in which it is subject to the banking surcharge, then the impact
of the reversal will be at an effective tax rate that includes the banking surcharge to some extent.
The Group has no tax losses in entities whose current taxable profits are insufficient to support the recognition of a deferred tax asset
(2023: \u00a33.7m).
(b) The Company
The net deferred tax (asset) / liability for which provision has been made, and the movements in that balance are analysed as follows:
Opening Profit and loss Charge / (credit) Closing
balance charge / (credit) to equity balance
Current
Prior
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Year ended 30 September 2024
Accelerated tax depreciation
0.1
-
-
-
0.1
Tax losses carried forward
(1.7)
1.7
-
-
-
Other timing differences
-
-
-
-
-
Total
(1.6)
1.7
-
-
0.1
Year ended 30 September 2023
Accelerated tax depreciation
0.1
-
-
-
0.1
Tax losses carried forward
-
-
(1.7)
-
(1.7)
Other timing differences
-
-
-
-
-
0.1
-
(1.7)
-
(1.6)
", "dimensions": { "concept": "ifrs-full:DisclosureOfIncomeTaxExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-364": { "value": "
15. Earnings per share
Earnings per ordinary share is calculated as follows:
2024
2023
Profit for the year (\u00a3m)
186.0
153.9
Basic weighted average number of ordinary shares ranking for dividend during the year (m)
210.1
224.1
Dilutive effect of the weighted average number of share options and incentive plans in issue during the year (m)
8.3
8.0
Diluted weighted average number of ordinary shares ranking for dividend during the year (m)
218.4
232.1
Earnings per ordinary share
- basic
88.5p
68.7p
- diluted
85.2p
66.3p
", "dimensions": { "concept": "ifrs-full:DisclosureOfEarningsPerShareExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-365": { "value": "
16. Cash and cash equivalents
\u2018Cash and Cash Equivalents\u2019 includes current bank balances, money market placements and fixed rate sterling term deposits with
London banks, and balances with the Bank of England. It is analysed as set out below.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Deposits with the Bank of England
2,315.5
2,783.3
1,612.5
Balances with central banks
2,315.5
2,783.3
1,612.5
Deposits with other banks
209.9
211.0
318.4
Balances with other banks
209.9
211.0
318.4
Cash and cash equivalents
2,525.4
2,994.3
1,930.9
Not all of the Group\u2019s cash is immediately available for its general purposes, including liquidity management. Cash received in
respect of loan assets funded through warehouse facilities and securitisations is not immediately available, due to the terms of those
arrangements. This cash is shown as \u2018securitisation cash\u2019 below.
Cash held by the Trustee of the Group\u2019s employee share ownership plan (\u2018ESOP\u2019) may only be used to invest in the shares of the
Company, pursuant to the aims of that plan. This is shown as \u2018ESOP cash\u2019 below.
The total \u2018Cash and Cash Equivalents\u2019 balance may be analysed as shown below:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
The Group
Available cash
2,417.4
2,907.7
1,689.1
Securitisation cash
107.9
86.1
240.5
ESOP cash
0.1
0.5
1.3
2,525.4
2,994.3
1,930.9
2024 2023 2022
(restated) (restated)
\u00a3m
\u00a3m
\u00a3m
The Company
Available cash
18.2
27.6
19.8
ESOP cash
0.1
0.5
1.3
18.3
28.1
21.1
Cash and cash equivalents are classified as Stage 1 exposures (see note 22) for the purposes of impairment provisioning. The
probabilities of default have been assessed to be so low as to require no significant impairment provision.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-420": { "value": "16. Cash and cash equivalents \u2018Cash and Cash Equivalents\u2019 includes current bank balances, money market placements and fixed rate sterling term deposits with London banks, and balances with the Bank of England. It is analysed as set out below.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Deposits with the Bank of England
2,315.5
2,783.3
1,612.5
Balances with central banks
2,315.5
2,783.3
1,612.5
Deposits with other banks
209.9
211.0
318.4
Balances with other banks
209.9
211.0
318.4
Cash and cash equivalents
2,525.4
2,994.3
1,930.9
Not all of the Group\u2019s cash is immediately available for its general purposes, including liquidity management. Cash received in respect of loan assets funded through warehouse facilities and securitisations is not immediately available, due to the terms of those arrangements. This cash is shown as \u2018securitisation cash\u2019 below. Cash held by the Trustee of the Group\u2019s employee share ownership plan (\u2018ESOP\u2019) may only be used to invest in the shares of the Company, pursuant to the aims of that plan. This is shown as \u2018ESOP cash\u2019 below. The total \u2018Cash and Cash Equivalents\u2019 balance may be analysed as shown below:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
The Group
Available cash
2,417.4
2,907.7
1,689.1
Securitisation cash
107.9
86.1
240.5
ESOP cash
0.1
0.5
1.3
2,525.4
2,994.3
1,930.9
2024 2023 2022
(restated) (restated)
\u00a3m
\u00a3m
\u00a3m
The Company
Available cash
18.2
27.6
19.8
ESOP cash
0.1
0.5
1.3
18.3
28.1
21.1
Cash and cash equivalents are classified as Stage 1 exposures (see note 22) for the purposes of impairment provisioning. The probabilities of default have been assessed to be so low as to require no significant impairment provision.", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToBanksExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-460": { "value": "Not all of the Group\u2019s cash is immediately available for its general purposes, including liquidity management. Cash received in respect of loan assets funded through warehouse facilities and securitisations is not immediately available, due to the terms of those arrangements. This cash is shown as \u2018securitisation cash\u2019 below. Cash held by the Trustee of the Group\u2019s employee share ownership plan (\u2018ESOP\u2019) may only be used to invest in the shares of the Company, pursuant to the aims of that plan. This is shown as \u2018ESOP cash\u2019 below. The total \u2018Cash and Cash Equivalents\u2019 balance may be analysed as shown below:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
The Group
Available cash
2,417.4
2,907.7
1,689.1
Securitisation cash
107.9
86.1
240.5
ESOP cash
0.1
0.5
1.3
2,525.4
2,994.3
1,930.9
2024 2023 2022
(restated) (restated)
\u00a3m
\u00a3m
\u00a3m
The Company
Available cash
18.2
27.6
19.8
ESOP cash
0.1
0.5
1.3
18.3
28.1
21.1
Cash and cash equivalents are classified as Stage 1 exposures (see note 22) for the purposes of impairment provisioning. The probabilities of default have been assessed to be so low as to require no significant impairment provision.", "dimensions": { "concept": "ifrs-full:DisclosureOfRestrictedCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-366": { "value": "17. Investment securities The Group\u2019s investment securities, which are held as part of Paragon Bank\u2019s liquidity buffer, are analysed as follows: Principal amount Carrying value 2024 2023 2024 2023 \u00a3m \u00a3m \u00a3m \u00a3m UK Government securities 400.0 - 404.4 - Covered bonds 23.0 - 23.0 - 423.0 - 427.4 - The UK Government securities (\u2018gilts\u2019) bear interest at a fixed rate, the average maturity of the gilts is 20.5 years, and the average fixed rate coupon is 4.5%. Hedging arrangements in respect of these securities are described in note 26. The covered bonds are issued by UK financial institutions, are denominated in sterling and bear interest at a variable rate of interest based on SONIA. The average maturity of the covered bonds is 5.0 years and the average interest margin above SONIA is 0.51%. All the investment securities bear credit risk and are classified as Stage 1 exposures (see note 22 for IFRS 9 impairment purposes. As the securities are UK sovereign exposures, or secured exposures to UK financial institutions, the probability of default has been assessed to be so low that no significant impairment provision is required. While the securities are available to use as security against funding arrangements, such as sale and repurchase transactions, none were used in this way at 30 September 2024.", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfInvestmentSecurities", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-367": { "value": "
18. Loans to customers
The Group\u2019s loans to customers at 30 September 2024, analysed between the segments described in note 2 are as follows:
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
First mortgages
13,299.6
12,747.8
12,122.4
Second charge mortgages
116.1
154.5
206.3
Total Mortgage Lending
13,415.7
12,902.3
12,328.7
Finance lease receivables
19
995.6
907.3
825.2
Development finance
884.0
747.8
719.9
Other secured commercial lending
320.8
227.6
238.1
Other commercial loans
89.4
89.3
98.4
Total Commercial Lending
2,289.8
1,972.0
1,881.6
Loans to customers
15,705.5
14,874.3
14,210.3
Fair value adjustments from portfolio hedging
26
(75.2)
(379.3)
(559.9)
15,630.3
14,495.0
13,650.4
Other secured commercial lending includes structured lending, aviation mortgages and invoice finance.
Other commercial loans includes principally professions finance, discounted receivables, term loans issued under schemes
sponsored by the British Business Bank (\u2018BBB\u2019) and other short term commercial balances.
The Group\u2019s purchased loan portfolios are analysed below.
2024
2023
\u00a3m
\u00a3m
First mortgage loans
5.1
9.6
Consumer loans
36.0
49.0
Motor finance loans
-
0.2
41.1
58.8
Information on the Estimated Remaining Collections (\u2018ERCs\u2019), the undiscounted forecast collectible amounts, for first mortgages and
consumer loans is given in note 63. All other loans above are internally generated or arise from acquired operations.
The amounts of the Group\u2019s first mortgage assets pledged as collateral under the central bank facilities described in note 38 or under
the securitisation and warehouse funding arrangements described in notes 34 and 35 are shown below. These include notes retained
by the Group described in note 64. The table also shows assets prepositioned with the Bank of England for use in future drawings.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Pledged as collateral in respect of
Asset backed loan notes
2,108.7
1,529.5
2,099.8
Warehouse facilities
-
-
850.8
Central bank facilities
1,097.8
4,109.0
3,790.9
Total pledged as collateral
3,206.5
5,638.5
6,741.5
Prepositioned with Bank of England
6,571.3
2,568.7
2,675.5
Other first mortgage assets
3,521.8
4,540.6
2,705.4
Total first mortgage assets
13,299.6
12,747.8
12,122.4
No assets of other classes were pledged as collateral at 30 September 2024, 30 September 2023 or 30 September 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToCustomersExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-461": { "value": "19. Finance lease receivables The Group\u2019s finance leases can be analysed as shown below.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Motor finance
331.4
297.7
261.3
Asset finance
633.2
559.1
498.8
BBB sponsored schemes
31.0
50.5
65.1
Carrying value
995.6
907.3
825.2
The minimum lease payments due under these loan agreements are:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts receivable
Within one year
279.4
318.5
284.7
Within one to two years
285.0
269.9
244.4
Within two to three years
255.4
218.7
189.5
Within three to four years
190.9
143.5
136.5
Within four to five years
104.8
67.1
60.5
After five years
104.1
60.2
46.2
1,219.6
1,077.9
961.8
Less: future finance income
(213.1)
(158.1)
(119.8)
Present value
1,006.5
919.8
842.0
The present values of those payments, net of provisions for impairment, carried in the accounts are:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts receivable
Within one year
230.5
272.9
248.7
Within two to five years
690.5
597.0
554.0
After five years
85.5
49.9
39.3
Present value
1,006.5
919.8
842.0
Allowance for uncollectible amounts
(10.9)
(12.5)
(16.8)
Carrying value
995.6
907.3
825.2
", "dimensions": { "concept": "ifrs-full:DisclosureOfMaturityAnalysisOfFinanceLeasePaymentsReceivableExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-368": { "value": "
20. Impairment provisions on loans to customers
The following notes set out information on the Group\u2019s impairment provisioning under IFRS 9 for the loans to customers balances set
out in note 18, including both finance leases, accounted for under IFRS 16, and loans held at amortised cost, accounted for under IFRS 9,
as both groups of assets are subject to the IFRS 9 impairment requirements.
The disclosures are set out within the following notes:
\u2022 21 Loan impairments \u2013 Basis of provision
\u2022 22 Loan impairments by stage and division
\u2022 23 Loan impairments \u2013 Provision movements in the year
\u2022 24 Loan impairments \u2013 Economic inputs to calculations
\u2022 25 Loan impairments \u2013 Sensitivity analysis
The impact on the Group\u2019s profit and loss account for the year is set out in note 11.
21. Loan impairment \u2013 basis of provisions
IFRS 9 requires that impairment is evaluated on an expected credit loss (\u2018ECL\u2019) basis. ECLs are based on an assessment of the
probability of default (\u2018PD\u2019) and loss given default (\u2018LGD\u2019), discounted to give a net present value. The estimation of ECL should be
unbiased and probability weighted, considering all reasonable and supportable information, including forward-looking economic
assumptions and a range of possible outcomes. The provision may be based on either twelve month or lifetime ECL, dependent on
whether an account has experienced a significant increase in credit risk (\u2018SICR\u2019).
The Group\u2019s process for determining its provisions for impairments is summarised below. This includes:
i. The methods used for the calculation of ECL
ii. How it defines SICR
iii. How it defines default
iv. How it identifies which loans are credit impaired, as defined by IFRS 9
v. How the ECL estimation process is monitored and controlled
vi. How the Group develops and enhances the models it uses in the ECL estimation process
vii. How the Group uses judgemental adjustments to ensure all elements of credit risk are fully addressed
i) Calculation of expected credit loss (\u2018ECL\u2019)
For the majority of the Group\u2019s loan assets, the ECL is generated using statistical models applied to account data to generate PD
and LGD components. In determining for which portfolios a statistically modelled approach is appropriate, the Group considers the
volume of available data and the level of similarity of the credit characteristics of the underlying accounts.
PD on both a twelve month and lifetime basis is estimated based on statistical models for the Group\u2019s most significant asset classes.
The PD calculation is a function of current asset performance, customer information and future economic assumptions. The models
were developed through the analysis of correlation in historic data, which identified which current and historical customer attributes
and external economic variables were predictive of future loss. PD measures are calculated for the full contractual lives of loans with
the models deriving probabilities that, at a given future date, a loan will be in default, performing or closed. The Group utilised all
reasonably available information in its possession for this exercise.
LGD for each account is derived by calculating a value for exposure at the point of default (which will include consideration of future
interest, account charges and receipts) and reducing this for security values, net of likely costs of recovery. These calculations allow
for the Group\u2019s potential case management activities, including the use of receivers of rent in buy-to-let cases. This evaluation
includes the potential impact of economic conditions at the time of any future default or enforcement. The derivation of the significant
assumptions used in these calculations is discussed below.
In certain asset classes a fully modelled approach is not possible. This is generally where there are few assets in the class,
where there is insufficient historical data on which to base an analysis or where certain measures, such as days past due are not
useful (including cases where the loan agreement does not require regular payments of pre-determined amounts). In these cases,
which represent a small proportion of the total portfolio, alternative approaches are adopted. These rely on internal cost monitoring
practices and professional credit judgement. For each of these portfolios, minimum provision levels are set based on overall
performance for the asset class and the risk appetites informing underwriting processes.
The largest portfolio where a fully modelled approach is not taken is the Group\u2019s development finance book, which has a relatively
low number of cases (around 250) and a low incidence of historical losses on which to base a model. For this portfolio the impairment
provision is based on the output of internal case-by-case monitoring, performed within the business and subject to a process of
challenge by the finance and credit risk functions.
Notwithstanding the mechanical procedures discussed above, the Group will always consider whether the process generates
sufficient provision for particular loans, especially large exposures, and will provide additional amounts as appropriate.
In extreme or unprecedented economic conditions, it is likely that mechanical models will be less predictive of outcomes as the
historical data used for modelling will be insufficiently representative of conditions at the balance sheet date. This may be the case
where economic indicators at the reporting date and future expectations for those indicators lie outside the range of the observations
used to construct the models. In such circumstances, management carefully review all outputs to ensure provision is adequate.
During the current financial year interest rates have maintained the highest levels seen in some time, having reached this point with
unusual speed, putting financial pressure on businesses and households. Rates of inflation began the year at what were historically
relatively high levels and declined only slowly. This type of economic environment is not significantly represented in the historic data
sets used by the Group to construct its IFRS 9 impairment models. It was also noted that a rapidly developing economic situation is
likely to lead to a lagging impact on the credit bureau data which forms an input to models of customer behaviour, which may delay the
recognition of an account potentially at risk.
These factors led management to conclude that current and forecast economic conditions were not ones under which the Group\u2019s
models would necessarily perform well, and that judgemental adjustments might be required to compensate for these weaknesses.
The methodologies used to derive the Group\u2019s ECL provisions at 30 September 2024 are analysed below.
Gross
Impairment
Net
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Modelled portfolios
14,418.7
(41.2)
14,377.5
Judgemental adjustments thereon
-
(5.0)
(5.0)
14,418.7
(46.2)
14,372.5
Non-modelled portfolios
1,363.3
(30.3)
1,333.0
Total
15,782.0
(76.5)
15,705.5
Gross
Impairment
Net
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Modelled portfolios
13,825.4
(48.3)
13,777.1
Judgemental adjustments thereon
-
(6.5)
(6.5)
13,825.4
(54.8)
13,770.6
Non-modelled
1,122.5
(18.8)
1,103.7
Total
14,947.9
(73.6)
14,874.3
In addition to the judgemental adjustments to model outputs shown above, management have applied a \u00a31.5m uplift to provision
floors in the development finance operation, reflecting specific economic risks to that business, meaning that total uplifts were
\u00a36.5m (2023: \u00a36.5m). The derivation of these adjustments is discussed further below.
ii) Significant Increase in Credit Risk (\u2018SICR\u2019)
Under IFRS 9, SICR is not defined solely by account performance, but on the basis of the customer\u2019s overall credit position, and this
evaluation should include consideration of external data. The Group\u2019s aim is to define SICR to correspond, as closely as possible,
to that population of accounts which are subject to enhanced administrative and monitoring procedures operationally. The Group
assesses SICR in its modelled portfolios primarily on the basis of the relative difference in an account\u2019s lifetime PD between
origination and the reporting date. The levels of difference required to qualify as an SICR may differ between portfolios and will
depend, to some extent, on the level of risk originally perceived and are monitored on an ongoing basis to ensure that this calibrates
with actual experience.
It should be noted that the use of the current PD, which includes external factors such as credit bureau data, means that all relevant
information in the Group\u2019s hands concerning the customers\u2019 present credit position is included in the evaluation, as well as the impact
of future economic expectations.
For non-modelled portfolios, the SICR assessment is based on the credit monitoring position of the account in question and for all
portfolios a number of qualitative indicators which provide evidence of SICR have been considered.
Loans will generally be considered to retain significantly increased credit risk for a period after the SICR trigger no longer remains.
As part of its determination of whether model outputs form a reliable basis for impairment provisioning, the Group considered
whether it had any evidence of groups of accounts demonstrating factors indicating a higher level of credit risk than other accounts in
the same portfolios, either from operational experience or its regular credit risk monitoring activities. No such evidence was noted at
30 September 2024 or 30 September 2023, and hence no additional accounts were identified as having an SICR.
iii) Definitions of default
As the IFRS 9 definition of ECL is based on PD, default must be defined for this purpose. The analysis of these default cases
provides the foundation for the Group\u2019s PD modelling. IFRS 9 provides a rebuttable presumption that an account is in default when it
is 90 days overdue and this was used as the basis of the Group\u2019s definition, combined with qualitative and quantitative factors specific
to each portfolio.
The most influential quantitative factor in the majority of portfolios is the arrears level, while the principal qualitative factors relate
to internal account management statuses. In particular the decision to commence a process of enforcement will be considered as a
default in all portfolios. In the Group\u2019s buy-to-let mortgage portfolio the appointment of a receiver of rent to manage the property on
the customer\u2019s behalf is considered a default, while for portfolios assessed on a case-by-case basis, such as the Group\u2019s development
finance loans, the movement of an account to the highest risk category used for internal monitoring is considered as a default.
This ensures that the Group\u2019s definitions of default for its various portfolios are materially aligned to the regulatory definitions
of default used internally, and are broadly aligned to its internal operational procedures, allowing for the arbitrary nature of the
90-day cut-off, which is a regulatory rather than an operational requirement. In particular the Group\u2019s receiver of rent cases are
defined as defaulted for modelling purposes as the behaviour of the case after that point is significantly influenced by internal
management decisions.
iv) Credit Impaired loans
IFRS 9 defines a credit impaired account as one where an account has suffered one or more events which have had a detrimental
effect on future cash flows. It is thus a backward-looking definition, rather than one based on future expectations.
Credit impaired assets are identified either through quantitative measures or by operational status. Designations of accounts
for regulatory capital purposes are also taken into account. Assets may also be assigned to Stage 3 if they are identified as credit
impaired as a result of management review processes.
All loans which are in the process of enforcement, from the point where this becomes the administration strategy, are classified as
credit impaired.
Loans are retained in Stage 3 for three months after the point where they cease to exhibit the characteristics of default. After this
point, they may move to Stage 2 or Stage 1 depending on whether an SICR trigger remains.
All default cases are considered to be credit impaired, including all receiver of rent cases and all cases with at least one payment more
than 90 days overdue, even where such cases are being managed in the expectation of realising all of the carrying balance.
In order to provide better information for users, additional analysis of credit impaired accounts has been presented in note 22,
distinguishing between probationary accounts, receiver of rent accounts, accounts subject to realisation / enforcement procedures
and long-term managed accounts, all of which are treated as credit impaired. While other indicators of default are in use, the
categories shown account for the overwhelming majority of Stage 3 cases.
v) Monitoring of ECL estimation processes
The Group\u2019s ECL models are compiled on the basis of the analysis of relevant historical data. Before a model is adopted for use
its operations and outputs are examined to ensure that it is expected to be appropriately predictive and, if it is an updated model,
expected to be more predictive than any existing model. Before a new model is adopted the changes and impacts will be considered
by the CFO, alongside any advice from the Group\u2019s independent model review functions. The performance of all models is reviewed on
an ongoing basis, by senior finance and risk management, including the CFO. Monitoring packs comparing actual and predicted loss
levels are produced at regular intervals, set on the basis of the materiality of each model. The continuing appropriateness of model
assumptions is also reviewed as part of this process.
Models are revisited on a regular basis to ensure that they continue to reflect the most recent data as the available information
increases over time.
On a monthly basis all model outputs, model overlays and provisions calculated for non-modelled books are reviewed by senior
finance management including the CFO in conjunction with the latest credit risk operational and economic metrics to ensure that the
impairment provision by asset type remains appropriate. This exercise will be the subject of particular focus at the year end and the
half year.
This information is summarised for the Audit Committee on a biannual basis, and they have regard to this data in forming their
conclusions on the appropriateness of provisioning levels.
vi) Model development
The models used by the Group are updated from time-to-time to allow for changes in the business, developments in best practice
and the availability of additional data with the passing of time. During the year ended 30 September 2024 a major update to the
Motor Finance PD model took place, meaning that three of the Group\u2019s four principal PD models, covering over 99% of modelled
balances, have been updated since IFRS 9 was implemented.
The adoption of the new Motor Finance model has enabled the reporting process in the year to be more streamlined, supported
increased use of scenario analysis, and increased the ability of the model to respond to economic inputs and wider customer credit
data. It is also based on a greater volume of current data, as the Group only re-entered this market in 2014, four years before the
implementation date of the first generation PD model.
The impacts of the adoption of the new Motor Finance PD model in the year ended 30 September 2024 on a like-for-like basis were to
increase provision by \u00a30.8m and transfer \u00a36.5m of gross balances from Stage 1 to Stage 2.
The Group\u2019s programme of model development continued during the year with a particular focus on analysing how default and loss
data recorded over the period of the Covid pandemic should be reflected in the next generation of forward-looking models, given the
unprecedented nature of the pandemic and the national and international response to it.
All revised models and model enhancements are carefully reviewed and tested before adoption, and are subject to a governance
process for their approval.
vii) Judgemental adjustments
To ensure that the Group\u2019s loan portfolios are properly provisioned, the Group considers factors that might impact on customers,
but which may either not be reflected by its provision processes, be only partially reflected or not be reflected sufficiently quickly.
These may include consideration of the likely impact of the broad economic environment, customer and market sentiment and expert
knowledge within the Group\u2019s businesses.
In the year ended 30 September 2024 the most significant factors in these considerations were the extent to which uncertainties in
the UK economy arising from the rapidly rising interest rates, and increases in the cost of living and doing business in the UK seen in
recent periods, and the impacts of continuing world conflicts were reflected in current customer performance at the period end and
were being fully addressed by the Group\u2019s provision modelling, particularly in view of the lack of recent observations relating to similar
conditions. These impacts were felt particularly in the Group\u2019s development finance business where some projects priced before
recent rises in costs and interest rates came under stress in the period.
The divergence of the current economic environment from those experienced over much of recent history inevitably weakens the
ability of any experience-based model to predict credit performance accurately, and means that management have to consider
carefully the requirement for the mechanically generated provision to be adjusted.
Where management has identified a requirement to amend the calculated provision as a result of either model deficiencies or
idiosyncratic behaviour in part of the portfolio, judgemental adjustments are applied to the modelled outputs so that the ECL
recognised corresponds to expert judgement, taking into account the widest possible range of current information, which might not
be factored into the modelling process. Similarly where non-modelled books come under stress, methodologies may be adjusted to
ensure coverage is sufficient.
The Group\u2019s approach to impairment modelling is based on the analysis of historical credit data. In normal circumstances the
Group\u2019s objective is to develop its modelling to the point where the level of judgemental adjustments required is minimal, but in
economic conditions where previous relevant experience is limited or non-existent, some form of judgemental adjustment is always
likely to be necessary. While high interest rates and sharp price rises have occurred in the UK in the past, market conditions, products
and regulatory expectations have moved on considerably in the meantime, and most such observations would pre-date the existence
of buy-to-let mortgages as a distinct asset class. This means that the value of past history as a guide to future credit performance
is reduced.
Current model behaviours and the potential for unobserved credit issues have meant that the requirement for such adjustments
over recent periods has been significant, even given the work done to replace and enhance the Group\u2019s first generation of IFRS 9
impairment models. Evidence considered by management in order to assess the size of the adjustments required included internal
performance data, customer and broker feedback, insight surveys, industry intelligence, evidence on the wider economy and
quantitative and qualitative data and statements from industry, government and regulatory bodies. These were combined with the
expert knowledge within the business to form a broad estimate of the level of provision required across the Group.
A similar process was undertaken in respect of non-modelled books to ensure that specific issues and impacts were being identified,
and the minimum provisions set for each portfolio remained sufficient.
As part of these exercises, the potential for climate-related issues to impact on customer business models or security values over the
timescales for ECL calculation required by IFRS 9 was considered. No specific requirement for additional impairment provisions over
the amounts already determined was identified.
The requirement for judgemental adjustments is considered on a portfolio-by-portfolio basis, and the potential for the existence of
significant groups of assets being particularly exposed to credit risk in the expected economic scenarios is also considered.
The total amounts of judgemental adjustments provided across the Group are set out below by segment.
2024
2024
2023
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage Lending \u2013 modelled
3.0
3.0
Commercial Lending \u2013 modelled
2.0
3.5
Commercial Lending \u2013 non-modelled
1.5
-
3.5
3.5
6.5
6.5
The position at 30 September 2024 is broadly similar to that at 30 September 2023, representing the extent to which the concerns
over future customer performance and the potential for future economic headwinds which gave rise to the original adjustments
remain in place. While some adverse trends in performance have been noted in the portfolios, these have been offset, to some extent,
by the impact of forecast downward trends in future inflation and interest rates in the scenarios underlying the impairment models.
Within the overall position, there has been some movement on individual books, with the solid performance of the SME asset finance
book reducing the need for overlay, while the conditions faced by developers in the current economic situation generated a need for
additional overlay.
The adjustment in the Mortgage Lending book at the previous year end had represented the level to which the credit metrics and
other model inputs did not produce a result for the buy-to-let portfolio which accorded with the credit expectations of management,
brokers and customers, particularly in respect of legacy assets. While there has been some upward movement in arrears metrics,
both for the Group and the buy-to-let market more generally, and some long standing cases have been resolved, future expectations
remain broadly in line with those twelve months earlier. In response to these factors, management decided that it was appropriate to
maintain the level of overlay at 30 September 2024.
The Group\u2019s SME lending portfolio performed generally strongly in the period, with a consequent impact on the calculated provision.
However, a level of caution remains as to the broader outlook for UK SMEs in the current economic climate, and there remain
concerns as to the effectiveness of the Group\u2019s provisioning model in a high interest rate environment. On this basis the judgemental
adjustment has been reduced to \u00a31.0m for the current year (2023: \u00a32.5m).
For the motor finance portfolio, the \u00a31.0m overlay to the modelled provision, first included at 30 September 2023, has been
maintained (2023: \u00a31.0m). While early indications show the second generation model to be more effective at identifying credit risk
cases, the data it is built on still includes little information corresponding to a period of falling inflation rapidly following a period of
sharp price rises. Therefore the overlay has been retained to ensure provision in that book remains reasonable overall, considering
other portfolio data.
The Group\u2019s analysis found no evidence of particular concentrations of credit risk below portfolio level. Given this, and the high level
nature of the exercise undertaken, the judgemental adjustments on modelled balances have been apportioned across the Group\u2019s
buy-to-let mortgage, SME lending and motor finance portfolios, as appropriate, to individual Stage 1 cases. As such they are included
in the credit risk disclosures required by IFRS 7.
Within the development finance book, performance deteriorated in the year, impacted by increased materials and labour costs and
higher interest rates, particularly on projects approved and costed before these became likely. In response, as well as focussed
reviews on individual cases, the Group determined that the minimum provision for all cases should be uplifted from normal levels,
generating an additional provision of \u00a31.5m, focussed on older cases (2023: \u00a3nil).
The Group will continue to monitor the requirement for all these adjustments as the economic situation develops and its impacts
are more fully reflected in model outputs. It is anticipated that a more normal economic situation would require a lower value of
adjustments, but the timescale in which such a scenario might be reached appears uncertain.
The Group has adopted the terminology for impairment adjustments proposed by the Taskforce on Disclosures about Expected
Credit Loss (\u2018DECL\u2019) which restricts the use of the term \u2018Post Model Adjustment\u2019 (\u2018PMA\u2019) to those adjustments calculated on an
account-by-account basis and therefore no longer uses that term for other judgemental adjustments.
22. Loan impairments by stage and division
IFRS 9 calculations and related disclosures require loan assets to be divided into three stages, with accounts which were credit
impaired on initial recognition representing a fourth class.
The three classes comprise: those where there has been no SICR since advance or acquisition (Stage 1); those where there has been
an SICR (Stage 2); and loans which are impaired (Stage 3).
\u2022 On initial recognition, and for assets where there has not been an SICR, provisions will be made in respect of losses resulting from
the level of credit default events expected in the twelve months following the balance sheet date
\u2022 Where a loan has experienced an SICR, whether or not the loan is considered to be credit impaired, provisions will be made based
on the ECLs over the full life of the loan
\u2022 For credit impaired assets, provisions will also be made on the basis of lifetime ECLs
For assets which were \u2018Purchased or Originated as Credit Impaired\u2019 (\u2018POCI\u2019) accounts (those considered as credit impaired at the
point of first recognition), such as certain of the Group\u2019s acquired assets in Mortgage Lending, the carrying valuation is based on
expected cash flows discounted by the EIR determined at the point of acquisition.
The recommendations of the taskforce on Disclosures about Expected Credit Loss (\u2018DECL\u2019) suggest standard categories for analysis
of firm\u2019s loan books. In the context of the DECL categorisation the Group\u2019s Mortgage Lending balances are classified as \u2018UK retail
mortgage\u2019 business while its Commercial Lending balances, being advanced primarily to SME entities correspond with the \u2018UK other
retail\u2019 business classification.
The Group defines coverage as the value of the ECL provision divided by the gross carrying value of the related loans.
An analysis of the Group\u2019s loan portfolios between the stages defined above is set out below.
Stage 1
Stage 2*
Stage 3*
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
Mortgage Lending
12,670.3
598.9
171.1
10.7
13,451.0
Commercial Lending
2,034.9
177.2
112.5
6.4
2,331.0
Total
14,705.2
776.1
283.6
17.1
15,782.0
Impairment provision
Mortgage Lending
(3.4)
(2.2)
(29.7)
-
(35.3)
Commercial Lending
(12.6)
(5.0)
(21.1)
(2.5)
(41.2)
Total
(16.0)
(7.2)
(50.8)
(2.5)
(76.5)
Net loan book
Mortgage Lending
12,666.9
596.7
141.4
10.7
13,415.7
Commercial Lending
2,022.3
172.2
91.4
3.9
2,289.8
Total
14,689.2
768.9
232.8
14.6
15,705.5
Coverage ratio
Mortgage Lending
0.03%
0.37%
17.36%
-
0.26%
Commercial Lending
0.62%
2.82%
18.76%
39.06%
1.77%
Total
0.11%
0.93%
17.91%
14.62%
0.48%
* Stage 2 and 3 balances are analysed in more detail below.
Stage 1
Stage 2*
Stage 3*
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Gross loan book
Mortgage Lending
12,159.7
625.0
142.2
17.7
12,944.6
Commercial Lending
1,812.6
119.8
63.8
7.1
2,003.3
Total
13,972.3
744.8
206.0
24.8
14,947.9
Impairment provision
Mortgage Lending
(4.8)
(6.1)
(31.4)
-
(42.3)
Commercial Lending
(14.8)
(3.3)
(8.4)
(4.8)
(31.3)
Total
(19.6)
(9.4)
(39.8)
(4.8)
(73.6)
Net loan book
Mortgage Lending
12,154.9
618.9
110.8
17.7
12,902.3
Commercial Lending
1,797.8
116.5
55.4
2.3
1,972.0
Total
13,952.7
735.4
166.2
20.0
14,874.3
Coverage ratio
Mortgage Lending
0.04%
0.98%
22.08%
-
0.33%
Commercial Lending
0.82%
2.75%
13.17%
67.61%
1.56%
Total
0.14%
1.26%
19.32%
19.35%
0.49%
* Stage 2 and 3 balances are analysed in more detail below.
Finance leases included above, analysed by staging, were:
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
958.1
40.7
7.7
-
1,006.5
Impairment provision
(4.9)
(2.8)
(3.2)
-
(10.9)
Net loan book
953.2
37.9
4.5
-
995.6
Coverage Ratio
0.51%
6.88%
41.56%
-
1.08%
30 September 2023
Gross loan book
873.0
40.6
6.0
0.2
919.8
Impairment provision
(8.0)
(1.9)
(2.6)
-
(12.5)
Net loan book
865.0
38.7
3.4
0.2
907.3
Coverage Ratio
0.92%
4.68%
43.33%
-
1.36%
In terms of the Group\u2019s credit management processes, Stage 1 cases will fall within the appropriate customer servicing functions and
Stage 2 cases will be subject to account management arrangements. Stage 3 cases will include both those subject to recovery or
similar processes and those which, though being managed on a long-term basis, are included with defaulted accounts for regulatory
purposes. However, these broad categorisations may vary between different product types.
POCI balances included in the Commercial Lending segment arise principally from acquired businesses, where those assets were
identified as credit impaired at the point of acquisition when the acquired portfolios as a whole were evaluated. Additional provision
arising on these assets post-acquisition is shown as \u2018Impairment Provision\u2019 above.
The Group\u2019s acquired secured consumer loans are included in the Mortgage Lending segment, together with its closed second charge
mortgage portfolios. Acquired loans which were performing on acquisition are included in the staging analysis above.
Acquired portfolios of second charge mortgage assets which were largely non-performing at acquisition, and which were purchased
at a deep discount to face value, are shown as POCI assets above. Although no provision is shown above for such assets, the effect of
the discount on purchase is included in the gross value ensuring that the carrying value is substantially less than the current balances
due from customers and the level of cover is considerable. These balances continue to reduce as customers make payments.
Analysis of Stage 2 loans
The table below analyses the accounts in Stage 2 between those not more than one month in arrears where an SICR has nonetheless
been identified from other information and accounts more than one month in arrears.
Cases which have been greater than one month in arrears in the last three months, but which are not at the balance sheet date are
shown as \u2018recent arrears\u2019 in the tables below.
In all cases accounts which are more than one month in arrears, where this is a meaningful measure, are considered to have an SICR.
However, in certain loan portfolios, regular monthly payments of pre-set amounts are not required and hence this criterion cannot
be used.
The Group uses arrears multiples as a proxy for days past due, as this measure is commonly used in its arrears reporting. A loan will
generally be one month in arrears from the point at which a payment is one day past due until it is thirty days past due.
The value of Stage 2 loans in the mortgage segment has declined somewhat in the year as a result of more benign economic
conditions. This has resulted in fewer cases of accounts between one and three months in arrears, with older Stage 2 cases either
curing or passing to Stage 3 and a lower incidence of new arrears in the year. The most significant part of the Stage 2 balance remains
cases identified through their PD scores, although the size of this balance remained stable in the period.
Both provision coverage levels for Stage 2 Mortgage Lending cases, and the absolute level of provision have reduced in the period.
This is partly a result of the reduction in current arrears cases, which tend to attract the highest provision relatively, but is also an
effect of the slow, but continuing growth in house prices, and therefore security values, in the period. The coverage levels have also
been reduced as a result of some long standing, high provision cases having moved though to Stage 3, and in some cases realisation,
in the year.
For Commercial Lending cases values of Stage 2 accounts have increased significantly, with the most marked growth in the
non-arrears cases. This includes the Stage 2 element of the development finance book, which accounted for almost all of the growth,
reflecting the additional scrutiny applied in what has been a difficult period for the construction industry. The trend for Stage 2 arrears
cases in the period was largely positive, reflecting the more stable economic environment.
Stage 2 coverage has increased slightly in the Commercial Lending segment. While the high theoretical levels of real estate security
available in the development finance business tend to reduce potential impairment calculated, the uplift in minimum provision applied
in response to the issues seen in the business in the year, described above, has enhanced coverage levels. This has caused an
increased coverage on non-arrears accounts. Coverage on the relatively low number of Stage 2 arrears cases in the segment tends to
be idiosyncratic, based on the nature of security available on each of the cases included.
< 1 month Recent > 1 <= 3 months Total
arrears arrears arrears
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
Mortgage Lending
521.8
13.5
63.6
598.9
Commercial Lending
171.9
2.7
2.6
177.2
Total
693.7
16.2
66.2
776.1
Impairment provision
Mortgage Lending
(1.7)
-
(0.5)
(2.2)
Commercial Lending
(4.5)
(0.1)
(0.4)
(5.0)
Total
(6.2)
(0.1)
(0.9)
(7.2)
Net loan book
Mortgage Lending
520.1
13.5
63.1
596.7
Commercial Lending
167.4
2.6
2.2
172.2
Total
687.5
16.1
65.3
768.9
Coverage ratio
Mortgage Lending
0.33%
-
0.79%
0.37%
Commercial Lending
2.62%
3.70%
15.38%
2.82%
Total
0.89%
0.62%
1.36%
0.93%
< 1 month Recent > 1 <= 3 months Total
arrears arrears arrears
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Gross loan book
Mortgage Lending
518.1
15.8
91.1
625.0
Commercial Lending
116.3
0.4
3.1
119.8
Total
634.4
16.2
94.2
744.8
Impairment provision
Mortgage Lending
(2.3)
(0.1)
(3.7)
(6.1)
Commercial Lending
(2.9)
-
(0.4)
(3.3)
Total
(5.2)
(0.1)
(4.1)
(9.4)
Net loan book
Mortgage Lending
515.8
15.7
87.4
618.9
Commercial Lending
113.4
0.4
2.7
116.5
Total
629.2
16.1
90.1
735.4
Coverage ratio
Mortgage Lending
0.44%
0.63%
4.06%
0.98%
Commercial Lending
2.49%
-
12.90%
2.75%
Total
0.82%
0.62%
4.35%
1.26%
Analysis of Stage 3 loans
The table below analyses the accounts in Stage 3 between those:
\u2022 In the process of sale or other enforcement procedures (\u2018Realisations\u2019)
\u2022 Where a receiver of rent (\u2018RoR\u2019) has been appointed by the Group to manage the property on the customers\u2019 behalf
\u2022 Which are being managed on a long-term basis and where full recovery is possible, but which are considered to meet
regulatory default criteria at the balance sheet date (\u2018>3 month arrears\u2019). This category includes accounts identified as defaults
using non-arrears based unlikeliness to pay (\u2018UTP\u2019) indicators
\u2022 Which no longer meet regulatory default criteria, but which are being retained in Stage 3 for a probationary period (\u2018Probation\u2019)
Where an account meets two of the criteria, it will be assigned to the category shown first in the list above.
RoR accounts in Stage 3 may be fully up-to-date with full recovery possible. These accounts are included in Stage 3 as they are
classified as defaulted for regulatory purposes.
The value of Stage 3 cases has increased in the period, as cases impacted by the economic issues of recent years continue to make
their way through the system. Increases have been registered across almost all categories, although the receiver of rent book in the
Mortgage Lending segment continues to reduce as older cases are worked out.
While the incidence of new receivership arrangements in the year has increased, these have generally moved to sale more quickly,
based on the positive property market in the year, accounting for the increased number shown in the realisations column. However,
the Group continues to use the receivership process to ensure good outcomes for its landlord customers, their tenants and itself and,
where appropriate, will manage these accounts on a longer-term basis.
Stage 3 coverage levels in the Mortgage Lending segment are a little reduced, a result of increasing property values in the period
providing enhanced security and also of the crystallisation of losses on some older, heavily provided, receivership cases.
The growth in Stage 3 cases in the Commercial Lending division is attributable largely to a number of cases in the development
finance business impacted by issues in the UK building sector over recent periods. These appear in the \u2018>3 month arrears\u2019 column.
While such cases enjoy security over the development funded, the Group has taken a careful approach to estimating recoverable
values, especially where the security may comprise an unfinished structure. This has also driven a growth in provision coverage in the
period for the segment.
Probation
> 3 month arrears
RoR managed
Realisations
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
Mortgage Lending
10.3
44.6
45.2
71.0
171.1
Commercial Lending
0.4
105.0
-
7.1
112.5
Total
10.7
149.6
45.2
78.1
283.6
Impairment provision
Mortgage Lending
-
(0.7)
(11.2)
(17.8)
(29.7)
Commercial Lending
(0.1)
(17.7)
-
(3.3)
(21.1)
Total
(0.1)
(18.4)
(11.2)
(21.1)
(50.8)
Net loan book
Mortgage Lending
10.3
43.9
34.0
53.2
141.4
Commercial Lending
0.3
87.3
-
3.8
91.4
Total
10.6
131.2
34.0
57.0
232.8
Coverage ratio
Mortgage Lending
-
1.57%
24.78%
25.07%
17.36%
Commercial Lending
25.00%
16.86%
-
46.48%
18.76%
Total
0.93%
12.30%
24.78%
27.02%
17.91%
Probation
> 3 month arrears
RoR managed
Realisations
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Gross loan book
Mortgage Lending
8.8
40.4
50.3
42.7
142.2
Commercial Lending
1.1
57.8
-
4.9
63.8
Total
9.9
98.2
50.3
47.6
206.0
Impairment provision
Mortgage Lending
-
(1.2)
(16.6)
(13.6)
(31.4)
Commercial Lending
(0.3)
(5.5)
-
(2.6)
(8.4)
Total
(0.3)
(6.7)
(16.6)
(16.2)
(39.8)
Net loan book
Mortgage Lending
8.8
39.2
33.7
29.1
110.8
Commercial Lending
0.8
52.3
-
2.3
55.4
Total
9.6
91.5
33.7
31.4
166.2
Coverage ratio
Mortgage Lending
-
2.97%
33.00%
31.85%
22.08%
Commercial Lending
27.27%
9.52%
-
53.06%
13.17%
Total
3.03%
6.82%
33.00%
34.03%
19.32%
The security values available to reduce exposure at default in the calculation shown above for Stage 3 accounts are set out below.
The estimated value of the security represents, for each account, the lesser of the valuation estimate and the exposure at default
in the central scenario. Security values are based on the most recent valuation of the relevant asset held by the Group, indexed or
depreciated as appropriate.
2024
2023
\u00a3m
\u00a3m
First mortgages
119.1
89.5
Second mortgages
8.0
10.2
Asset finance
1.9
1.6
Motor finance
1.2
1.2
130.2
102.5
The RoR managed accounts are being managed to ensure the optimal resolution for landlords, tenants and lenders and have largely
reached a long-term, stable position, but the existence of the RoR arrangement causes the accounts to be treated as defaulted for
regulatory purposes. The Group\u2019s RoR arrangements are described in more detail below.
Mortgage Lending balances with over three months arrears include second charge mortgage accounts originated over ten years
ago which have been over three months in arrears for some time. These accounts are generally making regular payments and have
significant levels of equity in the underlying property which reduces the required provision to the value shown above. It is expected
that a high proportion of these accounts will eventually redeem naturally, either on the sale of the property or by the satisfaction of the
amount due through instalment payments.
Buy-to-let receiver of rent cases (Stage 3)
Where a buy-to-let mortgage customer in England or Wales falls into arrears on their account the Group has the power to appoint a
receiver of rent under the Law of Property Act. The receiver will then manage the property on behalf of the customer, collecting rents
and remitting them to make payments on the account. While the receiver has the power to sell the property, in many cases they will
operate it as a buy-to-let on at least a short to medium term basis, potentially longer, depending on the individual circumstances of
the case. This causes less disruption to the tenants and may result in the mortgage account returning to performing status and the
property being handed back to the customer.
While legacy cases continued to be resolved in the period, economic pressures have led to an increasing number of new receiver of
rent appointments in the year, including some larger portfolio cases. These overwhelmingly relate to legacy cases advanced before
2009 and will therefore have a long rental history, with tenants in place in many cases.
The following table analyses the number and gross carrying value of RoR managed accounts shown above by the date of the receivers\u2019
appointment, illustrating this position.
30 September 2024
30 September 2023
No.
\u00a3m
No.
\u00a3m
Managed accounts
Appointment date
2010 and earlier
94
14.6
135
20.1
2011 to 2015
16
2.2
31
4.5
2016 to 2020
6
0.8
15
2.0
2021 and later
167
27.6
154
23.7
Total managed accounts
283
45.2
335
50.3
Accounts in the process of realisation
356
57.6
225
41.0
639
102.8
560
91.3
Receiver of rent accounts in the process of realisation at the period end are included under that heading in the Stage 3 tables above.
In addition to the cases analysed above there were four other receiver of rent cases in acquired mortgage books classified as POCI
(2023: four), meaning that the Group\u2019s total of receiver of rent cases at 30 September 2024 was 643 (2023: 564).
23. Loan impairments \u2013 provision movements in the year
The movements in the impairment provision calculated under IFRS 9, analysed by business segments, are set out below.
Mortgage Commercial Total
Lending Lending
\u00a3m
\u00a3m
\u00a3m
At 30 September 2023
42.3
31.3
73.6
Provided in period (note 11)
6.0
20.4
26.4
Amounts written off
(13.0)
(10.5)
(23.5)
At 30 September 2024 (note 22)
35.3
41.2
76.5
At 30 September 2022
38.0
25.5
63.5
Provided in period (note 11)
10.8
8.3
19.1
Amounts written off
(6.5)
(2.5)
(9.0)
At 30 September 2023 (note 22)
42.3
31.3
73.6
Accounts are considered to be written off for accounting purposes if a balance remains once standard enforcement processes have
been completed, subject to any amount retained in respect of expected salvage receipts. This has no effect on the net carrying value,
only on the amounts reported as gross loan balances and accumulated impairment provisions.
At 30 September 2024, enforceable contractual balances of \u00a315.3m (2023: \u00a37.6m) were outstanding on non-POCI assets written off in
the period. This excludes those accounts where a full and final settlement was agreed and those where the contractual terms do not
permit any further action. Enforceable balances are kept under review for operational purposes, but no amounts are recognised in
respect of such accounts unless further cash is received or there is a strong expectation that it will be.
A more detailed analysis of these movements by IFRS 9 stage on a consolidated basis for the years ended 30 September 2024 and
30 September 2023 is set out below.
These tables, and the matching tables analysing movements in gross balances, have been compiled by comparing opening and
closing balances on each account and analysing the movements between them.
Changes due to credit risk includes all changes in model parameters whether related to account performance, external credit data or
model assumptions, including economic scenarios and weightings.
The changes in models introduced during the year did not create significant movements in balances.
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loss allowance at 30 September 2023
19.6
9.4
39.8
4.8
73.6
New assets originated
6.5
-
-
-
6.5
Changes in loss allowance
Transfer to Stage 1
2.0
(1.8)
(0.2)
-
-
Transfer to Stage 2
(2.2)
3.0
(0.8)
-
-
Transfer to Stage 3
(0.2)
(4.5)
4.7
-
-
Changes on stage transfer
(1.6)
2.4
26.4
-
27.2
Changes due to credit risk
(8.1)
(1.3)
4.4
(2.3)
(7.3)
Write offs
-
-
(23.5)
-
(23.5)
Loss allowance at 30 September 2024
16.0
7.2
50.8
2.5
76.5
Loss allowance at 30 September 2022
25.5
8.0
28.5
1.5
63.5
New assets originated
9.5
-
-
-
9.5
Changes in loss allowance
Transfer to Stage 1
2.8
(2.7)
(0.1)
-
-
Transfer to Stage 2
(1.7)
2.0
(0.3)
-
-
Transfer to Stage 3
(0.2)
(1.9)
2.1
-
-
Changes on stage transfer
(2.5)
2.3
14.6
-
14.4
Changes due to credit risk
(13.8)
1.7
4.0
3.3
(4.8)
Write offs
-
-
(9.0)
-
(9.0)
Loss allowance at 30 September 2023
19.6
9.4
39.8
4.8
73.6
During the year ended 30 September 2024, provision levels remained broadly stable overall, although the generally more benign
economic climate and increased confidence in the UK saw provision in Stages 1 and 2 falling, compensated by an increase in Stage 3
provision as problem cases moved through the credit cycle, but were not generally replaced by new arrears accounts at the same rate.
Provision levels on secured lending tended to decline, especially for loans secured on property, with prices in most areas growing in
the year. However, a number of problem cases in development finance saw an increased level of provision being booked, as issues
with project progress and financing emerged in the year, with these changes being recognised in the Stage 3 movements.
The level of write-offs in the year was higher than in the previous period as some long-term cases were finally resolved and the related
provision applied.
During the year ended 30 September 2023 the impairment allowance increased, driven mostly by the increase in Stage 3 and POCI
cases, a result of the level of actual defaults in the period, particularly in the development finance business, and by reduced levels of
available security through declining house prices in the mortgage segment.
The net reduction in Stage 1 provisions in that year included the effect of changes in judgemental adjustments in the period, with
items formerly addressed by these provisions beginning to move through Stage 2 and Stage 3. These movements were driven by both
account performance, and by the impact of more severe actual and forecast economic conditions.
The movements in the Loans to Customers balances in respect of which these loss allowances have been made are set out below.
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Balance at 30 September 2023
13,972.3
744.8
206.0
24.8
14,947.9
New assets originated
2,757.4
-
-
-
2,757.4
Changes in staging
Transfer to Stage 1
329.3
(325.9)
(3.4)
-
-
Transfer to Stage 2
(566.5)
585.2
(18.7)
-
-
Transfer to Stage 3
(38.1)
(137.6)
175.7
-
-
Redemptions and repayments
(2,558.0)
(137.2)
(76.0)
(11.0)
(2,782.2)
Write offs
-
-
(23.5)
-
(23.5)
Other changes
808.8
46.8
23.5
3.3
882.4
Balance at 30 September 2024
14,705.2
776.1
283.6
17.1
15,782.0
Loss allowance
(16.0)
(7.2)
(50.8)
(2.5)
(76.5)
Carrying value
14,689.2
768.9
232.8
14.6
15,705.5
Balance at 30 September 2022
12,157.0
1,963.6
124.4
28.8
14,273.8
New assets originated or purchased
3,128.4
-
-
-
3,128.4
Changes in staging
Transfer to Stage 1
1,258.9
(1,255.7)
(3.2)
-
-
Transfer to Stage 2
(365.6)
372.9
(7.3)
-
-
Transfer to Stage 3
(28.9)
(104.7)
133.6
-
-
Redemptions and repayments
(2,773.3)
(250.6)
(44.8)
(10.5)
(3,079.2)
Write offs
-
-
(9.0)
-
(9.0)
Other changes
595.8
19.3
12.3
6.5
633.9
Balance at 30 September 2023
13,972.3
744.8
206.0
24.8
14,947.9
Loss allowance
(19.6)
(9.4)
(39.8)
(4.8)
(73.6)
Carrying value
13,952.7
735.4
166.2
20.0
14,874.3
Other changes includes interest and similar charges.
24. Loan impairments \u2013 economic inputs to calculations
Impairment provision under IFRS 9 is calculated on a forward-looking ECL basis, based on expected economic conditions in multiple
internally coherent scenarios. While the provision calculation is intended to address all possible future economic outcomes, the Group,
in common with most other lenders, uses a small number of differing scenarios as representatives of this universe of potential outturns.
The Group uses four distinct economic scenarios chosen to represent the range of possible outcomes and allow for the impact of
economic asymmetry in the calculations. Each scenario comprises a number of economic parameters and while models for different
portfolios may not use all of the variables, the set, as a whole, is defined for the Group and must be internally consistent.
As the Group does not have an internal economics function, in developing its economic scenarios it considers analysis from reputable
external sources to form a general market consensus which informs its central scenario. These sources include data and forecasts
produced by the Office of Budget Responsibility (\u2018OBR\u2019) and the PRA as well as private sector economic research bodies and industry
sources. The Group also takes account of public statements from bodies such as the Bank of England and the UK Government to inform
its final position.
The central scenario used for IFRS 9 impairment purposes is consistent with the scenario which forms the basis of the Group\u2019s
business planning and forecasting and will therefore generally carry the highest probability weighting. In its September 2024 forecasting
cycle (the \u2018October forecast\u2019), the Group has adopted a central economic scenario derived using a broadly equivalent approach to that
used in September 2023, with the starting point of the scenario updated to reflect the actual movements of economic variables in
the year.
The general trend of the Group\u2019s central forecast follows that published by the Bank of England in August 2024. This reflects the recent
easing of monetary policy and recovering growth. Unemployment remains low, but trends upwards through the forecast period, inflation
is generally stable and bank rates continue to fall. House prices, which have been more resilient than many had forecast, continue to
increase modestly.
Compared with the central forecast adopted at 30 September 2023, this is rather more optimistic, with unemployment and interest rates at lower levels and a more positive outlook for house prices in the short term. However, GDP and inflation remain on a similar trajectory. The scenario also begins from the actual September 2024 position, so that variances against the 2023 scenarios in the year are reflected, with house prices at 30 September 2024, especially, starting the forecast period at a higher level than previously modelled. The upside and downside scenarios are derived from the central forecast, as they have been in previous periods. The shape of the curves representing all three scenarios are similar across the forecast period, but the upside scenario assumes inflation falling more rapidly, driving faster growth and enabling the Bank of England to cut the base rate further and faster than in the base case, while house prices recover more strongly. Conversely, the downside case represents increased pressure on CPI, leading to current levels of base rates persisting for longer, with reduced economic confidence impacting on both house price growth and unemployment levels. The severe scenario has been derived from the most recent Annual Cyclical Scenario (\u2018ACS\u2019) published by the Bank of England, as in recent periods. The supply shock scenario included in the ACS published in July 2024 forms the basis for the Group\u2019s scenario and includes persistently high interest rates, causing a pronounced recession impacting on growth and employment levels, with a significant fall in house prices. The overall shape of the scenarios adopted, and the change in the forecasts year-on-year is illustrated by the forecasts of the UK\u2019s unemployment rate set out in the charts below. The unemployment rate has been presented as it is the principal indicator of general economic activity used in modelling losses in the Group\u2019s buy-to-let mortgage portfolio. The forecast levels of house price inflation, the economic variable which has the most significant impact on the size of the Group\u2019s impairment provision, are also shown. Historical and forecast unemployment rates (End point measure) As at September 2024 0.0% 2021 - 2023 FY 2024 - 2025 FY 2025 - 2026 FY 2026 - 2027 FY 2027 - 2028 FY 2028 - 2029 FY 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Severe Reporting date End of forecast period used for modelling Historical and forecast unemployment rates (End point measure) As at September 2023 0.0% 2021 - 2023 FY 2023 - 2024 FY 2024 - 2025 FY 2025 - 2026 FY 2026 - 2027 FY 2027 - 2028 FY 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% S evere Reporting date End of forecast period used for modelling
Historical and forecast HPI rates (Annual Change)
As at September 2024
-0.20%
2021 -
2023 FY
2023 -
2024 FY
2024 -
2025 FY
2025 -
2026 FY
2026 -
2027 FY
2027 -
2028 FY
-0.15%
-0.10%
-0.05%
-
0.05%
0.10%
Downside Central Upside Severe
Reporting date End of forecast period used for modelling
Historical and forecast HPI rates (Annual Change)
As at September 2023
-0.20%
2021 -
2023 FY
2023 -
2024 FY
2024 -
2025 FY
2025 -
2026 FY
2026 -
2027 FY
2027 -
2028 FY
-0.15%
-0.10%
-0.05%
-
0.05%
0.10%
Downside Central Upside Severe
Reporting date End of forecast period used for modelling
Following a review of the weightings of the different scenarios, set against the overall potential for variability in the future economic
outlook, the Group decided to adjust the scenario weightings used at 30 September 2024.
The consensus view for the UK economic outlook is both more settled and more benign than it was at 30 September 2023, however,
the potential for significant downside impacts from geopolitical factors, including conflicts in Eastern Europe and the Middle East,
remains. The emerging policies of the new UK Government and the outcome of November\u2019s US elections are both likely to impact
economic sentiment, to the extent of producing substantially different outcomes.
Balancing these factors the Group determined that this was an appropriate point to begin to move back towards a more normal set
of economic weightings, closer to those seen in the early years of IFRS 9, before the impacts of Brexit and Covid. As a first step, the
impact of the severe scenario has been reduced in the weightings set out below.
Sensitivities comparing the effect of these weightings with those adopted in the previous year and those which might be seen in a
more normal economic environment are set out in note 25.
2024
2023
Central scenario
45%
40%
Upside scenario
10%
10%
Downside scenario
30%
30%
Severe scenario
15%
20%
100%
100%
The Group\u2019s economic scenarios comprise seven variables based on standard publicly available metrics for the UK. These variables are:
\u2022 Year-on-year change in Gross Domestic Product (\u2018GDP\u2019) as measured by the Office of National Statistics (\u2018ONS\u2019)
\u2022 Year-on-year change in the House Price Index (\u2018HPI\u2019) as measured by the Nationwide Building Society
\u2022 Bank Base Rate (\u2018BBR\u2019), as set by the Bank of England
\u2022 Consumer Price Inflation (\u2018CPI\u2019) rate, as measured by the ONS
\u2022 Unemployment rate, as measured by the ONS
\u2022 Annual change in secured lending, as measured by the Bank of England \u2018mortgage advances\u2019 data series
\u2022 Annual change in consumer credit, as measured by the Bank of England \u2018unsecured advances\u2019 data series
The projected average annual values of each of these variables in each of the first five financial years of the forecast period are set
out below.
30 September 2024
GDP (year-on-year change)
2025
2026
2027
2028
2029
Central scenario
1.4%
1.2%
1.6%
1.6%
1.6%
Upside scenario
2.9%
2.4%
2.3%
1.7%
1.6%
Downside scenario
0.5%
0.5%
1.3%
1.6%
1.6%
Severe scenario
(0.5)%
(3.1)%
(0.1)%
1.9%
1.8%
HPI (year-on-year change)
2025
2026
2027
2028
2029
Central scenario
-
2.3%
4.4%
3.2%
2.4%
Upside scenario
2.7%
4.6%
5.0%
4.5%
3.4%
Downside scenario
(2.4)%
0.5%
4.0%
2.6%
1.7%
Severe scenario
(1.9)%
(11.0)%
(14.6)%
-
6.5%
BBR (rate)
2025
2026
2027
2028
2029
Central scenario
4.3%
3.6%
3.4%
3.3%
3.3%
Upside scenario
4.1%
3.2%
3.0%
3.0%
3.0%
Downside scenario
5.0%
5.0%
4.6%
3.7%
3.5%
Severe scenario
7.1%
8.8%
6.3%
4.3%
3.5%
CPI (rate)
2025
2026
2027
2028
2029
Central scenario
2.6%
1.9%
1.5%
1.7%
2.0%
Upside scenario
2.1%
1.9%
2.0%
2.0%
2.0%
Downside scenario
2.5%
2.5%
2.3%
1.9%
2.0%
Severe scenario
4.7%
11.9%
4.7%
2.1%
2.0%
Unemployment (rate)
2025
2026
2027
2028
2029
Central scenario
4.5%
4.8%
4.7%
4.2%
4.0%
Upside scenario
4.1%
4.4%
4.3%
3.9%
3.6%
Downside scenario
4.9%
5.6%
5.8%
5.3%
4.5%
Severe scenario
5.0%
7.5%
8.4%
7.8%
7.1%
Secured lending (annual change)
2025
2026
2027
2028
2029
Central scenario
0.3%
1.8%
3.0%
3.0%
3.0%
Upside scenario
1.3%
2.8%
3.3%
3.0%
3.0%
Downside scenario
(0.5)%
1.0%
2.8%
3.0%
3.0%
Severe scenario
(1.8)%
(0.3)%
2.5%
3.0%
3.0%
Consumer credit (annual change)
2025
2026
2027
2028
2029
Central scenario
6.8%
5.1%
4.8%
5.0%
5.0%
Upside scenario
7.5%
5.9%
5.0%
5.0%
5.0%
Downside scenario
5.8%
4.1%
4.6%
5.0%
5.0%
Severe scenario
4.3%
2.6%
4.2%
5.0%
5.0%
30 September 2023
GDP (year-on-year change)
2024
2025
2026
2027
2028
Central scenario
0.4%
0.9%
1.0%
1.2%
1.2%
Upside scenario
1.6%
1.4%
1.0%
1.2%
1.2%
Downside scenario
(0.4)%
0.7%
1.0%
1.2%
1.2%
Severe scenario
(3.6)%
(0.2)%
1.2%
1.2%
1.2%
HPI (year-on-year change)
2024
2025
2026
2027
2028
Central scenario
(6.4)%
(1.7)%
4.7%
4.4%
3.2%
Upside scenario
(1.1)%
5.8%
6.8%
5.0%
4.5%
Downside scenario
(10.7)%
(2.2)%
4.0%
4.0%
2.6%
Severe scenario
(13.1)%
(15.1)%
-
7.0%
5.6%
BBR (rate)
2024
2025
2026
2027
2028
Central scenario
5.5%
5.4%
4.8%
4.4%
4.1%
Upside scenario
5.2%
4.4%
3.7%
3.5%
3.5%
Downside scenario
5.6%
3.8%
2.6%
2.0%
2.0%
Severe scenario
6.0%
5.8%
5.1%
4.3%
3.4%
CPI (rate)
2024
2025
2026
2027
2028
Central scenario
4.4%
2.6%
1.6%
1.8%
2.0%
Upside scenario
3.7%
2.1%
2.1%
2.0%
2.1%
Downside scenario
4.5%
1.0%
0.7%
1.8%
2.0%
Severe scenario
15.7%
12.8%
3.7%
2.4%
2.1%
Unemployment (rate)
2024
2025
2026
2027
2028
Central scenario
4.8%
5.6%
6.0%
5.6%
4.9%
Upside scenario
4.3%
4.6%
4.8%
4.4%
3.9%
Downside scenario
5.3%
6.4%
6.7%
6.1%
5.4%
Severe scenario
6.9%
8.4%
7.8%
7.2%
6.6%
Secured lending (annual change)
2024
2025
2026
2027
2028
Central scenario
0.8%
0.3%
1.8%
3.0%
3.0%
Upside scenario
1.5%
1.0%
2.5%
3.2%
3.0%
Downside scenario
-
(0.5)%
1.0%
2.8%
3.0%
Severe scenario
(1.3)%
(1.8)%
(0.3)%
2.5%
3.0%
Consumer credit (annual change)
2024
2025
2026
2027
2028
Central scenario
3.5%
2.3%
3.9%
4.9%
5.0%
Upside scenario
4.3%
3.0%
4.7%
5.1%
5.0%
Downside scenario
2.8%
1.5%
3.2%
4.8%
5.0%
Severe scenario
1.5%
0.3%
1.9%
4.4%
5.0%
After the end of the initial five year period, the final rate or rate of change (as appropriate) is assumed to continue into the future in
each scenario.
To illustrate the levels of non-linearity in the various scenarios, the maximum and minimum quarterly levels for each variable over the
five year period commencing on the balance sheet date are set out below.
30 September 2024
Central scenario
Upside scenario
Downside scenario
Severe scenario
Max
Min
Max
Min
Max
Min
Max
Min
%
%
%
%
%
%
%
%
Economic driver
GDP
2.0
1.0
3.0
1.6
1.6
(0.3)
1.9
(3.7)
HPI
4.4
(1.3)
5.1
1.7
4.0
(4.6)
6.9
(15.9)
BBR
4.5
3.3
4.5
3.0
5.0
3.5
9.0
3.5
CPI
2.7
1.5
2.2
1.7
2.7
1.7
12.3
1.9
Unemployment
4.8
4.0
4.4
3.6
5.8
4.2
8.5
4.3
Secured lending
3.0
-
4.0
1.0
3.0
(0.8)
3.0
(2.0)
Consumer credit
7.0
4.5
7.8
4.8
6.0
3.5
5.0
2.0
30 September 2023
Central scenario
Upside scenario
Downside scenario
Severe scenario
Max
Min
Max
Min
Max
Min
Max
Min
%
%
%
%
%
%
%
%
Economic driver
GDP
1.2
0.3
2.3
0.9
1.2
(0.8)
1.2
(5.0)
HPI
4.4
(8.2)
7.4
(3.1)
4.1
(13.4)
7.2
(16.4)
BBR
5.5
4.0
5.3
3.5
5.8
2.0
6.0
3.3
CPI
5.0
1.5
4.3
1.8
6.0
0.4
17.0
2.0
Unemployment
6.0
4.5
4.8
3.8
7.0
5.0
8.5
5.2
Secured lending
3.0
-
3.8
0.8
3.0
(0.8)
3.0
(2.0)
Consumer credit
5.0
2.0
5.8
2.8
5.0
1.3
5.0
-
The asymmetry in the models is demonstrated by comparing the calculated impairment provision with that which would have been
produced using the central scenario alone, 100% weighted.
2024
2023
\u00a3m
\u00a3m
Provision using central scenario 100% weighted
Mortgage Lending
31.6
38.4
Commercial Lending
39.7
29.0
71.3
67.4
Calculated impairment provision
76.5
73.6
Effect of multiple economic scenarios
5.2
6.2
25. Loan impairments \u2013 sensitivity analysis
The calculation of impairment provisions under IFRS 9 is subject to a variety of uncertainties arising from assumptions, forecasts and
expectations about future events and conditions. To illustrate the impact of these uncertainties, sensitivity calculations have been
performed for some of the most significant.
These sensitivities are intended as mathematical illustrations of the impacts of the various assumptions on the Group\u2019s modelling.
They do not necessarily represent alternative potential impairment values as other factors might also need to be considered in
arriving at a final provision figure if circumstances differed from those at the balance sheet date.
Economic conditions
To illustrate the potential impact of differing future economic scenarios on the total impairment, the provisions which would be
calculated if each of the economic scenarios were 100% weighted are shown below:
Scenario
2024
2023
Provision
Difference
Provision
Difference
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Central
71.3
(5.2)
67.4
(6.2)
Upside
68.0
(8.5)
59.0
(14.6)
Downside
76.8
0.3
73.4
(0.2)
Severe
100.4
23.9
95.7
22.1
The weighted average of these 100% weighted provisions need not equal the weighted average ECL due to the impact of the differing
PDs on staging.
Scenario weightings
In order to illustrate the impact of scenario weightings on the outcomes, the impairment provision requirements were sensitised using
alternative weightings. Sensitivity A is based on the weightings used at IFRS 9 transition on 1 October 2018. The use of the
2018 weighting is intended to represent a more settled outlook than has been evident at any of the most recent year ends. Sensitivity
B is based on the weightings used at the previous year end, to demonstrate the impact of the adoption of the new weightings.
The weightings used, and the results of applying these sensitivities to the 30 September 2024 scenarios are set out below.
Weighting
Impairment
Difference
Central
Upside
Downside
Severe
\u00a3m
\u00a3m
As reported
45%
10%
30%
15%
76.5
-
Sensitivity A
40%
30%
25%
5%
72.9
(3.6)
Sensitivity B
40%
10%
30%
20%
77.8
1.3
Significant increase in credit risk
The most important driver of SICR is relative PD. If all PDs across the Group\u2019s principal buy-to-let mortgage book were increased by
10%, loans with a gross value of \u00a344.4m would transfer from Stage 1 to Stage 2 (2023: \u00a368.4m), and the total provision would increase
by \u00a30.3m from the combined effects of higher PDs on expected losses and the impact of providing for expected lifetime losses, rather
than 12-month losses on the additional Stage 2 cases (2023: \u00a30.8m).
Value of security
The principal assumptions impacting on LGD are the estimated security values. If the rate of growth in house prices assumed by the
model after the forecast minimum were halved, ignoring any PD effects, then the provision for the Group\u2019s first and second mortgage
assets under the central scenario would increase by \u00a30.5m (2023: \u00a30.7m).
Receiver of rent
The majority of receiver of rent cases, which are included in Stage 3, are managed long-term and therefore their assumed realisation
date has an important impact on the provision calculation. If the assumed rate of realisations was increased by 20%, the impairment
provision in the central scenario would increase by \u00a30.4m (2023: \u00a30.1m).
31. Goodwill
The goodwill carried in the accounts is attributable to two cash generating units (\u2018CGU\u2019s), which have not changed in the year. These
balances are reviewed for impairment annually, in accordance with the requirements of IAS 36 \u2013 \u2018Impairment of Assets\u2019. The balance is
as analysed below:
2024
2023
\u00a3m
\u00a3m
CGU
SME lending
113.0
113.0
Development finance
49.8
49.8
162.8
162.8
(a) SME lending
The goodwill carried in the accounts relating to the SME lending CGU was recognised on acquisitions in the years ended
30 September 2016 and 30 September 2018.
An impairment review undertaken at 30 September 2024 indicated that no write down was required.
The recoverable amount of the SME lending CGU used in this impairment testing is determined on a value in use basis using pre-tax
cash flow projections based on financial budgets approved by the Board in November 2024 covering a five-year period.
The key assumptions underlying the value in use calculation for the SME lending CGU are:
\u2022 Level of business activity, based on management expectations. The forecast assumes a compound annual growth rate (\u2018CAGR\u2019) for
new lending over the five-year period of 11.7%, compared with 14.1% used in the calculation at 30 September 2023. The new lending
forecasts are the key driver for the profit and cashflow forecasts. Cash flows beyond the five-year budget are extrapolated using a
constant growth rate of 1.2% (2023: 1.2%) which does not exceed the long-term average growth rates for the markets in which the
business is active
Management have concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past
experience and the current economic environment
\u2022 Discount rate, which is based on third-party estimates of the implied industry cost of capital. The pre-tax discount rate applied to
the cash flow projection is 16.5% (2023: 16.2%)
As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a
0.0% growth rate combined with a 19.8% reduction in profit levels would eliminate the projected headroom of \u00a391.7m. While such
movements are not expected by management, they are considered \u2018reasonably possible\u2019 for the purposes of IAS 36. A 0.0% growth
rate combined with an 22.6% reduction in profit levels would generate a write down of \u00a310.0m.
In the testing carried out at 30 September 2023, a 0.0% growth rate combined with an 11.5% reduction in profit levels, would have
eliminated the projected headroom at that date of \u00a359.1m. A 0.0% growth rate combined with a 14.4% reduction in profit levels would
have generated a write down of \u00a310.0m.
(b) Development finance
The goodwill carried in the accounts relating to the development finance CGU was first recognised on a business acquisition in the
year ended 30 September 2018.
An impairment review undertaken at 30 September 2024 indicated that no write down was required.
The recoverable amount of the development finance CGU used in this impairment testing is determined on a value in use basis using
pre-tax cash flow projections based on financial budgets approved by the Board in November 2024 covering a five-year period.
The key assumptions underlying the value in use calculation for the development finance CGU are:
\u2022 Level of business activity, based on management expectations. The forecast assumes a CAGR for drawdowns over the
five-year period of 15.6%, compared with 11.1% used in the calculation at 30 September 2023. Cash flows beyond the five-year
budget are extrapolated using a constant growth rate of 1.2% (2023: 1.2%) which does not exceed the long-term average growth
rate for the UK economy
Management have concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past
experience and the current economic environment.
\u2022 Discount rate, which is based on third party estimates of the implied industry cost of capital. The pre-tax discount rate applied to
the cash flow projection is 16.4% (2023: 15.9%)
As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a
0.0% growth rate combined with a 9.5% reduction in profit levels would eliminate the projected headroom of \u00a353.2m. While such
movements are not expected by management, they are considered \u2018reasonably possible\u2019 for the purposes of IAS 36. A 0.0% growth
rate combined with a 12.1% reduction in profit levels would generate a write down of \u00a310.0m.
In the testing carried out at 30 September 2023 a 1.1% growth rate combined with a 3.1% reduction in profit levels would have
eliminated the projected headroom at that date of \u00a313.9m. A 0.2% growth rate combined with a 2.9% reduction in profit would have
generated a write down of \u00a310.0m.
", "dimensions": { "concept": "ifrs-full:DisclosureOfImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-421": { "value": "20. Impairment provisions on loans to customers The following notes set out information on the Group\u2019s impairment provisioning under IFRS 9 for the loans to customers balances set out in note 18, including both finance leases, accounted for under IFRS 16, and loans held at amortised cost, accounted for under IFRS 9, as both groups of assets are subject to the IFRS 9 impairment requirements. The disclosures are set out within the following notes: \u2022 21 Loan impairments \u2013 Basis of provision \u2022 22 Loan impairments by stage and division \u2022 23 Loan impairments \u2013 Provision movements in the year \u2022 24 Loan impairments \u2013 Economic inputs to calculations \u2022 25 Loan impairments \u2013 Sensitivity analysis The impact on the Group\u2019s profit and loss account for the year is set out in note 11. 21. Loan impairment \u2013 basis of provisions IFRS 9 requires that impairment is evaluated on an expected credit loss (\u2018ECL\u2019) basis. ECLs are based on an assessment of the probability of default (\u2018PD\u2019) and loss given default (\u2018LGD\u2019), discounted to give a net present value. The estimation of ECL should be unbiased and probability weighted, considering all reasonable and supportable information, including forward-looking economic assumptions and a range of possible outcomes. The provision may be based on either twelve month or lifetime ECL, dependent on whether an account has experienced a significant increase in credit risk (\u2018SICR\u2019). The Group\u2019s process for determining its provisions for impairments is summarised below. This includes: i. The methods used for the calculation of ECL ii. How it defines SICR iii. How it defines default iv. How it identifies which loans are credit impaired, as defined by IFRS 9 v. How the ECL estimation process is monitored and controlled vi. How the Group develops and enhances the models it uses in the ECL estimation process vii. How the Group uses judgemental adjustments to ensure all elements of credit risk are fully addressed i) Calculation of expected credit loss (\u2018ECL\u2019) For the majority of the Group\u2019s loan assets, the ECL is generated using statistical models applied to account data to generate PD and LGD components. In determining for which portfolios a statistically modelled approach is appropriate, the Group considers the volume of available data and the level of similarity of the credit characteristics of the underlying accounts. PD on both a twelve month and lifetime basis is estimated based on statistical models for the Group\u2019s most significant asset classes. The PD calculation is a function of current asset performance, customer information and future economic assumptions. The models were developed through the analysis of correlation in historic data, which identified which current and historical customer attributes and external economic variables were predictive of future loss. PD measures are calculated for the full contractual lives of loans with the models deriving probabilities that, at a given future date, a loan will be in default, performing or closed. The Group utilised all reasonably available information in its possession for this exercise. LGD for each account is derived by calculating a value for exposure at the point of default (which will include consideration of future interest, account charges and receipts) and reducing this for security values, net of likely costs of recovery. These calculations allow for the Group\u2019s potential case management activities, including the use of receivers of rent in buy-to-let cases. This evaluation includes the potential impact of economic conditions at the time of any future default or enforcement. The derivation of the significant assumptions used in these calculations is discussed below. In certain asset classes a fully modelled approach is not possible. This is generally where there are few assets in the class, where there is insufficient historical data on which to base an analysis or where certain measures, such as days past due are not useful (including cases where the loan agreement does not require regular payments of pre-determined amounts). In these cases, which represent a small proportion of the total portfolio, alternative approaches are adopted. These rely on internal cost monitoring practices and professional credit judgement. For each of these portfolios, minimum provision levels are set based on overall performance for the asset class and the risk appetites informing underwriting processes. The largest portfolio where a fully modelled approach is not taken is the Group\u2019s development finance book, which has a relatively low number of cases (around 250) and a low incidence of historical losses on which to base a model. For this portfolio the impairment provision is based on the output of internal case-by-case monitoring, performed within the business and subject to a process of challenge by the finance and credit risk functions. Notwithstanding the mechanical procedures discussed above, the Group will always consider whether the process generates sufficient provision for particular loans, especially large exposures, and will provide additional amounts as appropriate. In extreme or unprecedented economic conditions, it is likely that mechanical models will be less predictive of outcomes as the historical data used for modelling will be insufficiently representative of conditions at the balance sheet date. This may be the case where economic indicators at the reporting date and future expectations for those indicators lie outside the range of the observations used to construct the models. In such circumstances, management carefully review all outputs to ensure provision is adequate. During the current financial year interest rates have maintained the highest levels seen in some time, having reached this point with unusual speed, putting financial pressure on businesses and households. Rates of inflation began the year at what were historically relatively high levels and declined only slowly. This type of economic environment is not significantly represented in the historic data sets used by the Group to construct its IFRS 9 impairment models. It was also noted that a rapidly developing economic situation is likely to lead to a lagging impact on the credit bureau data which forms an input to models of customer behaviour, which may delay the recognition of an account potentially at risk. These factors led management to conclude that current and forecast economic conditions were not ones under which the Group\u2019s models would necessarily perform well, and that judgemental adjustments might be required to compensate for these weaknesses. The methodologies used to derive the Group\u2019s ECL provisions at 30 September 2024 are analysed below.
Gross
Impairment
Net
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Modelled portfolios
14,418.7
(41.2)
14,377.5
Judgemental adjustments thereon
-
(5.0)
(5.0)
14,418.7
(46.2)
14,372.5
Non-modelled portfolios
1,363.3
(30.3)
1,333.0
Total
15,782.0
(76.5)
15,705.5
Gross
Impairment
Net
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Modelled portfolios
13,825.4
(48.3)
13,777.1
Judgemental adjustments thereon
-
(6.5)
(6.5)
13,825.4
(54.8)
13,770.6
Non-modelled
1,122.5
(18.8)
1,103.7
Total
14,947.9
(73.6)
14,874.3
In addition to the judgemental adjustments to model outputs shown above, management have applied a \u00a31.5m uplift to provision floors in the development finance operation, reflecting specific economic risks to that business, meaning that total uplifts were \u00a36.5m (2023: \u00a36.5m). The derivation of these adjustments is discussed further below. ii) Significant Increase in Credit Risk (\u2018SICR\u2019) Under IFRS 9, SICR is not defined solely by account performance, but on the basis of the customer\u2019s overall credit position, and this evaluation should include consideration of external data. The Group\u2019s aim is to define SICR to correspond, as closely as possible, to that population of accounts which are subject to enhanced administrative and monitoring procedures operationally. The Group assesses SICR in its modelled portfolios primarily on the basis of the relative difference in an account\u2019s lifetime PD between origination and the reporting date. The levels of difference required to qualify as an SICR may differ between portfolios and will depend, to some extent, on the level of risk originally perceived and are monitored on an ongoing basis to ensure that this calibrates with actual experience. It should be noted that the use of the current PD, which includes external factors such as credit bureau data, means that all relevant information in the Group\u2019s hands concerning the customers\u2019 present credit position is included in the evaluation, as well as the impact of future economic expectations. For non-modelled portfolios, the SICR assessment is based on the credit monitoring position of the account in question and for all portfolios a number of qualitative indicators which provide evidence of SICR have been considered. Loans will generally be considered to retain significantly increased credit risk for a period after the SICR trigger no longer remains. As part of its determination of whether model outputs form a reliable basis for impairment provisioning, the Group considered whether it had any evidence of groups of accounts demonstrating factors indicating a higher level of credit risk than other accounts in the same portfolios, either from operational experience or its regular credit risk monitoring activities. No such evidence was noted at 30 September 2024 or 30 September 2023, and hence no additional accounts were identified as having an SICR. iii) Definitions of default As the IFRS 9 definition of ECL is based on PD, default must be defined for this purpose. The analysis of these default cases provides the foundation for the Group\u2019s PD modelling. IFRS 9 provides a rebuttable presumption that an account is in default when it is 90 days overdue and this was used as the basis of the Group\u2019s definition, combined with qualitative and quantitative factors specific to each portfolio. The most influential quantitative factor in the majority of portfolios is the arrears level, while the principal qualitative factors relate to internal account management statuses. In particular the decision to commence a process of enforcement will be considered as a default in all portfolios. In the Group\u2019s buy-to-let mortgage portfolio the appointment of a receiver of rent to manage the property on the customer\u2019s behalf is considered a default, while for portfolios assessed on a case-by-case basis, such as the Group\u2019s development finance loans, the movement of an account to the highest risk category used for internal monitoring is considered as a default. This ensures that the Group\u2019s definitions of default for its various portfolios are materially aligned to the regulatory definitions of default used internally, and are broadly aligned to its internal operational procedures, allowing for the arbitrary nature of the 90-day cut-off, which is a regulatory rather than an operational requirement. In particular the Group\u2019s receiver of rent cases are defined as defaulted for modelling purposes as the behaviour of the case after that point is significantly influenced by internal management decisions. iv) Credit Impaired loans IFRS 9 defines a credit impaired account as one where an account has suffered one or more events which have had a detrimental effect on future cash flows. It is thus a backward-looking definition, rather than one based on future expectations. Credit impaired assets are identified either through quantitative measures or by operational status. Designations of accounts for regulatory capital purposes are also taken into account. Assets may also be assigned to Stage 3 if they are identified as credit impaired as a result of management review processes. All loans which are in the process of enforcement, from the point where this becomes the administration strategy, are classified as credit impaired. Loans are retained in Stage 3 for three months after the point where they cease to exhibit the characteristics of default. After this point, they may move to Stage 2 or Stage 1 depending on whether an SICR trigger remains. All default cases are considered to be credit impaired, including all receiver of rent cases and all cases with at least one payment more than 90 days overdue, even where such cases are being managed in the expectation of realising all of the carrying balance. In order to provide better information for users, additional analysis of credit impaired accounts has been presented in note 22, distinguishing between probationary accounts, receiver of rent accounts, accounts subject to realisation / enforcement procedures and long-term managed accounts, all of which are treated as credit impaired. While other indicators of default are in use, the categories shown account for the overwhelming majority of Stage 3 cases. v) Monitoring of ECL estimation processes The Group\u2019s ECL models are compiled on the basis of the analysis of relevant historical data. Before a model is adopted for use its operations and outputs are examined to ensure that it is expected to be appropriately predictive and, if it is an updated model, expected to be more predictive than any existing model. Before a new model is adopted the changes and impacts will be considered by the CFO, alongside any advice from the Group\u2019s independent model review functions. The performance of all models is reviewed on an ongoing basis, by senior finance and risk management, including the CFO. Monitoring packs comparing actual and predicted loss levels are produced at regular intervals, set on the basis of the materiality of each model. The continuing appropriateness of model assumptions is also reviewed as part of this process. Models are revisited on a regular basis to ensure that they continue to reflect the most recent data as the available information increases over time. On a monthly basis all model outputs, model overlays and provisions calculated for non-modelled books are reviewed by senior finance management including the CFO in conjunction with the latest credit risk operational and economic metrics to ensure that the impairment provision by asset type remains appropriate. This exercise will be the subject of particular focus at the year end and the half year. This information is summarised for the Audit Committee on a biannual basis, and they have regard to this data in forming their conclusions on the appropriateness of provisioning levels. vi) Model development The models used by the Group are updated from time-to-time to allow for changes in the business, developments in best practice and the availability of additional data with the passing of time. During the year ended 30 September 2024 a major update to the Motor Finance PD model took place, meaning that three of the Group\u2019s four principal PD models, covering over 99% of modelled balances, have been updated since IFRS 9 was implemented. The adoption of the new Motor Finance model has enabled the reporting process in the year to be more streamlined, supported increased use of scenario analysis, and increased the ability of the model to respond to economic inputs and wider customer credit data. It is also based on a greater volume of current data, as the Group only re-entered this market in 2014, four years before the implementation date of the first generation PD model. The impacts of the adoption of the new Motor Finance PD model in the year ended 30 September 2024 on a like-for-like basis were to increase provision by \u00a30.8m and transfer \u00a36.5m of gross balances from Stage 1 to Stage 2. The Group\u2019s programme of model development continued during the year with a particular focus on analysing how default and loss data recorded over the period of the Covid pandemic should be reflected in the next generation of forward-looking models, given the unprecedented nature of the pandemic and the national and international response to it. All revised models and model enhancements are carefully reviewed and tested before adoption, and are subject to a governance process for their approval. vii) Judgemental adjustments To ensure that the Group\u2019s loan portfolios are properly provisioned, the Group considers factors that might impact on customers, but which may either not be reflected by its provision processes, be only partially reflected or not be reflected sufficiently quickly. These may include consideration of the likely impact of the broad economic environment, customer and market sentiment and expert knowledge within the Group\u2019s businesses. In the year ended 30 September 2024 the most significant factors in these considerations were the extent to which uncertainties in the UK economy arising from the rapidly rising interest rates, and increases in the cost of living and doing business in the UK seen in recent periods, and the impacts of continuing world conflicts were reflected in current customer performance at the period end and were being fully addressed by the Group\u2019s provision modelling, particularly in view of the lack of recent observations relating to similar conditions. These impacts were felt particularly in the Group\u2019s development finance business where some projects priced before recent rises in costs and interest rates came under stress in the period. The divergence of the current economic environment from those experienced over much of recent history inevitably weakens the ability of any experience-based model to predict credit performance accurately, and means that management have to consider carefully the requirement for the mechanically generated provision to be adjusted. Where management has identified a requirement to amend the calculated provision as a result of either model deficiencies or idiosyncratic behaviour in part of the portfolio, judgemental adjustments are applied to the modelled outputs so that the ECL recognised corresponds to expert judgement, taking into account the widest possible range of current information, which might not be factored into the modelling process. Similarly where non-modelled books come under stress, methodologies may be adjusted to ensure coverage is sufficient. The Group\u2019s approach to impairment modelling is based on the analysis of historical credit data. In normal circumstances the Group\u2019s objective is to develop its modelling to the point where the level of judgemental adjustments required is minimal, but in economic conditions where previous relevant experience is limited or non-existent, some form of judgemental adjustment is always likely to be necessary. While high interest rates and sharp price rises have occurred in the UK in the past, market conditions, products and regulatory expectations have moved on considerably in the meantime, and most such observations would pre-date the existence of buy-to-let mortgages as a distinct asset class. This means that the value of past history as a guide to future credit performance is reduced. Current model behaviours and the potential for unobserved credit issues have meant that the requirement for such adjustments over recent periods has been significant, even given the work done to replace and enhance the Group\u2019s first generation of IFRS 9 impairment models. Evidence considered by management in order to assess the size of the adjustments required included internal performance data, customer and broker feedback, insight surveys, industry intelligence, evidence on the wider economy and quantitative and qualitative data and statements from industry, government and regulatory bodies. These were combined with the expert knowledge within the business to form a broad estimate of the level of provision required across the Group. A similar process was undertaken in respect of non-modelled books to ensure that specific issues and impacts were being identified, and the minimum provisions set for each portfolio remained sufficient. As part of these exercises, the potential for climate-related issues to impact on customer business models or security values over the timescales for ECL calculation required by IFRS 9 was considered. No specific requirement for additional impairment provisions over the amounts already determined was identified. The requirement for judgemental adjustments is considered on a portfolio-by-portfolio basis, and the potential for the existence of significant groups of assets being particularly exposed to credit risk in the expected economic scenarios is also considered. The total amounts of judgemental adjustments provided across the Group are set out below by segment.
2024
2024
2023
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage Lending \u2013 modelled
3.0
3.0
Commercial Lending \u2013 modelled
2.0
3.5
Commercial Lending \u2013 non-modelled
1.5
-
3.5
3.5
6.5
6.5
The position at 30 September 2024 is broadly similar to that at 30 September 2023, representing the extent to which the concerns over future customer performance and the potential for future economic headwinds which gave rise to the original adjustments remain in place. While some adverse trends in performance have been noted in the portfolios, these have been offset, to some extent, by the impact of forecast downward trends in future inflation and interest rates in the scenarios underlying the impairment models. Within the overall position, there has been some movement on individual books, with the solid performance of the SME asset finance book reducing the need for overlay, while the conditions faced by developers in the current economic situation generated a need for additional overlay. The adjustment in the Mortgage Lending book at the previous year end had represented the level to which the credit metrics and other model inputs did not produce a result for the buy-to-let portfolio which accorded with the credit expectations of management, brokers and customers, particularly in respect of legacy assets. While there has been some upward movement in arrears metrics, both for the Group and the buy-to-let market more generally, and some long standing cases have been resolved, future expectations remain broadly in line with those twelve months earlier. In response to these factors, management decided that it was appropriate to maintain the level of overlay at 30 September 2024. The Group\u2019s SME lending portfolio performed generally strongly in the period, with a consequent impact on the calculated provision. However, a level of caution remains as to the broader outlook for UK SMEs in the current economic climate, and there remain concerns as to the effectiveness of the Group\u2019s provisioning model in a high interest rate environment. On this basis the judgemental adjustment has been reduced to \u00a31.0m for the current year (2023: \u00a32.5m). For the motor finance portfolio, the \u00a31.0m overlay to the modelled provision, first included at 30 September 2023, has been maintained (2023: \u00a31.0m). While early indications show the second generation model to be more effective at identifying credit risk cases, the data it is built on still includes little information corresponding to a period of falling inflation rapidly following a period of sharp price rises. Therefore the overlay has been retained to ensure provision in that book remains reasonable overall, considering other portfolio data. The Group\u2019s analysis found no evidence of particular concentrations of credit risk below portfolio level. Given this, and the high level nature of the exercise undertaken, the judgemental adjustments on modelled balances have been apportioned across the Group\u2019s buy-to-let mortgage, SME lending and motor finance portfolios, as appropriate, to individual Stage 1 cases. As such they are included in the credit risk disclosures required by IFRS 7. Within the development finance book, performance deteriorated in the year, impacted by increased materials and labour costs and higher interest rates, particularly on projects approved and costed before these became likely. In response, as well as focussed reviews on individual cases, the Group determined that the minimum provision for all cases should be uplifted from normal levels, generating an additional provision of \u00a31.5m, focussed on older cases (2023: \u00a3nil). The Group will continue to monitor the requirement for all these adjustments as the economic situation develops and its impacts are more fully reflected in model outputs. It is anticipated that a more normal economic situation would require a lower value of adjustments, but the timescale in which such a scenario might be reached appears uncertain. The Group has adopted the terminology for impairment adjustments proposed by the Taskforce on Disclosures about Expected Credit Loss (\u2018DECL\u2019) which restricts the use of the term \u2018Post Model Adjustment\u2019 (\u2018PMA\u2019) to those adjustments calculated on an account-by-account basis and therefore no longer uses that term for other judgemental adjustments. 22. Loan impairments by stage and division IFRS 9 calculations and related disclosures require loan assets to be divided into three stages, with accounts which were credit impaired on initial recognition representing a fourth class. The three classes comprise: those where there has been no SICR since advance or acquisition (Stage 1); those where there has been an SICR (Stage 2); and loans which are impaired (Stage 3). \u2022 On initial recognition, and for assets where there has not been an SICR, provisions will be made in respect of losses resulting from the level of credit default events expected in the twelve months following the balance sheet date \u2022 Where a loan has experienced an SICR, whether or not the loan is considered to be credit impaired, provisions will be made based on the ECLs over the full life of the loan \u2022 For credit impaired assets, provisions will also be made on the basis of lifetime ECLs For assets which were \u2018Purchased or Originated as Credit Impaired\u2019 (\u2018POCI\u2019) accounts (those considered as credit impaired at the point of first recognition), such as certain of the Group\u2019s acquired assets in Mortgage Lending, the carrying valuation is based on expected cash flows discounted by the EIR determined at the point of acquisition. The recommendations of the taskforce on Disclosures about Expected Credit Loss (\u2018DECL\u2019) suggest standard categories for analysis of firm\u2019s loan books. In the context of the DECL categorisation the Group\u2019s Mortgage Lending balances are classified as \u2018UK retail mortgage\u2019 business while its Commercial Lending balances, being advanced primarily to SME entities correspond with the \u2018UK other retail\u2019 business classification. The Group defines coverage as the value of the ECL provision divided by the gross carrying value of the related loans. An analysis of the Group\u2019s loan portfolios between the stages defined above is set out below.
Stage 1
Stage 2*
Stage 3*
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
Mortgage Lending
12,670.3
598.9
171.1
10.7
13,451.0
Commercial Lending
2,034.9
177.2
112.5
6.4
2,331.0
Total
14,705.2
776.1
283.6
17.1
15,782.0
Impairment provision
Mortgage Lending
(3.4)
(2.2)
(29.7)
-
(35.3)
Commercial Lending
(12.6)
(5.0)
(21.1)
(2.5)
(41.2)
Total
(16.0)
(7.2)
(50.8)
(2.5)
(76.5)
Net loan book
Mortgage Lending
12,666.9
596.7
141.4
10.7
13,415.7
Commercial Lending
2,022.3
172.2
91.4
3.9
2,289.8
Total
14,689.2
768.9
232.8
14.6
15,705.5
Coverage ratio
Mortgage Lending
0.03%
0.37%
17.36%
-
0.26%
Commercial Lending
0.62%
2.82%
18.76%
39.06%
1.77%
Total
0.11%
0.93%
17.91%
14.62%
0.48%
* Stage 2 and 3 balances are analysed in more detail below.
Stage 1
Stage 2*
Stage 3*
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Gross loan book
Mortgage Lending
12,159.7
625.0
142.2
17.7
12,944.6
Commercial Lending
1,812.6
119.8
63.8
7.1
2,003.3
Total
13,972.3
744.8
206.0
24.8
14,947.9
Impairment provision
Mortgage Lending
(4.8)
(6.1)
(31.4)
-
(42.3)
Commercial Lending
(14.8)
(3.3)
(8.4)
(4.8)
(31.3)
Total
(19.6)
(9.4)
(39.8)
(4.8)
(73.6)
Net loan book
Mortgage Lending
12,154.9
618.9
110.8
17.7
12,902.3
Commercial Lending
1,797.8
116.5
55.4
2.3
1,972.0
Total
13,952.7
735.4
166.2
20.0
14,874.3
Coverage ratio
Mortgage Lending
0.04%
0.98%
22.08%
-
0.33%
Commercial Lending
0.82%
2.75%
13.17%
67.61%
1.56%
Total
0.14%
1.26%
19.32%
19.35%
0.49%
* Stage 2 and 3 balances are analysed in more detail below. Finance leases included above, analysed by staging, were:
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
958.1
40.7
7.7
-
1,006.5
Impairment provision
(4.9)
(2.8)
(3.2)
-
(10.9)
Net loan book
953.2
37.9
4.5
-
995.6
Coverage Ratio
0.51%
6.88%
41.56%
-
1.08%
30 September 2023
Gross loan book
873.0
40.6
6.0
0.2
919.8
Impairment provision
(8.0)
(1.9)
(2.6)
-
(12.5)
Net loan book
865.0
38.7
3.4
0.2
907.3
Coverage Ratio
0.92%
4.68%
43.33%
-
1.36%
In terms of the Group\u2019s credit management processes, Stage 1 cases will fall within the appropriate customer servicing functions and Stage 2 cases will be subject to account management arrangements. Stage 3 cases will include both those subject to recovery or similar processes and those which, though being managed on a long-term basis, are included with defaulted accounts for regulatory purposes. However, these broad categorisations may vary between different product types. POCI balances included in the Commercial Lending segment arise principally from acquired businesses, where those assets were identified as credit impaired at the point of acquisition when the acquired portfolios as a whole were evaluated. Additional provision arising on these assets post-acquisition is shown as \u2018Impairment Provision\u2019 above. The Group\u2019s acquired secured consumer loans are included in the Mortgage Lending segment, together with its closed second charge mortgage portfolios. Acquired loans which were performing on acquisition are included in the staging analysis above. Acquired portfolios of second charge mortgage assets which were largely non-performing at acquisition, and which were purchased at a deep discount to face value, are shown as POCI assets above. Although no provision is shown above for such assets, the effect of the discount on purchase is included in the gross value ensuring that the carrying value is substantially less than the current balances due from customers and the level of cover is considerable. These balances continue to reduce as customers make payments. Analysis of Stage 2 loans The table below analyses the accounts in Stage 2 between those not more than one month in arrears where an SICR has nonetheless been identified from other information and accounts more than one month in arrears. Cases which have been greater than one month in arrears in the last three months, but which are not at the balance sheet date are shown as \u2018recent arrears\u2019 in the tables below. In all cases accounts which are more than one month in arrears, where this is a meaningful measure, are considered to have an SICR. However, in certain loan portfolios, regular monthly payments of pre-set amounts are not required and hence this criterion cannot be used. The Group uses arrears multiples as a proxy for days past due, as this measure is commonly used in its arrears reporting. A loan will generally be one month in arrears from the point at which a payment is one day past due until it is thirty days past due. The value of Stage 2 loans in the mortgage segment has declined somewhat in the year as a result of more benign economic conditions. This has resulted in fewer cases of accounts between one and three months in arrears, with older Stage 2 cases either curing or passing to Stage 3 and a lower incidence of new arrears in the year. The most significant part of the Stage 2 balance remains cases identified through their PD scores, although the size of this balance remained stable in the period. Both provision coverage levels for Stage 2 Mortgage Lending cases, and the absolute level of provision have reduced in the period. This is partly a result of the reduction in current arrears cases, which tend to attract the highest provision relatively, but is also an effect of the slow, but continuing growth in house prices, and therefore security values, in the period. The coverage levels have also been reduced as a result of some long standing, high provision cases having moved though to Stage 3, and in some cases realisation, in the year. For Commercial Lending cases values of Stage 2 accounts have increased significantly, with the most marked growth in the non-arrears cases. This includes the Stage 2 element of the development finance book, which accounted for almost all of the growth, reflecting the additional scrutiny applied in what has been a difficult period for the construction industry. The trend for Stage 2 arrears cases in the period was largely positive, reflecting the more stable economic environment. Stage 2 coverage has increased slightly in the Commercial Lending segment. While the high theoretical levels of real estate security available in the development finance business tend to reduce potential impairment calculated, the uplift in minimum provision applied in response to the issues seen in the business in the year, described above, has enhanced coverage levels. This has caused an increased coverage on non-arrears accounts. Coverage on the relatively low number of Stage 2 arrears cases in the segment tends to be idiosyncratic, based on the nature of security available on each of the cases included.
< 1 month Recent > 1 <= 3 months Total
arrears arrears arrears
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
Mortgage Lending
521.8
13.5
63.6
598.9
Commercial Lending
171.9
2.7
2.6
177.2
Total
693.7
16.2
66.2
776.1
Impairment provision
Mortgage Lending
(1.7)
-
(0.5)
(2.2)
Commercial Lending
(4.5)
(0.1)
(0.4)
(5.0)
Total
(6.2)
(0.1)
(0.9)
(7.2)
Net loan book
Mortgage Lending
520.1
13.5
63.1
596.7
Commercial Lending
167.4
2.6
2.2
172.2
Total
687.5
16.1
65.3
768.9
Coverage ratio
Mortgage Lending
0.33%
-
0.79%
0.37%
Commercial Lending
2.62%
3.70%
15.38%
2.82%
Total
0.89%
0.62%
1.36%
0.93%
< 1 month Recent > 1 <= 3 months Total
arrears arrears arrears
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Gross loan book
Mortgage Lending
518.1
15.8
91.1
625.0
Commercial Lending
116.3
0.4
3.1
119.8
Total
634.4
16.2
94.2
744.8
Impairment provision
Mortgage Lending
(2.3)
(0.1)
(3.7)
(6.1)
Commercial Lending
(2.9)
-
(0.4)
(3.3)
Total
(5.2)
(0.1)
(4.1)
(9.4)
Net loan book
Mortgage Lending
515.8
15.7
87.4
618.9
Commercial Lending
113.4
0.4
2.7
116.5
Total
629.2
16.1
90.1
735.4
Coverage ratio
Mortgage Lending
0.44%
0.63%
4.06%
0.98%
Commercial Lending
2.49%
-
12.90%
2.75%
Total
0.82%
0.62%
4.35%
1.26%
Analysis of Stage 3 loans The table below analyses the accounts in Stage 3 between those: \u2022 In the process of sale or other enforcement procedures (\u2018Realisations\u2019) \u2022 Where a receiver of rent (\u2018RoR\u2019) has been appointed by the Group to manage the property on the customers\u2019 behalf \u2022 Which are being managed on a long-term basis and where full recovery is possible, but which are considered to meet regulatory default criteria at the balance sheet date (\u2018>3 month arrears\u2019). This category includes accounts identified as defaults using non-arrears based unlikeliness to pay (\u2018UTP\u2019) indicators \u2022 Which no longer meet regulatory default criteria, but which are being retained in Stage 3 for a probationary period (\u2018Probation\u2019) Where an account meets two of the criteria, it will be assigned to the category shown first in the list above. RoR accounts in Stage 3 may be fully up-to-date with full recovery possible. These accounts are included in Stage 3 as they are classified as defaulted for regulatory purposes. The value of Stage 3 cases has increased in the period, as cases impacted by the economic issues of recent years continue to make their way through the system. Increases have been registered across almost all categories, although the receiver of rent book in the Mortgage Lending segment continues to reduce as older cases are worked out. While the incidence of new receivership arrangements in the year has increased, these have generally moved to sale more quickly, based on the positive property market in the year, accounting for the increased number shown in the realisations column. However, the Group continues to use the receivership process to ensure good outcomes for its landlord customers, their tenants and itself and, where appropriate, will manage these accounts on a longer-term basis. Stage 3 coverage levels in the Mortgage Lending segment are a little reduced, a result of increasing property values in the period providing enhanced security and also of the crystallisation of losses on some older, heavily provided, receivership cases. The growth in Stage 3 cases in the Commercial Lending division is attributable largely to a number of cases in the development finance business impacted by issues in the UK building sector over recent periods. These appear in the \u2018>3 month arrears\u2019 column. While such cases enjoy security over the development funded, the Group has taken a careful approach to estimating recoverable values, especially where the security may comprise an unfinished structure. This has also driven a growth in provision coverage in the period for the segment.
Probation
> 3 month arrears
RoR managed
Realisations
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Gross loan book
Mortgage Lending
10.3
44.6
45.2
71.0
171.1
Commercial Lending
0.4
105.0
-
7.1
112.5
Total
10.7
149.6
45.2
78.1
283.6
Impairment provision
Mortgage Lending
-
(0.7)
(11.2)
(17.8)
(29.7)
Commercial Lending
(0.1)
(17.7)
-
(3.3)
(21.1)
Total
(0.1)
(18.4)
(11.2)
(21.1)
(50.8)
Net loan book
Mortgage Lending
10.3
43.9
34.0
53.2
141.4
Commercial Lending
0.3
87.3
-
3.8
91.4
Total
10.6
131.2
34.0
57.0
232.8
Coverage ratio
Mortgage Lending
-
1.57%
24.78%
25.07%
17.36%
Commercial Lending
25.00%
16.86%
-
46.48%
18.76%
Total
0.93%
12.30%
24.78%
27.02%
17.91%
Probation
> 3 month arrears
RoR managed
Realisations
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2023
Gross loan book
Mortgage Lending
8.8
40.4
50.3
42.7
142.2
Commercial Lending
1.1
57.8
-
4.9
63.8
Total
9.9
98.2
50.3
47.6
206.0
Impairment provision
Mortgage Lending
-
(1.2)
(16.6)
(13.6)
(31.4)
Commercial Lending
(0.3)
(5.5)
-
(2.6)
(8.4)
Total
(0.3)
(6.7)
(16.6)
(16.2)
(39.8)
Net loan book
Mortgage Lending
8.8
39.2
33.7
29.1
110.8
Commercial Lending
0.8
52.3
-
2.3
55.4
Total
9.6
91.5
33.7
31.4
166.2
Coverage ratio
Mortgage Lending
-
2.97%
33.00%
31.85%
22.08%
Commercial Lending
27.27%
9.52%
-
53.06%
13.17%
Total
3.03%
6.82%
33.00%
34.03%
19.32%
The security values available to reduce exposure at default in the calculation shown above for Stage 3 accounts are set out below. The estimated value of the security represents, for each account, the lesser of the valuation estimate and the exposure at default in the central scenario. Security values are based on the most recent valuation of the relevant asset held by the Group, indexed or depreciated as appropriate.
2024
2023
\u00a3m
\u00a3m
First mortgages
119.1
89.5
Second mortgages
8.0
10.2
Asset finance
1.9
1.6
Motor finance
1.2
1.2
130.2
102.5
The RoR managed accounts are being managed to ensure the optimal resolution for landlords, tenants and lenders and have largely reached a long-term, stable position, but the existence of the RoR arrangement causes the accounts to be treated as defaulted for regulatory purposes. The Group\u2019s RoR arrangements are described in more detail below. Mortgage Lending balances with over three months arrears include second charge mortgage accounts originated over ten years ago which have been over three months in arrears for some time. These accounts are generally making regular payments and have significant levels of equity in the underlying property which reduces the required provision to the value shown above. It is expected that a high proportion of these accounts will eventually redeem naturally, either on the sale of the property or by the satisfaction of the amount due through instalment payments. Buy-to-let receiver of rent cases (Stage 3) Where a buy-to-let mortgage customer in England or Wales falls into arrears on their account the Group has the power to appoint a receiver of rent under the Law of Property Act. The receiver will then manage the property on behalf of the customer, collecting rents and remitting them to make payments on the account. While the receiver has the power to sell the property, in many cases they will operate it as a buy-to-let on at least a short to medium term basis, potentially longer, depending on the individual circumstances of the case. This causes less disruption to the tenants and may result in the mortgage account returning to performing status and the property being handed back to the customer. While legacy cases continued to be resolved in the period, economic pressures have led to an increasing number of new receiver of rent appointments in the year, including some larger portfolio cases. These overwhelmingly relate to legacy cases advanced before 2009 and will therefore have a long rental history, with tenants in place in many cases. The following table analyses the number and gross carrying value of RoR managed accounts shown above by the date of the receivers\u2019 appointment, illustrating this position.
30 September 2024
30 September 2023
No.
\u00a3m
No.
\u00a3m
Managed accounts
Appointment date
2010 and earlier
94
14.6
135
20.1
2011 to 2015
16
2.2
31
4.5
2016 to 2020
6
0.8
15
2.0
2021 and later
167
27.6
154
23.7
Total managed accounts
283
45.2
335
50.3
Accounts in the process of realisation
356
57.6
225
41.0
639
102.8
560
91.3
Receiver of rent accounts in the process of realisation at the period end are included under that heading in the Stage 3 tables above. In addition to the cases analysed above there were four other receiver of rent cases in acquired mortgage books classified as POCI (2023: four), meaning that the Group\u2019s total of receiver of rent cases at 30 September 2024 was 643 (2023: 564). 23. Loan impairments \u2013 provision movements in the year The movements in the impairment provision calculated under IFRS 9, analysed by business segments, are set out below.
Mortgage Commercial Total
Lending Lending
\u00a3m
\u00a3m
\u00a3m
At 30 September 2023
42.3
31.3
73.6
Provided in period (note 11)
6.0
20.4
26.4
Amounts written off
(13.0)
(10.5)
(23.5)
At 30 September 2024 (note 22)
35.3
41.2
76.5
At 30 September 2022
38.0
25.5
63.5
Provided in period (note 11)
10.8
8.3
19.1
Amounts written off
(6.5)
(2.5)
(9.0)
At 30 September 2023 (note 22)
42.3
31.3
73.6
Accounts are considered to be written off for accounting purposes if a balance remains once standard enforcement processes have been completed, subject to any amount retained in respect of expected salvage receipts. This has no effect on the net carrying value, only on the amounts reported as gross loan balances and accumulated impairment provisions. At 30 September 2024, enforceable contractual balances of \u00a315.3m (2023: \u00a37.6m) were outstanding on non-POCI assets written off in the period. This excludes those accounts where a full and final settlement was agreed and those where the contractual terms do not permit any further action. Enforceable balances are kept under review for operational purposes, but no amounts are recognised in respect of such accounts unless further cash is received or there is a strong expectation that it will be. A more detailed analysis of these movements by IFRS 9 stage on a consolidated basis for the years ended 30 September 2024 and 30 September 2023 is set out below. These tables, and the matching tables analysing movements in gross balances, have been compiled by comparing opening and closing balances on each account and analysing the movements between them. Changes due to credit risk includes all changes in model parameters whether related to account performance, external credit data or model assumptions, including economic scenarios and weightings. The changes in models introduced during the year did not create significant movements in balances.
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loss allowance at 30 September 2023
19.6
9.4
39.8
4.8
73.6
New assets originated
6.5
-
-
-
6.5
Changes in loss allowance
Transfer to Stage 1
2.0
(1.8)
(0.2)
-
-
Transfer to Stage 2
(2.2)
3.0
(0.8)
-
-
Transfer to Stage 3
(0.2)
(4.5)
4.7
-
-
Changes on stage transfer
(1.6)
2.4
26.4
-
27.2
Changes due to credit risk
(8.1)
(1.3)
4.4
(2.3)
(7.3)
Write offs
-
-
(23.5)
-
(23.5)
Loss allowance at 30 September 2024
16.0
7.2
50.8
2.5
76.5
Loss allowance at 30 September 2022
25.5
8.0
28.5
1.5
63.5
New assets originated
9.5
-
-
-
9.5
Changes in loss allowance
Transfer to Stage 1
2.8
(2.7)
(0.1)
-
-
Transfer to Stage 2
(1.7)
2.0
(0.3)
-
-
Transfer to Stage 3
(0.2)
(1.9)
2.1
-
-
Changes on stage transfer
(2.5)
2.3
14.6
-
14.4
Changes due to credit risk
(13.8)
1.7
4.0
3.3
(4.8)
Write offs
-
-
(9.0)
-
(9.0)
Loss allowance at 30 September 2023
19.6
9.4
39.8
4.8
73.6
During the year ended 30 September 2024, provision levels remained broadly stable overall, although the generally more benign economic climate and increased confidence in the UK saw provision in Stages 1 and 2 falling, compensated by an increase in Stage 3 provision as problem cases moved through the credit cycle, but were not generally replaced by new arrears accounts at the same rate. Provision levels on secured lending tended to decline, especially for loans secured on property, with prices in most areas growing in the year. However, a number of problem cases in development finance saw an increased level of provision being booked, as issues with project progress and financing emerged in the year, with these changes being recognised in the Stage 3 movements. The level of write-offs in the year was higher than in the previous period as some long-term cases were finally resolved and the related provision applied. During the year ended 30 September 2023 the impairment allowance increased, driven mostly by the increase in Stage 3 and POCI cases, a result of the level of actual defaults in the period, particularly in the development finance business, and by reduced levels of available security through declining house prices in the mortgage segment. The net reduction in Stage 1 provisions in that year included the effect of changes in judgemental adjustments in the period, with items formerly addressed by these provisions beginning to move through Stage 2 and Stage 3. These movements were driven by both account performance, and by the impact of more severe actual and forecast economic conditions. The movements in the Loans to Customers balances in respect of which these loss allowances have been made are set out below.
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Balance at 30 September 2023
13,972.3
744.8
206.0
24.8
14,947.9
New assets originated
2,757.4
-
-
-
2,757.4
Changes in staging
Transfer to Stage 1
329.3
(325.9)
(3.4)
-
-
Transfer to Stage 2
(566.5)
585.2
(18.7)
-
-
Transfer to Stage 3
(38.1)
(137.6)
175.7
-
-
Redemptions and repayments
(2,558.0)
(137.2)
(76.0)
(11.0)
(2,782.2)
Write offs
-
-
(23.5)
-
(23.5)
Other changes
808.8
46.8
23.5
3.3
882.4
Balance at 30 September 2024
14,705.2
776.1
283.6
17.1
15,782.0
Loss allowance
(16.0)
(7.2)
(50.8)
(2.5)
(76.5)
Carrying value
14,689.2
768.9
232.8
14.6
15,705.5
Balance at 30 September 2022
12,157.0
1,963.6
124.4
28.8
14,273.8
New assets originated or purchased
3,128.4
-
-
-
3,128.4
Changes in staging
Transfer to Stage 1
1,258.9
(1,255.7)
(3.2)
-
-
Transfer to Stage 2
(365.6)
372.9
(7.3)
-
-
Transfer to Stage 3
(28.9)
(104.7)
133.6
-
-
Redemptions and repayments
(2,773.3)
(250.6)
(44.8)
(10.5)
(3,079.2)
Write offs
-
-
(9.0)
-
(9.0)
Other changes
595.8
19.3
12.3
6.5
633.9
Balance at 30 September 2023
13,972.3
744.8
206.0
24.8
14,947.9
Loss allowance
(19.6)
(9.4)
(39.8)
(4.8)
(73.6)
Carrying value
13,952.7
735.4
166.2
20.0
14,874.3
Other changes includes interest and similar charges. 24. Loan impairments \u2013 economic inputs to calculations Impairment provision under IFRS 9 is calculated on a forward-looking ECL basis, based on expected economic conditions in multiple internally coherent scenarios. While the provision calculation is intended to address all possible future economic outcomes, the Group, in common with most other lenders, uses a small number of differing scenarios as representatives of this universe of potential outturns. The Group uses four distinct economic scenarios chosen to represent the range of possible outcomes and allow for the impact of economic asymmetry in the calculations. Each scenario comprises a number of economic parameters and while models for different portfolios may not use all of the variables, the set, as a whole, is defined for the Group and must be internally consistent. As the Group does not have an internal economics function, in developing its economic scenarios it considers analysis from reputable external sources to form a general market consensus which informs its central scenario. These sources include data and forecasts produced by the Office of Budget Responsibility (\u2018OBR\u2019) and the PRA as well as private sector economic research bodies and industry sources. The Group also takes account of public statements from bodies such as the Bank of England and the UK Government to inform its final position. The central scenario used for IFRS 9 impairment purposes is consistent with the scenario which forms the basis of the Group\u2019s business planning and forecasting and will therefore generally carry the highest probability weighting. In its September 2024 forecasting cycle (the \u2018October forecast\u2019), the Group has adopted a central economic scenario derived using a broadly equivalent approach to that used in September 2023, with the starting point of the scenario updated to reflect the actual movements of economic variables in the year. The general trend of the Group\u2019s central forecast follows that published by the Bank of England in August 2024. This reflects the recent easing of monetary policy and recovering growth. Unemployment remains low, but trends upwards through the forecast period, inflation is generally stable and bank rates continue to fall. House prices, which have been more resilient than many had forecast, continue to increase modestly. Compared with the central forecast adopted at 30 September 2023, this is rather more optimistic, with unemployment and interest rates at lower levels and a more positive outlook for house prices in the short term. However, GDP and inflation remain on a similar trajectory. The scenario also begins from the actual September 2024 position, so that variances against the 2023 scenarios in the year are reflected, with house prices at 30 September 2024, especially, starting the forecast period at a higher level than previously modelled. The upside and downside scenarios are derived from the central forecast, as they have been in previous periods. The shape of the curves representing all three scenarios are similar across the forecast period, but the upside scenario assumes inflation falling more rapidly, driving faster growth and enabling the Bank of England to cut the base rate further and faster than in the base case, while house prices recover more strongly. Conversely, the downside case represents increased pressure on CPI, leading to current levels of base rates persisting for longer, with reduced economic confidence impacting on both house price growth and unemployment levels. The severe scenario has been derived from the most recent Annual Cyclical Scenario (\u2018ACS\u2019) published by the Bank of England, as in recent periods. The supply shock scenario included in the ACS published in July 2024 forms the basis for the Group\u2019s scenario and includes persistently high interest rates, causing a pronounced recession impacting on growth and employment levels, with a significant fall in house prices. The overall shape of the scenarios adopted, and the change in the forecasts year-on-year is illustrated by the forecasts of the UK\u2019s unemployment rate set out in the charts below. The unemployment rate has been presented as it is the principal indicator of general economic activity used in modelling losses in the Group\u2019s buy-to-let mortgage portfolio. The forecast levels of house price inflation, the economic variable which has the most significant impact on the size of the Group\u2019s impairment provision, are also shown. Historical and forecast unemployment rates (End point measure) As at September 2024 0.0% 2021 - 2023 FY 2024 - 2025 FY 2025 - 2026 FY 2026 - 2027 FY 2027 - 2028 FY 2028 - 2029 FY 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Downside Central Upside Severe Reporting date End of forecast period used for modelling Historical and forecast unemployment rates (End point measure) As at September 2023 0.0% 2021 - 2023 FY 2023 - 2024 FY 2024 - 2025 FY 2025 - 2026 FY 2026 - 2027 FY 2027 - 2028 FY 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Downside Central Upside S Historical and forecast HPI rates (Annual Change) As at September 2024 -0.20% 2021 - 2023 FY 2023 - 2024 FY 2024 - 2025 FY 2025 - 2026 FY 2026 - 2027 FY 2027 - 2028 FY -0.15% -0.10% -0.05% - 0.05% 0.10% Downside Central Upside Severe Reporting date End of forecast period used for modelling Historical and forecast HPI rates (Annual Change) As at September 2023 -0.20% 2021 - 2023 FY 2023 - 2024 FY 2024 - 2025 FY 2025 - 2026 FY 2026 - 2027 FY 2027 - 2028 FY -0.15% -0.10% -0.05% - 0.05% 0.10% Downside Central Upside Severe Reporting date End of forecast period used for modelling Following a review of the weightings of the different scenarios, set against the overall potential for variability in the future economic outlook, the Group decided to adjust the scenario weightings used at 30 September 2024. The consensus view for the UK economic outlook is both more settled and more benign than it was at 30 September 2023, however, the potential for significant downside impacts from geopolitical factors, including conflicts in Eastern Europe and the Middle East, remains. The emerging policies of the new UK Government and the outcome of November\u2019s US elections are both likely to impact economic sentiment, to the extent of producing substantially different outcomes. Balancing these factors the Group determined that this was an appropriate point to begin to move back towards a more normal set of economic weightings, closer to those seen in the early years of IFRS 9, before the impacts of Brexit and Covid. As a first step, the impact of the severe scenario has been reduced in the weightings set out below. Sensitivities comparing the effect of these weightings with those adopted in the previous year and those which might be seen in a more normal economic environment are set out in note 25.
2024
2023
Central scenario
45%
40%
Upside scenario
10%
10%
Downside scenario
30%
30%
Severe scenario
15%
20%
100%
100%
The Group\u2019s economic scenarios comprise seven variables based on standard publicly available metrics for the UK. These variables are: \u2022 Year-on-year change in Gross Domestic Product (\u2018GDP\u2019) as measured by the Office of National Statistics (\u2018ONS\u2019) \u2022 Year-on-year change in the House Price Index (\u2018HPI\u2019) as measured by the Nationwide Building Society \u2022 Bank Base Rate (\u2018BBR\u2019), as set by the Bank of England \u2022 Consumer Price Inflation (\u2018CPI\u2019) rate, as measured by the ONS \u2022 Unemployment rate, as measured by the ONS \u2022 Annual change in secured lending, as measured by the Bank of England \u2018mortgage advances\u2019 data series \u2022 Annual change in consumer credit, as measured by the Bank of England \u2018unsecured advances\u2019 data series The projected average annual values of each of these variables in each of the first five financial years of the forecast period are set out below. 30 September 2024 GDP (year-on-year change)
2025
2026
2027
2028
2029
Central scenario
1.4%
1.2%
1.6%
1.6%
1.6%
Upside scenario
2.9%
2.4%
2.3%
1.7%
1.6%
Downside scenario
0.5%
0.5%
1.3%
1.6%
1.6%
Severe scenario
(0.5)%
(3.1)%
(0.1)%
1.9%
1.8%
HPI (year-on-year change)
2025
2026
2027
2028
2029
Central scenario
-
2.3%
4.4%
3.2%
2.4%
Upside scenario
2.7%
4.6%
5.0%
4.5%
3.4%
Downside scenario
(2.4)%
0.5%
4.0%
2.6%
1.7%
Severe scenario
(1.9)%
(11.0)%
(14.6)%
-
6.5%
BBR (rate)
2025
2026
2027
2028
2029
Central scenario
4.3%
3.6%
3.4%
3.3%
3.3%
Upside scenario
4.1%
3.2%
3.0%
3.0%
3.0%
Downside scenario
5.0%
5.0%
4.6%
3.7%
3.5%
Severe scenario
7.1%
8.8%
6.3%
4.3%
3.5%
CPI (rate)
2025
2026
2027
2028
2029
Central scenario
2.6%
1.9%
1.5%
1.7%
2.0%
Upside scenario
2.1%
1.9%
2.0%
2.0%
2.0%
Downside scenario
2.5%
2.5%
2.3%
1.9%
2.0%
Severe scenario
4.7%
11.9%
4.7%
2.1%
2.0%
Unemployment (rate)
2025
2026
2027
2028
2029
Central scenario
4.5%
4.8%
4.7%
4.2%
4.0%
Upside scenario
4.1%
4.4%
4.3%
3.9%
3.6%
Downside scenario
4.9%
5.6%
5.8%
5.3%
4.5%
Severe scenario
5.0%
7.5%
8.4%
7.8%
7.1%
Secured lending (annual change)
2025
2026
2027
2028
2029
Central scenario
0.3%
1.8%
3.0%
3.0%
3.0%
Upside scenario
1.3%
2.8%
3.3%
3.0%
3.0%
Downside scenario
(0.5)%
1.0%
2.8%
3.0%
3.0%
Severe scenario
(1.8)%
(0.3)%
2.5%
3.0%
3.0%
Consumer credit (annual change)
2025
2026
2027
2028
2029
Central scenario
6.8%
5.1%
4.8%
5.0%
5.0%
Upside scenario
7.5%
5.9%
5.0%
5.0%
5.0%
Downside scenario
5.8%
4.1%
4.6%
5.0%
5.0%
Severe scenario
4.3%
2.6%
4.2%
5.0%
5.0%
30 September 2023 GDP (year-on-year change)
2024
2025
2026
2027
2028
Central scenario
0.4%
0.9%
1.0%
1.2%
1.2%
Upside scenario
1.6%
1.4%
1.0%
1.2%
1.2%
Downside scenario
(0.4)%
0.7%
1.0%
1.2%
1.2%
Severe scenario
(3.6)%
(0.2)%
1.2%
1.2%
1.2%
HPI (year-on-year change)
2024
2025
2026
2027
2028
Central scenario
(6.4)%
(1.7)%
4.7%
4.4%
3.2%
Upside scenario
(1.1)%
5.8%
6.8%
5.0%
4.5%
Downside scenario
(10.7)%
(2.2)%
4.0%
4.0%
2.6%
Severe scenario
(13.1)%
(15.1)%
-
7.0%
5.6%
BBR (rate)
2024
2025
2026
2027
2028
Central scenario
5.5%
5.4%
4.8%
4.4%
4.1%
Upside scenario
5.2%
4.4%
3.7%
3.5%
3.5%
Downside scenario
5.6%
3.8%
2.6%
2.0%
2.0%
Severe scenario
6.0%
5.8%
5.1%
4.3%
3.4%
CPI (rate)
2024
2025
2026
2027
2028
Central scenario
4.4%
2.6%
1.6%
1.8%
2.0%
Upside scenario
3.7%
2.1%
2.1%
2.0%
2.1%
Downside scenario
4.5%
1.0%
0.7%
1.8%
2.0%
Severe scenario
15.7%
12.8%
3.7%
2.4%
2.1%
Unemployment (rate)
2024
2025
2026
2027
2028
Central scenario
4.8%
5.6%
6.0%
5.6%
4.9%
Upside scenario
4.3%
4.6%
4.8%
4.4%
3.9%
Downside scenario
5.3%
6.4%
6.7%
6.1%
5.4%
Severe scenario
6.9%
8.4%
7.8%
7.2%
6.6%
Secured lending (annual change)
2024
2025
2026
2027
2028
Central scenario
0.8%
0.3%
1.8%
3.0%
3.0%
Upside scenario
1.5%
1.0%
2.5%
3.2%
3.0%
Downside scenario
-
(0.5)%
1.0%
2.8%
3.0%
Severe scenario
(1.3)%
(1.8)%
(0.3)%
2.5%
3.0%
Consumer credit (annual change)
2024
2025
2026
2027
2028
Central scenario
3.5%
2.3%
3.9%
4.9%
5.0%
Upside scenario
4.3%
3.0%
4.7%
5.1%
5.0%
Downside scenario
2.8%
1.5%
3.2%
4.8%
5.0%
Severe scenario
1.5%
0.3%
1.9%
4.4%
5.0%
After the end of the initial five year period, the final rate or rate of change (as appropriate) is assumed to continue into the future in each scenario. To illustrate the levels of non-linearity in the various scenarios, the maximum and minimum quarterly levels for each variable over the five year period commencing on the balance sheet date are set out below. 30 September 2024
Central scenario
Upside scenario
Downside scenario
Severe scenario
Max
Min
Max
Min
Max
Min
Max
Min
%
%
%
%
%
%
%
%
Economic driver
GDP
2.0
1.0
3.0
1.6
1.6
(0.3)
1.9
(3.7)
HPI
4.4
(1.3)
5.1
1.7
4.0
(4.6)
6.9
(15.9)
BBR
4.5
3.3
4.5
3.0
5.0
3.5
9.0
3.5
CPI
2.7
1.5
2.2
1.7
2.7
1.7
12.3
1.9
Unemployment
4.8
4.0
4.4
3.6
5.8
4.2
8.5
4.3
Secured lending
3.0
-
4.0
1.0
3.0
(0.8)
3.0
(2.0)
Consumer credit
7.0
4.5
7.8
4.8
6.0
3.5
5.0
2.0
30 September 2023
Central scenario
Upside scenario
Downside scenario
Severe scenario
Max
Min
Max
Min
Max
Min
Max
Min
%
%
%
%
%
%
%
%
Economic driver
GDP
1.2
0.3
2.3
0.9
1.2
(0.8)
1.2
(5.0)
HPI
4.4
(8.2)
7.4
(3.1)
4.1
(13.4)
7.2
(16.4)
BBR
5.5
4.0
5.3
3.5
5.8
2.0
6.0
3.3
CPI
5.0
1.5
4.3
1.8
6.0
0.4
17.0
2.0
Unemployment
6.0
4.5
4.8
3.8
7.0
5.0
8.5
5.2
Secured lending
3.0
-
3.8
0.8
3.0
(0.8)
3.0
(2.0)
Consumer credit
5.0
2.0
5.8
2.8
5.0
1.3
5.0
-
The asymmetry in the models is demonstrated by comparing the calculated impairment provision with that which would have been produced using the central scenario alone, 100% weighted.
2024
2023
\u00a3m
\u00a3m
Provision using central scenario 100% weighted
Mortgage Lending
31.6
38.4
Commercial Lending
39.7
29.0
71.3
67.4
Calculated impairment provision
76.5
73.6
Effect of multiple economic scenarios
5.2
6.2
25. Loan impairments \u2013 sensitivity analysis The calculation of impairment provisions under IFRS 9 is subject to a variety of uncertainties arising from assumptions, forecasts and expectations about future events and conditions. To illustrate the impact of these uncertainties, sensitivity calculations have been performed for some of the most significant. These sensitivities are intended as mathematical illustrations of the impacts of the various assumptions on the Group\u2019s modelling. They do not necessarily represent alternative potential impairment values as other factors might also need to be considered in arriving at a final provision figure if circumstances differed from those at the balance sheet date. Economic conditions To illustrate the potential impact of differing future economic scenarios on the total impairment, the provisions which would be calculated if each of the economic scenarios were 100% weighted are shown below:
Scenario
2024
2023
Provision
Difference
Provision
Difference
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Central
71.3
(5.2)
67.4
(6.2)
Upside
68.0
(8.5)
59.0
(14.6)
Downside
76.8
0.3
73.4
(0.2)
Severe
100.4
23.9
95.7
22.1
The weighted average of these 100% weighted provisions need not equal the weighted average ECL due to the impact of the differing PDs on staging. Scenario weightings In order to illustrate the impact of scenario weightings on the outcomes, the impairment provision requirements were sensitised using alternative weightings. Sensitivity A is based on the weightings used at IFRS 9 transition on 1 October 2018. The use of the 2018 weighting is intended to represent a more settled outlook than has been evident at any of the most recent year ends. Sensitivity B is based on the weightings used at the previous year end, to demonstrate the impact of the adoption of the new weightings. The weightings used, and the results of applying these sensitivities to the 30 September 2024 scenarios are set out below.
Weighting
Impairment
Difference
Central
Upside
Downside
Severe
\u00a3m
\u00a3m
As reported
45%
10%
30%
15%
76.5
-
Sensitivity A
40%
30%
25%
5%
72.9
(3.6)
Sensitivity B
40%
10%
30%
20%
77.8
1.3
Significant increase in credit risk The most important driver of SICR is relative PD. If all PDs across the Group\u2019s principal buy-to-let mortgage book were increased by 10%, loans with a gross value of \u00a344.4m would transfer from Stage 1 to Stage 2 (2023: \u00a368.4m), and the total provision would increase by \u00a30.3m from the combined effects of higher PDs on expected losses and the impact of providing for expected lifetime losses, rather than 12-month losses on the additional Stage 2 cases (2023: \u00a30.8m). Value of security The principal assumptions impacting on LGD are the estimated security values. If the rate of growth in house prices assumed by the model after the forecast minimum were halved, ignoring any PD effects, then the provision for the Group\u2019s first and second mortgage assets under the central scenario would increase by \u00a30.5m (2023: \u00a30.7m). Receiver of rent The majority of receiver of rent cases, which are included in Stage 3, are managed long-term and therefore their assumed realisation date has an important impact on the provision calculation. If the assumed rate of realisations was increased by 20%, the impairment provision in the central scenario would increase by \u00a30.4m (2023: \u00a30.1m). ", "dimensions": { "concept": "ifrs-full:DisclosureOfAllowanceForCreditLossesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-369": { "value": "
27. Sundry assets
(a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Accrued interest income
11.1
4.6
1.0
Trade receivables
1.5
1.5
1.9
CSA assets
26
-
-
-
CRDs
-
38.0
30.2
Sovereign receivables
0.2
0.1
0.3
Other receivables
3.0
1.8
2.0
Sundry financial assets
71
15.8
46.0
35.4
Prepayments
4.9
5.0
3.8
20.7
51.0
39.2
Cash ratio deposits (\u2018CRDs\u2019) were non-interest-bearing deposits lodged with the Bank of England, based on the value of the
Bank\u2019s eligible liabilities. These deposits were required to comply with regulatory rules, but the scheme was terminated by the
Bank of England during the year.
CSA assets are deposits placed with highly rated banks to act as security for the Group\u2019s derivative financial liabilities.
Neither of these balances is accessible by the Group at the balance sheet date. Therefore, they are included in sundry assets rather
than cash balances.
Sovereign receivables includes amounts receivable from the UK Government under the BBB sponsored schemes.
CRDs, CSA assets, sovereign receivables and accrued interest are considered to be Stage 1 assets for IFRS 9 impairment purposes.
The probabilities of default of the obligor institutions (the UK Government, Bank of England and major banks) have been assessed
and are considered to be so low as to require no significant impairment provision.
(b) The Company
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Intra-group treasury deposit
107.6
193.6
-
Amounts owed by group companies
20.9
35.0
39.1
Accrued interest income
0.1
0.1
0.1
128.6
228.7
39.2
The intra-group treasury balances comprise a 100-day notice balance and a current balance, both with the Company\u2019s subsidiary,
Paragon Bank PLC, which invests cash with the Bank of England on a centralised basis.
The amounts owed to the Company by other group entities are considered to be Stage 1 balances for IFRS 9 impairment purposes.
The PD of the subsidiaries has been assessed in the context of the Group\u2019s overall funding and asset position, and is considered to be
so low as to require no significant impairment provision.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-490": { "value": "27. Sundry assets (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Accrued interest income
11.1
4.6
1.0
Trade receivables
1.5
1.5
1.9
CSA assets
26
-
-
-
CRDs
-
38.0
30.2
Sovereign receivables
0.2
0.1
0.3
Other receivables
3.0
1.8
2.0
Sundry financial assets
71
15.8
46.0
35.4
Prepayments
4.9
5.0
3.8
20.7
51.0
39.2
Cash ratio deposits (\u2018CRDs\u2019) were non-interest-bearing deposits lodged with the Bank of England, based on the value of the Bank\u2019s eligible liabilities. These deposits were required to comply with regulatory rules, but the scheme was terminated by the Bank of England during the year. CSA assets are deposits placed with highly rated banks to act as security for the Group\u2019s derivative financial liabilities. Neither of these balances is accessible by the Group at the balance sheet date. Therefore, they are included in sundry assets rather than cash balances. Sovereign receivables includes amounts receivable from the UK Government under the BBB sponsored schemes. CRDs, CSA assets, sovereign receivables and accrued interest are considered to be Stage 1 assets for IFRS 9 impairment purposes. The probabilities of default of the obligor institutions (the UK Government, Bank of England and major banks) have been assessed and are considered to be so low as to require no significant impairment provision. ", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherReceivablesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-462": { "value": "27. Sundry assets (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Accrued interest income
11.1
4.6
1.0
Trade receivables
1.5
1.5
1.9
CSA assets
26
-
-
-
CRDs
-
38.0
30.2
Sovereign receivables
0.2
0.1
0.3
Other receivables
3.0
1.8
2.0
Sundry financial assets
71
15.8
46.0
35.4
Prepayments
4.9
5.0
3.8
20.7
51.0
39.2
Cash ratio deposits (\u2018CRDs\u2019) were non-interest-bearing deposits lodged with the Bank of England, based on the value of the Bank\u2019s eligible liabilities. These deposits were required to comply with regulatory rules, but the scheme was terminated by the Bank of England during the year. CSA assets are deposits placed with highly rated banks to act as security for the Group\u2019s derivative financial liabilities. Neither of these balances is accessible by the Group at the balance sheet date. Therefore, they are included in sundry assets rather than cash balances. Sovereign receivables includes amounts receivable from the UK Government under the BBB sponsored schemes. CRDs, CSA assets, sovereign receivables and accrued interest are considered to be Stage 1 assets for IFRS 9 impairment purposes. The probabilities of default of the obligor institutions (the UK Government, Bank of England and major banks) have been assessed and are considered to be so low as to require no significant impairment provision. (b) The Company
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Intra-group treasury deposit
107.6
193.6
-
Amounts owed by group companies
20.9
35.0
39.1
Accrued interest income
0.1
0.1
0.1
128.6
228.7
39.2
The intra-group treasury balances comprise a 100-day notice balance and a current balance, both with the Company\u2019s subsidiary, Paragon Bank PLC, which invests cash with the Bank of England on a centralised basis. The amounts owed to the Company by other group entities are considered to be Stage 1 balances for IFRS 9 impairment purposes. The PD of the subsidiaries has been assessed in the context of the Group\u2019s overall funding and asset position, and is considered to be so low as to require no significant impairment provision.", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherCurrentAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-422": { "value": "27. Sundry assets (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Accrued interest income
11.1
4.6
1.0
Trade receivables
1.5
1.5
1.9
CSA assets
26
-
-
-
CRDs
-
38.0
30.2
Sovereign receivables
0.2
0.1
0.3
Other receivables
3.0
1.8
2.0
Sundry financial assets
71
15.8
46.0
35.4
Prepayments
4.9
5.0
3.8
20.7
51.0
39.2
Cash ratio deposits (\u2018CRDs\u2019) were non-interest-bearing deposits lodged with the Bank of England, based on the value of the Bank\u2019s eligible liabilities. These deposits were required to comply with regulatory rules, but the scheme was terminated by the Bank of England during the year. CSA assets are deposits placed with highly rated banks to act as security for the Group\u2019s derivative financial liabilities. Neither of these balances is accessible by the Group at the balance sheet date. Therefore, they are included in sundry assets rather than cash balances. Sovereign receivables includes amounts receivable from the UK Government under the BBB sponsored schemes. CRDs, CSA assets, sovereign receivables and accrued interest are considered to be Stage 1 assets for IFRS 9 impairment purposes. The probabilities of default of the obligor institutions (the UK Government, Bank of England and major banks) have been assessed and are considered to be so low as to require no significant impairment provision. (b) The Company
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Receivable in less than one year
Intra-group treasury deposit
107.6
193.6
-
Amounts owed by group companies
20.9
35.0
39.1
Accrued interest income
0.1
0.1
0.1
128.6
228.7
39.2
The intra-group treasury balances comprise a 100-day notice balance and a current balance, both with the Company\u2019s subsidiary, Paragon Bank PLC, which invests cash with the Bank of England on a centralised basis. The amounts owed to the Company by other group entities are considered to be Stage 1 balances for IFRS 9 impairment purposes. The PD of the subsidiaries has been assessed in the context of the Group\u2019s overall funding and asset position, and is considered to be so low as to require no significant impairment provision.", "dimensions": { "concept": "ifrs-full:DisclosureOfPrepaymentsAndOtherAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-423": { "value": "28. Current tax assets / liabilities Current tax in the Group and the Company represents UK corporation tax owed or recoverable. 44. Deferred tax (a) The Group The net deferred tax liability for which provision has been made and the movements in that balance are analysed as follows:
Opening Profit and loss Charge / (credit) Closing
balance charge / (credit) to equity balance
Current
Prior
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Year ended 30 September 2024
Accelerated tax depreciation
(8.3)
(0.3)
5.8
-
(2.8)
Retirement benefit obligations
3.1
0.6
-
1.8
5.5
Interest rate hedging
32.8
(13.2)
-
-
19.6
Loans and other derivatives
1.4
(0.1)
(0.1)
-
1.2
Share based payments
(7.5)
0.8
-
(3.0)
(9.7)
Tax losses
(3.0)
2.9
0.1
-
-
Other timing differences
(0.8)
0.2
0.2
-
(0.4)
Total
17.7
(9.1)
6.0
(1.2)
13.4
Year ended 30 September 2023
Accelerated tax depreciation
(6.9)
(5.0)
3.6
-
(8.3)
Retirement benefit obligations
0.5
1.8
-
0.8
3.1
Interest rate hedging
53.2
(20.4)
-
-
32.8
Loans and other derivatives
2.2
(0.8)
-
-
1.4
Share based payments
(3.7)
(2.8)
-
(1.0)
(7.5)
Tax losses
(0.1)
0.1
(3.0)
-
(3.0)
Other timing differences
(0.8)
(0.2)
0.2
-
(0.8)
44.4
(27.3)
0.8
(0.2)
17.7
Balances in respect of interest rate hedging in the table above relate to derivatives hedging interest rate risk in the Group\u2019s loan and deposit books and related pipelines, and fair value accounting adjustments. The temporary differences shown above have been provided at the rate prevailing when the Group anticipates these temporary differences to reverse. In the event that the temporary differences actually reverse in different periods a credit or charge will arise in a future period to reflect the difference. The timing of reversal of temporary differences will be affected by both matters within the Group\u2019s control (such as the timing and nature of the refinancing of certain portfolios) and matters outside the Group\u2019s control (for example, the timing of the Group\u2019s contributions to its defined benefit pension scheme). If temporary differences reverse within Paragon Bank PLC in a period in which it is subject to the banking surcharge, then the impact of the reversal will be at an effective tax rate that includes the banking surcharge to some extent. The Group has no tax losses in entities whose current taxable profits are insufficient to support the recognition of a deferred tax asset (2023: \u00a33.7m). (b) The Company The net deferred tax (asset) / liability for which provision has been made, and the movements in that balance are analysed as follows:
Opening Profit and loss Charge / (credit) Closing
balance charge / (credit) to equity balance
Current
Prior
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Year ended 30 September 2024
Accelerated tax depreciation
0.1
-
-
-
0.1
Tax losses carried forward
(1.7)
1.7
-
-
-
Other timing differences
-
-
-
-
-
Total
(1.6)
1.7
-
-
0.1
Year ended 30 September 2023
Accelerated tax depreciation
0.1
-
-
-
0.1
Tax losses carried forward
-
-
(1.7)
-
(1.7)
Other timing differences
-
-
-
-
-
0.1
-
(1.7)
-
(1.6)
", "dimensions": { "concept": "ifrs-full:DisclosureOfTaxReceivablesAndPayablesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-370": { "value": "
29. Property, plant and equipment
(a) The Group
Leased Land and Plant and Total
assets buildings machinery
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost
At 1 October 2022
72.2
35.7
14.0
121.9
Additions
15.9
1.4
2.6
19.9
Disposals
(6.6)
(0.1)
(1.9)
(8.6)
At 30 September 2023
81.5
37.0
14.7
133.2
Additions
13.6
0.3
2.5
16.4
Disposals
(7.1)
(0.8)
(2.2)
(10.1)
At 30 September 2024
88.0
36.5
15.0
139.5
Accumulated depreciation
At 1 October 2022
30.6
8.8
11.1
50.5
Charge for the year
10.7
2.2
1.7
14.6
On disposals
(4.6)
(0.1)
(1.9)
(6.6)
At 30 September 2023
36.7
10.9
10.9
58.5
Charge for the year
11.6
3.7
1.7
17.0
On disposals
(4.9)
(0.7)
(1.4)
(7.0)
At 30 September 2024
43.4
13.9
11.2
68.5
Net book value
At 30 September 2024
44.6
22.6
3.8
71.0
At 30 September 2023
44.8
26.1
3.8
74.7
At 30 September 2022
41.6
26.9
2.9
71.4
Land and buildings and plant and machinery shown above are used within the Group\u2019s business. Leased assets includes \u00a330.4m
in respect of assets leased to customers under operating leases (2023: \u00a331.3m), \u00a30.7m of vehicles leased to employees under the
Group\u2019s green car salary sacrifice scheme (2023: \u00a30.5m) and \u00a313.5m of assets available for hire (2023: \u00a313.0m).
The carrying values of right of use of assets, in respect of leases where the Group is the lessee, included in property, plant and equipment are set out below.
Leased Land and Plant and Total
assets buildings machinery
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost
At 1 October 2022
-
11.6
1.8
13.4
Additions
0.6
1.0
1.4
3.0
Disposals
-
(0.1)
(0.4)
(0.5)
At 30 September 2023
0.6
12.5
2.8
15.9
Additions
0.5
0.3
1.6
2.4
Disposals
-
(0.8)
(1.6)
(2.4)
At 30 September 2024
1.1
12.0
2.8
15.9
Accumulated depreciation
At 1 October 2022
-
3.7
1.1
4.8
Charge for the year
0.1
1.7
0.7
2.5
On disposals
-
(0.1)
(0.4)
(0.5)
At 30 September 2023
0.1
5.3
1.4
6.8
Charge for the year
0.3
3.1
0.7
4.1
On disposals
-
(0.8)
(0.9)
(1.7)
At 30 September 2024
0.4
7.6
1.2
9.2
Net book value
At 30 September 2024
0.7
4.4
1.6
6.7
At 30 September 2023
0.5
7.2
1.4
9.1
At 30 September 2022
-
7.9
0.7
8.6
During the year ended 30 September 2018, the Group entered into a transaction with the Paragon Pension Plan, effectively granting a first charge over its freehold head office building as security for its agreed contributions under the recovery plan. The carrying value of the assets subject to this charge was \u00a316.4m (2023: \u00a316.8m). Depreciation on property, plant and equipment is included in the Group\u2019s profit and loss account as set out below.
Note
2024
2023
\u00a3m
\u00a3m
Operating expenses
8
5.4
3.9
Leasing costs
6
11.6
10.7
Total depreciation
17.0
14.6
Depreciation of \u00a311.4m included in leasing costs (2023: \u00a310.6m) is attributable to the Commercial Lending segment described in note 2. No other depreciation is allocated to a segment. (b) The Company The property, plant and equipment balance of the Company represents a right of use asset in respect of a building leased from a fellow group entity. The carrying value of this asset is set out below.
Land and
buildings
\u00a3m
Cost
At 1 October 2022, 30 September 2023 and 30 September 2024
18.8
Accumulated depreciation
At 1 October 2022
4.2
Charge for the year
1.4
On disposals
-
At 30 September 2023
5.6
Charge for the year
1.4
On disposals
-
At 30 September 2024
7.0
Net book value
At 30 September 2024
11.8
At 30 September 2023
13.2
At 30 September 2022
14.6
", "dimensions": { "concept": "ifrs-full:DisclosureOfPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-371": { "value": "
30. Intangible assets
Goodwill Computer Other intangible Total
(note 31) software assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost
At 1 October 2022
170.4
16.5
10.6
197.5
Additions
-
1.6
-
1.6
Derecognition
(7.6)
-
(8.1)
(15.7)
At 30 September 2023
162.8
18.1
2.5
183.4
Additions
-
4.5
-
4.5
Derecognition
-
-
-
-
At 30 September 2024
162.8
22.6
2.5
187.9
Accumulated amortisation and impairment
At 1 October 2022
6.0
12.6
8.7
27.3
Amortisation charge for the year
-
1.1
0.7
1.8
Derecognition
(6.0)
-
(7.9)
(13.9)
At 30 September 2023
-
13.7
1.5
15.2
Amortisation charge for the year
-
0.9
0.3
1.2
Derecognition
-
-
-
-
At 30 September 2024
-
14.6
1.8
16.4
Net book value
At 30 September 2024
162.8
8.0
0.7
171.5
At 30 September 2023
162.8
4.4
1.0
168.2
At 30 September 2022
164.4
3.9
1.9
170.2
Other intangible assets comprise brands and the benefit of business networks recognised on the acquisition of businesses.
Derecognitions above relate to the cessation of the TBMC business (note 10).
Amortisation charges in respect of intangible assets are included in operating expenses (note 8).
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-463": { "value": "30. Intangible assets
Goodwill Computer Other intangible Total
(note 31) software assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost
At 1 October 2022
170.4
16.5
10.6
197.5
Additions
-
1.6
-
1.6
Derecognition
(7.6)
-
(8.1)
(15.7)
At 30 September 2023
162.8
18.1
2.5
183.4
Additions
-
4.5
-
4.5
Derecognition
-
-
-
-
At 30 September 2024
162.8
22.6
2.5
187.9
Accumulated amortisation and impairment
At 1 October 2022
6.0
12.6
8.7
27.3
Amortisation charge for the year
-
1.1
0.7
1.8
Derecognition
(6.0)
-
(7.9)
(13.9)
At 30 September 2023
-
13.7
1.5
15.2
Amortisation charge for the year
-
0.9
0.3
1.2
Derecognition
-
-
-
-
At 30 September 2024
-
14.6
1.8
16.4
Net book value
At 30 September 2024
162.8
8.0
0.7
171.5
At 30 September 2023
162.8
4.4
1.0
168.2
At 30 September 2022
164.4
3.9
1.9
170.2
Other intangible assets comprise brands and the benefit of business networks recognised on the acquisition of businesses. Derecognitions above relate to the cessation of the TBMC business (note 10). Amortisation charges in respect of intangible assets are included in operating expenses (note 8). 31. Goodwill The goodwill carried in the accounts is attributable to two cash generating units (\u2018CGU\u2019s), which have not changed in the year. These balances are reviewed for impairment annually, in accordance with the requirements of IAS 36 \u2013 \u2018Impairment of Assets\u2019. The balance is as analysed below:
2024
2023
\u00a3m
\u00a3m
CGU
SME lending
113.0
113.0
Development finance
49.8
49.8
162.8
162.8
(a) SME lending The goodwill carried in the accounts relating to the SME lending CGU was recognised on acquisitions in the years ended 30 September 2016 and 30 September 2018. An impairment review undertaken at 30 September 2024 indicated that no write down was required. The recoverable amount of the SME lending CGU used in this impairment testing is determined on a value in use basis using pre-tax cash flow projections based on financial budgets approved by the Board in November 2024 covering a five-year period. The key assumptions underlying the value in use calculation for the SME lending CGU are: \u2022 Level of business activity, based on management expectations. The forecast assumes a compound annual growth rate (\u2018CAGR\u2019) for new lending over the five-year period of 11.7%, compared with 14.1% used in the calculation at 30 September 2023. The new lending forecasts are the key driver for the profit and cashflow forecasts. Cash flows beyond the five-year budget are extrapolated using a constant growth rate of 1.2% (2023: 1.2%) which does not exceed the long-term average growth rates for the markets in which the business is active Management have concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past experience and the current economic environment \u2022 Discount rate, which is based on third-party estimates of the implied industry cost of capital. The pre-tax discount rate applied to the cash flow projection is 16.5% (2023: 16.2%) As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a 0.0% growth rate combined with a 19.8% reduction in profit levels would eliminate the projected headroom of \u00a391.7m. While such movements are not expected by management, they are considered \u2018reasonably possible\u2019 for the purposes of IAS 36. A 0.0% growth rate combined with an 22.6% reduction in profit levels would generate a write down of \u00a310.0m. In the testing carried out at 30 September 2023, a 0.0% growth rate combined with an 11.5% reduction in profit levels, would have eliminated the projected headroom at that date of \u00a359.1m. A 0.0% growth rate combined with a 14.4% reduction in profit levels would have generated a write down of \u00a310.0m. (b) Development finance The goodwill carried in the accounts relating to the development finance CGU was first recognised on a business acquisition in the year ended 30 September 2018. An impairment review undertaken at 30 September 2024 indicated that no write down was required. The recoverable amount of the development finance CGU used in this impairment testing is determined on a value in use basis using pre-tax cash flow projections based on financial budgets approved by the Board in November 2024 covering a five-year period. The key assumptions underlying the value in use calculation for the development finance CGU are: \u2022 Level of business activity, based on management expectations. The forecast assumes a CAGR for drawdowns over the five-year period of 15.6%, compared with 11.1% used in the calculation at 30 September 2023. Cash flows beyond the five-year budget are extrapolated using a constant growth rate of 1.2% (2023: 1.2%) which does not exceed the long-term average growth rate for the UK economy Management have concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past experience and the current economic environment. \u2022 Discount rate, which is based on third party estimates of the implied industry cost of capital. The pre-tax discount rate applied to the cash flow projection is 16.4% (2023: 15.9%) As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a 0.0% growth rate combined with a 9.5% reduction in profit levels would eliminate the projected headroom of \u00a353.2m. While such movements are not expected by management, they are considered \u2018reasonably possible\u2019 for the purposes of IAS 36. A 0.0% growth rate combined with a 12.1% reduction in profit levels would generate a write down of \u00a310.0m. In the testing carried out at 30 September 2023 a 1.1% growth rate combined with a 3.1% reduction in profit levels would have eliminated the projected headroom at that date of \u00a313.9m. A 0.2% growth rate combined with a 2.9% reduction in profit would have generated a write down of \u00a310.0m.", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-424": { "value": "31. Goodwill The goodwill carried in the accounts is attributable to two cash generating units (\u2018CGU\u2019s), which have not changed in the year. These balances are reviewed for impairment annually, in accordance with the requirements of IAS 36 \u2013 \u2018Impairment of Assets\u2019. The balance is as analysed below:
2024
2023
\u00a3m
\u00a3m
CGU
SME lending
113.0
113.0
Development finance
49.8
49.8
162.8
162.8
(a) SME lending The goodwill carried in the accounts relating to the SME lending CGU was recognised on acquisitions in the years ended 30 September 2016 and 30 September 2018. An impairment review undertaken at 30 September 2024 indicated that no write down was required. The recoverable amount of the SME lending CGU used in this impairment testing is determined on a value in use basis using pre-tax cash flow projections based on financial budgets approved by the Board in November 2024 covering a five-year period. The key assumptions underlying the value in use calculation for the SME lending CGU are: \u2022 Level of business activity, based on management expectations. The forecast assumes a compound annual growth rate (\u2018CAGR\u2019) for new lending over the five-year period of 11.7%, compared with 14.1% used in the calculation at 30 September 2023. The new lending forecasts are the key driver for the profit and cashflow forecasts. Cash flows beyond the five-year budget are extrapolated using a constant growth rate of 1.2% (2023: 1.2%) which does not exceed the long-term average growth rates for the markets in which the business is active Management have concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past experience and the current economic environment \u2022 Discount rate, which is based on third-party estimates of the implied industry cost of capital. The pre-tax discount rate applied to the cash flow projection is 16.5% (2023: 16.2%) As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a 0.0% growth rate combined with a 19.8% reduction in profit levels would eliminate the projected headroom of \u00a391.7m. While such movements are not expected by management, they are considered \u2018reasonably possible\u2019 for the purposes of IAS 36. A 0.0% growth rate combined with an 22.6% reduction in profit levels would generate a write down of \u00a310.0m. In the testing carried out at 30 September 2023, a 0.0% growth rate combined with an 11.5% reduction in profit levels, would have eliminated the projected headroom at that date of \u00a359.1m. A 0.0% growth rate combined with a 14.4% reduction in profit levels would have generated a write down of \u00a310.0m. (b) Development finance The goodwill carried in the accounts relating to the development finance CGU was first recognised on a business acquisition in the year ended 30 September 2018. An impairment review undertaken at 30 September 2024 indicated that no write down was required. The recoverable amount of the development finance CGU used in this impairment testing is determined on a value in use basis using pre-tax cash flow projections based on financial budgets approved by the Board in November 2024 covering a five-year period. The key assumptions underlying the value in use calculation for the development finance CGU are: \u2022 Level of business activity, based on management expectations. The forecast assumes a CAGR for drawdowns over the five-year period of 15.6%, compared with 11.1% used in the calculation at 30 September 2023. Cash flows beyond the five-year budget are extrapolated using a constant growth rate of 1.2% (2023: 1.2%) which does not exceed the long-term average growth rate for the UK economy Management have concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past experience and the current economic environment. \u2022 Discount rate, which is based on third party estimates of the implied industry cost of capital. The pre-tax discount rate applied to the cash flow projection is 16.4% (2023: 15.9%) As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a 0.0% growth rate combined with a 9.5% reduction in profit levels would eliminate the projected headroom of \u00a353.2m. While such movements are not expected by management, they are considered \u2018reasonably possible\u2019 for the purposes of IAS 36. A 0.0% growth rate combined with a 12.1% reduction in profit levels would generate a write down of \u00a310.0m. In the testing carried out at 30 September 2023 a 1.1% growth rate combined with a 3.1% reduction in profit levels would have eliminated the projected headroom at that date of \u00a313.9m. A 0.2% growth rate combined with a 2.9% reduction in profit would have generated a write down of \u00a310.0m.", "dimensions": { "concept": "ifrs-full:DisclosureOfGoodwillExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-372": { "value": "
32. Investment in subsidiary undertakings
Shares in group Loans to group Total
companies companies
\u00a3m
\u00a3m
\u00a3m
At 1 October 2022
638.7
257.0
895.7
Loans repaid
-
(107.0)
(107.0)
Provision movements
(1.2)
-
(1.2)
At 30 September 2023
637.5
150.0
787.5
Loans repaid
-
-
-
Provision movements
(0.7)
-
(0.7)
At 30 September 2024
636.8
150.0
786.8
Amounts shown above for 2022 and 2023 have been restated as described in note 66.
Loans to group companies includes principally investments in the tier 2 equity instruments issued by the Company\u2019s banking
subsidiary, Paragon Bank PLC.
During the year ended 30 September 2024 the Company received \u00a3161.9m in dividend income from its subsidiaries (2023: \u00a3262.5m)
and \u00a319.4m of interest on loans to group companies (2023: \u00a318.6m).
The Company\u2019s subsidiaries, and the nature of its interest in them, are shown in note 72.
72. Details of subsidiary undertakings
Subsidiary undertakings of the Group at 30 September 2024, where the share capital is held within the Group are shown below. The
holdings shown are those held within the Group. The shareholdings of the Company in the direct subsidiaries listed below are the
same as those held by the Group, except that for the shareholdings marked * the Company holds only 74% of the share capital. In
these cases, the remainder is held by other group companies.
The issued share capital of all subsidiaries consists of ordinary share capital.
Company
Holding
Principal activity
Direct subsidiaries of Paragon Banking Group PLC
Paragon Bank PLC
100%
Deposit taking, residential mortgages and loan and vehicle finance
Paragon Car Finance Limited
100%
Vehicle Finance
Idem Capital Holdings Limited
100%
Intermediate holding company
Redbrick Survey and Valuation Limited
100%
Surveyors and property consulting
Paragon Mortgages (No. 12) PLC
100% *
Residential mortgages
Colonial Finance (UK) Limited
100%
Non-trading
Earlswood Finance Limited
100%
Non-trading
Herbert (1) PLC
100%
Non-trading
Herbert (2) PLC
100%
Non-trading
Herbert (4) PLC
100%
Non-trading
Herbert (5) PLC
100%
Non-trading
Herbert (6) PLC
100%
Non-trading
Herbert (7) PLC
100%
Non-trading
Herbert (8) PLC
100%
Non-trading
Herbert (9) PLC
100%
Non-trading
Herbert (10) PLC
100%
Non-trading
Moorgate Asset Administration Limited
100%
Non-trading
Paragon Car Finance (1) Limited
100%
Non-trading
Paragon Dealer Finance Limited
100%
Non-trading
Paragon Loan Finance (No. 3) Limited
100%
Non-trading
Paragon Mortgages (No. 5) PLC
100%
Non-trading
Paragon Pension Investments GP Limited
100%
Non-trading
Paragon Pension Plan Trustees Limited
100%
Non-trading
Paragon Personal Finance (1) Limited
100%
Non-trading
Paragon Third Funding Limited
100%
Non-trading
Paragon Vehicle Contracts Limited
100%
Non-trading
The Business Mortgage Company Limited
100%
Non-trading
Universal Credit Limited
100%
Non-trading
Yorkshire Freeholds Limited
100%
Non-trading
Yorkshire Leaseholds Limited
100%
Non-trading
Company
Holding
Principal activity
Direct and indirect subsidiaries of Paragon Bank PLC
Paragon Finance PLC
100%
Residential mortgages and asset administration
Mortgage Trust Limited
100%
Residential mortgages
Paragon Mortgages Limited
100%
Residential mortgages
Paragon Mortgages (2010) Limited
100%
Residential mortgages
Mortgage Trust Services PLC
100%
Residential mortgages and asset administration
Paragon Asset Finance Limited
100%
Holding company and portfolio administration
Paragon Business Finance PLC
100%
Asset finance
Paragon Development Finance Limited
100%
Development Finance
Paragon Development Finance Services Limited
100%
Development Finance
Paragon Technology Finance Limited
100%
Asset finance
PBAF Acquisitions Limited
100%
Residential mortgages and loan finance
Premier Asset Finance Limited
100%
Asset finance broker
Specialist Fleet Services Limited
100%
Asset finance and contract hire
Collett Transport Services Limited
100%
Non-trading
Homer Management Limited
100%
Non-trading
Lease Portfolio Management Limited
100%
Non-trading
Paragon Commercial Finance Limited
100%
Non-trading
Paragon Options PLC
100%
Non-trading
Paragon Second Funding Limited
100%
Non-trading
Other indirect subsidiary undertakings
Moorgate Loan Servicing Limited
100%
Asset administration
Idem Capital Securities Limited
100%
Asset investment
Paragon Personal Finance Limited
100%
Consumer loan finance
Buy to Let Direct Limited
100%
Non-trading
TBMC Group Limited
100%
Non-trading
The Business Mortgage Company Services Limited
100%
Non-trading
The financial year end of all the Group\u2019s subsidiary companies is 30 September. They are all registered in England and Wales and
operate in the UK except Paragon Pension Investments GP Limited, which is registered in Scotland and operates in the UK.
As part of the Group\u2019s financing arrangements certain mortgage and consumer loans originated by Paragon Mortgages (2010) Limited
and Mortgage Trust Limited have been sold to special purpose entity companies, referred to as orphan SPEs, which had raised
non-recourse finance to fund these purchases. The shares of these companies are ultimately beneficially owned through independent
trusts, but they are considered to be controlled by the Group, as defined by IFRS 10, due to the Group\u2019s exposures to the variable
returns from the assets of each entity and its ability to direct their activities, within the constraints imposed by the lending documents.
Hence, they are considered to be subsidiaries of the Group.
The principal companies party to these arrangements at 30 September 2024 comprise:
Company
Principal activity
Paragon Mortgages (No. 26) Holdings Limited
Holding company
Paragon Mortgages (No. 26) PLC
Residential mortgages
Paragon Mortgages (No. 27) Holdings Limited
Holding company
Paragon Mortgages (No. 27) PLC
Residential mortgages
Paragon Mortgages (No. 28) Holdings Limited
Holding company
Paragon Mortgages (No. 28) PLC
Residential mortgages
Paragon Mortgages (No. 29) Holdings Limited
Holding company
Paragon Mortgages (No. 29) PLC
Residential mortgages
Arianty Holdings Limited
Non-trading
Arianty No. 1 PLC
Non-trading
Paragon Fifth Funding Limited
Non-trading
Paragon Seventh Funding Limited
Non-trading
Paragon Sixth Funding Limited
Non-trading
Paragon Mortgages (No. 25) Holdings Limited
Non-trading
Paragon Mortgages (No. 25) PLC
Non-trading
Paragon Covered Bonds Finance Limited
Non-Trading
Paragon Covered Bonds (Holdings) Limited
Non-Trading
All these companies are registered and operate in the UK.
Paragon Covered Bonds LLP is a limited liability partnership registered in England and Wales, in which control is vested in certain
other Group entities. It is therefore considered to be a subsidiary of the Group. This entity operates in the UK.
Earlswood Finance (No. 3) Limited, a company limited by guarantee, is registered in England and Wales and operates in the UK. It is
included in the consolidation as it is ultimately controlled by the parent company.
The Paragon Pension Partnership LP is a limited partnership established under Scots law, in which control is vested in members
which are group companies. It is therefore considered to be a subsidiary entity. The outside member is the Group\u2019s Pension Plan and
the Plan\u2019s rights to income from the partnership are set out in the partnership agreement. Therefore, no minority interest arises. The
partnership is registered in Scotland and operates in the UK.
The registered office of each of the entities listed in this note is the same as that of the Company (note 1), except that the registered
office of the Scottish entities is Citypoint, 65 Haymarket Terrace, Edinburgh, EH12 5HD.
All the entities listed above are included in the consolidated accounts of the Group.
Companies in liquidation
The following legal subsidiaries of the Group were in liquidation at 30 September 2024. They do not form part of the consolidation as
they are considered to be controlled by the liquidator.
Company
Holding
Principal activity
Direct subsidiaries of Paragon Banking Group PLC
Moorgate Servicing Limited \u2020
100%
Non-trading
Paragon Mortgages (No. 11) PLC \u2020
100% *
Non-trading
Paragon Mortgages (No. 13) PLC \u2020
100% *
Non-trading
Paragon Mortgages (No. 14) PLC \u2020
100% *
Non-trading
Paragon Mortgages (No. 15) PLC \u2020
100% *
Non-trading
Plymouth Funding Limited \u2020
100%
Non-trading
Direct and indirect subsidiaries of Paragon Bank PLC
City Business Finance Limited \u2020
100%
Non-trading
Fineline Holdings Limited
100%
Non-trading
Fineline Media Finance Limited
100%
Non-trading
PBAF (No.1) Limited \u2020
100%
Non-trading
State Securities Holdings Limited \u2020
100%
Non-trading
State Security Limited \u2020
100%
Non-trading
The shareholdings of the Company in each of the direct subsidiaries shown above is the same as that of the Group, except for
companies marked * where the shareholding of the Company is 74%. The issued share capital of each of the companies listed above
consists of ordinary shares only.
\u2020
These companies were dissolved in November 2024, after the year end.
", "dimensions": { "concept": "ifrs-full:DisclosureOfSignificantInvestmentsInSubsidiariesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-464": { "value": "32. Investment in subsidiary undertakings
Shares in group Loans to group Total
companies companies
\u00a3m
\u00a3m
\u00a3m
At 1 October 2022
638.7
257.0
895.7
Loans repaid
-
(107.0)
(107.0)
Provision movements
(1.2)
-
(1.2)
At 30 September 2023
637.5
150.0
787.5
Loans repaid
-
-
-
Provision movements
(0.7)
-
(0.7)
At 30 September 2024
636.8
150.0
786.8
Amounts shown above for 2022 and 2023 have been restated as described in note 66. Loans to group companies includes principally investments in the tier 2 equity instruments issued by the Company\u2019s banking subsidiary, Paragon Bank PLC. During the year ended 30 September 2024 the Company received \u00a3161.9m in dividend income from its subsidiaries (2023: \u00a3262.5m) and \u00a319.4m of interest on loans to group companies (2023: \u00a318.6m). The Company\u2019s subsidiaries, and the nature of its interest in them, are shown in note 72. ", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestsInOtherEntitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-425": { "value": "32. Investment in subsidiary undertakings
Shares in group Loans to group Total
companies companies
\u00a3m
\u00a3m
\u00a3m
At 1 October 2022
638.7
257.0
895.7
Loans repaid
-
(107.0)
(107.0)
Provision movements
(1.2)
-
(1.2)
At 30 September 2023
637.5
150.0
787.5
Loans repaid
-
-
-
Provision movements
(0.7)
-
(0.7)
At 30 September 2024
636.8
150.0
786.8
Amounts shown above for 2022 and 2023 have been restated as described in note 66. Loans to group companies includes principally investments in the tier 2 equity instruments issued by the Company\u2019s banking subsidiary, Paragon Bank PLC. During the year ended 30 September 2024 the Company received \u00a3161.9m in dividend income from its subsidiaries (2023: \u00a3262.5m) and \u00a319.4m of interest on loans to group companies (2023: \u00a318.6m). The Company\u2019s subsidiaries, and the nature of its interest in them, are shown in note 72. ", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentsAccountedForUsingEquityMethodExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-373": { "value": "
33. Retail deposits
The Group\u2019s retail deposits, held by Paragon Bank PLC, were received from customers in the UK and are denominated in sterling.
The deposits comprise principally term deposits, and notice and easy access accounts. The method of interest calculation on these
deposits is analysed as follows:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Fixed rate
8,257.2
8,690.2
6,201.3
Variable rates
8,040.8
4,575.1
4,467.9
16,298.0
13,265.3
10,669.2
The weighted average interest rate on retail deposits at 30 September 2024, analysed by the charging method, was:
2024
2023
2022
%
%
%
Fixed rate
4.77
4.07
1.74
Variable rates
4.19
3.74
1.55
All deposits
4.49
3.95
1.66
The contractual maturity of these deposits is analysed below.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts repayable
In less than three months
1,621.4
1,589.4
929.0
In more than three months, but not more than one year
4,847.1
5,193.7
3,732.1
In more than one year, but not more than two years
1,502.6
1,643.0
1,627.3
In more than two years, but not more than five years
615.0
631.8
421.4
Total term deposits
8,586.1
9,057.9
6,709.8
Repayable on demand
7,711.9
4,207.4
3,959.4
16,298.0
13,265.3
10,669.2
Fair value adjustments for portfolio hedging (note 26)
16.7
(30.9)
(99.7)
16,314.7
13,234.4
10,569.5
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepositsFromCustomersExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-426": { "value": "34. Asset backed loan notes While the Group has several issues of asset-backed loan notes outstanding, at 30 September 2024 all of these were held internally and used as security for other borrowings. The Group\u2019s asset backed loan notes are rated and publicly listed and are secured on portfolios comprising variable and fixed rate mortgages. The maturity date of the notes matches the maturity date of the underlying assets. The notes can be prepaid in part from time-to-time, but such prepayments are limited to the net capital received from borrowers in respect of the underlying assets. There is no requirement for the Group to make good any shortfall on the notes out of general funds. It is likely that a substantial proportion of the notes will be repaid within five years. The Group also has an option to repay all the notes on any issue at an earlier date (the \u2018call date\u2019), at their outstanding principal amount. Interest is payable on the notes at a fixed margin above the compounded Sterling Overnight Interbank Average Rate (\u2018SONIA\u2019) and they are all denominated in sterling. The Group publishes detailed information on the performance of all its note issues on the Bond Investor Reporting section of its website at www.paragonbankinggroup.co.uk. A more detailed description of the securitisation structure under which these notes are issued is given in note 64. Notes in issue at 30 September 2024 and 30 September 2023, net of any held by the Group, were: Issuer Maturity date Call date Principal Average outstanding interest margin 2024 2023 2024 2023 \u00a3m \u00a3m % % Paragon Mortgages (No. 26) PLC 15/05/45 15/08/24 - 28.4 - 1.05 Paragon Mortgages (No. 27) PLC \u2020 15/04/47 15/10/25 - - - - Paragon Mortgages (No. 28) PLC \u2020 15/12/47 15/12/25 - - - - Paragon Mortgages (No. 29) PLC \u2020 15/12/55 15/12/28 - - - - \u2020All notes issued by Paragon Mortgages (No. 27), Paragon Mortgages (No. 28) and Paragon Mortgages (No. 29) were retained by the Group (see note 64). The details of the assets backing these securities are given in note 18. During the year, on 15 August 2024, the Group redeemed all of the outstanding notes of the Paragon Mortgages (No. 26) PLC securitisation at par. The underlying assets were subsequently funded by other group companies. On 1 November 2023, a group company, Paragon Mortgages (No. 29) PLC, issued \u00a3855.0m of sterling mortgage backed floating rate notes, analysed below, at par. Class Fitch Rating Moody\u2019s rating Interest margin above Principal value compounded SONIA \u00a3m A AAA Aaa 1.20% 747.0 B AA Aa1 1.90% 33.7 C A- Aa2 2.75% 29.3 D B+ A2 3.80% 45.0 855.0 All the above notes were retained by the Group. On 26 June 2019, the Group disposed of its beneficial interest in the Paragon Mortgages (No. 12) PLC securitisation. At that point, the FRN liabilities were derecognised by the Group, although the notes remain in issue. The Group\u2019s continuing involvement in the transaction is described in note 53. ", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfAssetBackedLoanNotes", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-505": { "value": "34. Asset backed loan notes While the Group has several issues of asset-backed loan notes outstanding, at 30 September 2024 all of these were held internally and used as security for other borrowings. The Group\u2019s asset backed loan notes are rated and publicly listed and are secured on portfolios comprising variable and fixed rate mortgages. The maturity date of the notes matches the maturity date of the underlying assets. The notes can be prepaid in part from time-to-time, but such prepayments are limited to the net capital received from borrowers in respect of the underlying assets. There is no requirement for the Group to make good any shortfall on the notes out of general funds. It is likely that a substantial proportion of the notes will be repaid within five years. The Group also has an option to repay all the notes on any issue at an earlier date (the \u2018call date\u2019), at their outstanding principal amount. Interest is payable on the notes at a fixed margin above the compounded Sterling Overnight Interbank Average Rate (\u2018SONIA\u2019) and they are all denominated in sterling. The Group publishes detailed information on the performance of all its note issues on the Bond Investor Reporting section of its website at www.paragonbankinggroup.co.uk. A more detailed description of the securitisation structure under which these notes are issued is given in note 64. Notes in issue at 30 September 2024 and 30 September 2023, net of any held by the Group, were:
Issuer
Maturity date
Call date
Principal Average
outstanding interest margin
2024
2023
2024
2023
\u00a3m
\u00a3m
%
%
Paragon Mortgages (No. 26) PLC
15/05/45
15/08/24
-
28.4
-
1.05
Paragon Mortgages (No. 27) PLC \u2020
15/04/47
15/10/25
-
-
-
-
Paragon Mortgages (No. 28) PLC \u2020
15/12/47
15/12/25
-
-
-
-
Paragon Mortgages (No. 29) PLC \u2020
15/12/55
15/12/28
-
-
-
-
\u2020All notes issued by Paragon Mortgages (No. 27), Paragon Mortgages (No. 28) and Paragon Mortgages (No. 29) were retained by the Group (see note 64). The details of the assets backing these securities are given in note 18. During the year, on 15 August 2024, the Group redeemed all of the outstanding notes of the Paragon Mortgages (No. 26) PLC securitisation at par. The underlying assets were subsequently funded by other group companies. On 1 November 2023, a group company, Paragon Mortgages (No. 29) PLC, issued \u00a3855.0m of sterling mortgage backed floating rate notes, analysed below, at par.
Class
Fitch Rating
Moody\u2019s rating
Interest margin above Principal value
compounded SONIA
\u00a3m
A
AAA
Aaa
1.20%
747.0
B
AA
Aa1
1.90%
33.7
C A-
Aa2
2.75%
29.3
D B+
A2
3.80%
45.0
855.0
All the above notes were retained by the Group. On 26 June 2019, the Group disposed of its beneficial interest in the Paragon Mortgages (No. 12) PLC securitisation. At that point, the FRN liabilities were derecognised by the Group, although the notes remain in issue. The Group\u2019s continuing involvement in the transaction is described in note 53. 35. Bank borrowings Historically new first mortgage lending was partly funded through secured bank loans, referred to as \u2018warehouse facilities\u2019 before being refinanced with either wholesale or retail funding. The last of these facilities was repaid in the financial year ended 30 September 2023 and no amounts were outstanding or available at any time in the current year. The available facilities in the year ended 30 September 2023 were: i) The Paragon Second Funding warehouse which was available for drawings until 29 February 2008 at which point it converted automatically to a term loan and no further drawings were allowed. The loan was repaid in full on 29 September 2023. This loan was a sterling facility provided to Paragon Second Funding Limited by a consortium of banks and was secured on all the assets of Paragon Second Funding Limited, Paragon Car Finance (1) Limited and Paragon Personal Finance (1) Limited. Interest on this loan was payable monthly at 0.704% above SONIA. ii) The Paragon Seventh Funding warehouse facility, originally of \u00a3200.0m, which was agreed in November 2018. The facility was secured over all the assets of Paragon Seventh Funding Limited. This facility was renewed and revised from time-to-time and by the year ended 30 September 2023 the maximum drawing had increased to \u00a3450.0m, with interest payable at 0.5% above SONIA. The facility expired on 24 July 2023. 36. Retail bonds The Group\u2019s final outstanding issue of retail bonds, issued under its Euro Medium Term Note Programme, was repaid in the year, on 28 August 2024. These bonds were listed on the London Stock Exchange. The principal amount of notes in issue at 30 September 2023 was \u00a3112.5m and they bore interest at a fixed rate of 6.0% per annum. The notes were unsubordinated unsecured liabilities of the Company and the amount included in the accounts of the Group and the Company in respect of these bonds at 30 September 2023 was \u00a3112.4m. No bonds remained outstanding at 30 September 2024. 37. Corporate bonds On 25 March 2021 the Company issued \u00a3150.0m of Fixed Rate Callable Subordinated Tier-2 Notes due 2031 at par. These notes bear interest at a rate of 4.375% per annum until 25 September 2026 after which interest will be payable at a reset rate which is 3.956% over that payable on UK Government bonds of similar duration at that time. These notes are callable at the option of the Company between 25 June 2026 and 25 September 2026 and may be called at any time in the event of certain tax or regulatory changes. The notes are unsecured and subordinated to all creditors of the Company. The notes were originally rated BB+ by Fitch and are currently rated BBB-, following an upgrade on 7 March 2022. The proceeds of the notes are utilised in accordance with the Group\u2019s Green Bond Framework, which is available on its investor website. The carrying value of corporate bonds in the accounts of the Group at 30 September 2024 was \u00a3149.9m (2023: \u00a3145.8m), while the carrying value of the bonds in the accounts of the Company at 30 September 2024 was \u00a3149.6m (2023: \u00a3149.4m), with the difference arising as a result of the hedging treatment described in note 26. 38. Central bank facilities During the year, the Group has utilised facilities provided by the Bank of England through its Sterling Monetary Framework. These facilities enable either funding or off balance sheet liquidity to be provided to Paragon Bank PLC (\u2018Paragon Bank\u2019 or \u2018the Bank\u2019) on the security of eligible collateral, currently in the form of designated pools of the Bank\u2019s first mortgage assets and/or the retained notes described in note 64, with the amount available based on the value of the security given, subject, where appropriate, to a haircut. Drawings under the Term Funding Scheme for SMEs (\u2018TFSME\u2019) have a maturity of four years and bear interest at Bank Base Rate (\u2018BBR\u2019). The average remaining maturity of the Group\u2019s drawings is 14 months (2023: 25 months). As these drawings were provided at rates below those available commercially, by a government agency, they are accounted for under IAS 20. Drawings under the Indexed Long-Term Repo Scheme (\u2018ILTR\u2019) have a maturity of six months and a rate of interest set in an auction process. At 30 September 2024, the average rate of interest on the Group\u2019s ILTR drawings was 0.15% above BBR. The Group makes drawings under the ILTR programme from time-to-time for liquidity purposes. The amounts drawn under these facilities are set out below.
2024
2023
\u00a3m
\u00a3m
TFSME
750.0
2,750.0
ILTR
5.0
-
Total central bank facilities
755.0
2,750.0
All TFSME borrowings fall due after more than one year. During the year ended 30 September 2022 all TFSME borrowings were repaid and redrawn, extending the maturity date to 21 October 2025 for the majority of drawings, with \u00a35.2m falling due on 31 March 2027. Further first mortgage assets of the Bank have been pre-positioned with the Bank of England for future use in such schemes and eligible retained notes can also be used to support this funding (note 64). The mortgage assets pledged in support of these drawings are set out in note 18. The balances arising from the TFSME carried in the Group accounts are shown below.
2024
2023
\u00a3m
\u00a3m
TFSME at IAS 20 carrying value
745.2
2,716.3
Deferred government assistance
4.8
33.7
750.0
2,750.0
39. Sale and repurchase agreements From time-to-time the Group enters into short-term sale and repurchase agreements with highly rated UK banks as part of its liquidity management operations. At 30 September 2024, \u00a3100.0m was outstanding under such arrangements (2023: \u00a350.0m). The average term of the agreements was 3.0 months (2023: 3.0 months) and the average remaining term 1.0 month (2023: 2.8 months). The average interest rate payable was 0.44% (2023: 0.80%) above compounded SONIA. The securities subject to the sale and repurchase agreement were certain of the Group\u2019s retained asset backed loan notes, described in note 64. 52. Reconciliation of net debt (a) The Group
Cash flows
Opening Debt
Other
Non-cash
Closing
debt issued movements debt
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Asset backed loan notes
28.0
-
(28.3)
0.3
-
Bank borrowings
-
-
-
-
-
Corporate bonds
145.8
-
-
4.1
149.9
Retail bonds
112.4
-
(112.5)
0.1
-
Long-term central bank borrowings
2,750.0
-
(2,000.0)
-
750.0
Short-term central bank borrowings
-
-
5.0
-
5.0
Sale and repurchase agreements
50.0
-
50.0
-
100.0
Lease liabilities
8.9
-
(2.7)
1.7
7.9
Bank overdrafts
0.2
-
0.2
-
0.4
Gross debt
3,095.3
-
(2,088.3)
6.2
1,013.2
Cash
(2,994.3)
-
468.9
-
(2,525.4)
Net debt/(funds)
101.0
-
(1,619.4)
6.2
(1,512.2)
30 September 2023
Asset backed loan notes
409.3
-
(382.1)
0.8
28.0
Bank borrowings
586.0
-
(586.0)
-
-
Corporate bonds
149.2
-
-
(3.4)
145.8
Retail bonds
112.3
-
-
0.1
112.4
Long-term central bank borrowings
2,750.0
-
-
-
2,750.0
Short-term central bank borrowings
-
-
-
-
-
Sale and repurchase agreements
-
-
50.0
-
50.0
Lease liabilities
9.0
-
(2.4)
2.3
8.9
Bank overdrafts
0.4
-
(0.2)
-
0.2
Gross debt
4,016.2
-
(920.7)
(0.2)
3,095.3
Cash
(1,930.9)
-
(1,063.6)
-
(2,994.3)
Net debt
2,085.3
-
(1,984.1)
(0.2)
101.0
Non-cash movements shown above represent: \u2022 EIR adjustments relating to the spreading of initial costs of the facilities concerned \u2022 Inception of new lease assets under IFRS 16 \u2022 Hedging fair value adjustments on the corporate bond (note 26) (b) The Company
Cash flows
Opening Debt
Other
Non-cash
Closing
debt issued movements debt
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Corporate bonds
149.4
-
-
0.2
149.6
Retail bonds
112.4
-
(112.5)
0.1
-
Lease liabilities
13.7
-
(1.3)
-
12.4
Gross debt
275.5
-
(113.8)
0.3
162.0
Cash
(27.6)
-
9.4
-
(18.2)
Net debt
247.9
-
(104.4)
0.3
143.8
30 September 2023
Corporate bonds
149.2
-
-
0.2
149.4
Retail bonds
112.3
-
-
0.1
112.4
Lease liabilities
15.0
-
(1.3)
-
13.7
Gross debt
276.5
-
(1.3)
0.3
275.5
Cash
(19.7)
-
(7.9)
-
(27.6)
Net debt
256.8
-
(9.2)
0.3
247.9
Non-cash changes shown above represent EIR adjustments relating to the spreading of initial costs of the bonds.", "dimensions": { "concept": "ifrs-full:DisclosureOfBorrowingsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-465": { "value": "34. Asset backed loan notes While the Group has several issues of asset-backed loan notes outstanding, at 30 September 2024 all of these were held internally and used as security for other borrowings. The Group\u2019s asset backed loan notes are rated and publicly listed and are secured on portfolios comprising variable and fixed rate mortgages. The maturity date of the notes matches the maturity date of the underlying assets. The notes can be prepaid in part from time-to-time, but such prepayments are limited to the net capital received from borrowers in respect of the underlying assets. There is no requirement for the Group to make good any shortfall on the notes out of general funds. It is likely that a substantial proportion of the notes will be repaid within five years. The Group also has an option to repay all the notes on any issue at an earlier date (the \u2018call date\u2019), at their outstanding principal amount. Interest is payable on the notes at a fixed margin above the compounded Sterling Overnight Interbank Average Rate (\u2018SONIA\u2019) and they are all denominated in sterling. The Group publishes detailed information on the performance of all its note issues on the Bond Investor Reporting section of its website at www.paragonbankinggroup.co.uk. A more detailed description of the securitisation structure under which these notes are issued is given in note 64. Notes in issue at 30 September 2024 and 30 September 2023, net of any held by the Group, were:
Issuer
Maturity date
Call date
Principal Average
outstanding interest margin
2024
2023
2024
2023
\u00a3m
\u00a3m
%
%
Paragon Mortgages (No. 26) PLC
15/05/45
15/08/24
-
28.4
-
1.05
Paragon Mortgages (No. 27) PLC \u2020
15/04/47
15/10/25
-
-
-
-
Paragon Mortgages (No. 28) PLC \u2020
15/12/47
15/12/25
-
-
-
-
Paragon Mortgages (No. 29) PLC \u2020
15/12/55
15/12/28
-
-
-
-
\u2020All notes issued by Paragon Mortgages (No. 27), Paragon Mortgages (No. 28) and Paragon Mortgages (No. 29) were retained by the Group (see note 64). The details of the assets backing these securities are given in note 18. During the year, on 15 August 2024, the Group redeemed all of the outstanding notes of the Paragon Mortgages (No. 26) PLC securitisation at par. The underlying assets were subsequently funded by other group companies. On 1 November 2023, a group company, Paragon Mortgages (No. 29) PLC, issued \u00a3855.0m of sterling mortgage backed floating rate notes, analysed below, at par.
Class
Fitch Rating
Moody\u2019s rating
Interest margin above Principal value
compounded SONIA
\u00a3m
A
AAA
Aaa
1.20%
747.0
B
AA
Aa1
1.90%
33.7
C A-
Aa2
2.75%
29.3
D B+
A2
3.80%
45.0
855.0
All the above notes were retained by the Group. On 26 June 2019, the Group disposed of its beneficial interest in the Paragon Mortgages (No. 12) PLC securitisation. At that point, the FRN liabilities were derecognised by the Group, although the notes remain in issue. The Group\u2019s continuing involvement in the transaction is described in note 53. 36. Retail bonds The Group\u2019s final outstanding issue of retail bonds, issued under its Euro Medium Term Note Programme, was repaid in the year, on 28 August 2024. These bonds were listed on the London Stock Exchange. The principal amount of notes in issue at 30 September 2023 was \u00a3112.5m and they bore interest at a fixed rate of 6.0% per annum. The notes were unsubordinated unsecured liabilities of the Company and the amount included in the accounts of the Group and the Company in respect of these bonds at 30 September 2023 was \u00a3112.4m. No bonds remained outstanding at 30 September 2024. 37. Corporate bonds On 25 March 2021 the Company issued \u00a3150.0m of Fixed Rate Callable Subordinated Tier-2 Notes due 2031 at par. These notes bear interest at a rate of 4.375% per annum until 25 September 2026 after which interest will be payable at a reset rate which is 3.956% over that payable on UK Government bonds of similar duration at that time. These notes are callable at the option of the Company between 25 June 2026 and 25 September 2026 and may be called at any time in the event of certain tax or regulatory changes. The notes are unsecured and subordinated to all creditors of the Company. The notes were originally rated BB+ by Fitch and are currently rated BBB-, following an upgrade on 7 March 2022. The proceeds of the notes are utilised in accordance with the Group\u2019s Green Bond Framework, which is available on its investor website. The carrying value of corporate bonds in the accounts of the Group at 30 September 2024 was \u00a3149.9m (2023: \u00a3145.8m), while the carrying value of the bonds in the accounts of the Company at 30 September 2024 was \u00a3149.6m (2023: \u00a3149.4m), with the difference arising as a result of the hedging treatment described in note 26. ", "dimensions": { "concept": "ifrs-full:DisclosureOfDebtSecuritiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-427": { "value": "
35. Bank borrowings
Historically new first mortgage lending was partly funded through secured bank loans, referred to as \u2018warehouse facilities\u2019 before
being refinanced with either wholesale or retail funding.
The last of these facilities was repaid in the financial year ended 30 September 2023 and no amounts were outstanding or available at
any time in the current year.
The available facilities in the year ended 30 September 2023 were:
i) The Paragon Second Funding warehouse which was available for drawings until 29 February 2008 at which point it converted
automatically to a term loan and no further drawings were allowed. The loan was repaid in full on 29 September 2023. This loan
was a sterling facility provided to Paragon Second Funding Limited by a consortium of banks and was secured on all the assets of
Paragon Second Funding Limited, Paragon Car Finance (1) Limited and Paragon Personal Finance (1) Limited. Interest on this loan
was payable monthly at 0.704% above SONIA.
ii) The Paragon Seventh Funding warehouse facility, originally of \u00a3200.0m, which was agreed in November 2018. The facility was
secured over all the assets of Paragon Seventh Funding Limited. This facility was renewed and revised from time-to-time and by
the year ended 30 September 2023 the maximum drawing had increased to \u00a3450.0m, with interest payable at 0.5% above SONIA.
The facility expired on 24 July 2023.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepositsFromBanksExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-428": { "value": "36. Retail bonds The Group\u2019s final outstanding issue of retail bonds, issued under its Euro Medium Term Note Programme, was repaid in the year, on 28 August 2024. These bonds were listed on the London Stock Exchange. The principal amount of notes in issue at 30 September 2023 was \u00a3112.5m and they bore interest at a fixed rate of 6.0% per annum. The notes were unsubordinated unsecured liabilities of the Company and the amount included in the accounts of the Group and the Company in respect of these bonds at 30 September 2023 was \u00a3112.4m. No bonds remained outstanding at 30 September 2024. ", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfRetailBonds", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-491": { "value": "36. Retail bonds The Group\u2019s final outstanding issue of retail bonds, issued under its Euro Medium Term Note Programme, was repaid in the year, on 28 August 2024. These bonds were listed on the London Stock Exchange. The principal amount of notes in issue at 30 September 2023 was \u00a3112.5m and they bore interest at a fixed rate of 6.0% per annum. The notes were unsubordinated unsecured liabilities of the Company and the amount included in the accounts of the Group and the Company in respect of these bonds at 30 September 2023 was \u00a3112.4m. No bonds remained outstanding at 30 September 2024. 37. Corporate bonds On 25 March 2021 the Company issued \u00a3150.0m of Fixed Rate Callable Subordinated Tier-2 Notes due 2031 at par. These notes bear interest at a rate of 4.375% per annum until 25 September 2026 after which interest will be payable at a reset rate which is 3.956% over that payable on UK Government bonds of similar duration at that time. These notes are callable at the option of the Company between 25 June 2026 and 25 September 2026 and may be called at any time in the event of certain tax or regulatory changes. The notes are unsecured and subordinated to all creditors of the Company. The notes were originally rated BB+ by Fitch and are currently rated BBB-, following an upgrade on 7 March 2022. The proceeds of the notes are utilised in accordance with the Group\u2019s Green Bond Framework, which is available on its investor website. The carrying value of corporate bonds in the accounts of the Group at 30 September 2024 was \u00a3149.9m (2023: \u00a3145.8m), while the carrying value of the bonds in the accounts of the Company at 30 September 2024 was \u00a3149.6m (2023: \u00a3149.4m), with the difference arising as a result of the hedging treatment described in note 26. ", "dimensions": { "concept": "ifrs-full:DisclosureOfSubordinatedLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-429": { "value": "37. Corporate bonds On 25 March 2021 the Company issued \u00a3150.0m of Fixed Rate Callable Subordinated Tier-2 Notes due 2031 at par. These notes bear interest at a rate of 4.375% per annum until 25 September 2026 after which interest will be payable at a reset rate which is 3.956% over that payable on UK Government bonds of similar duration at that time. These notes are callable at the option of the Company between 25 June 2026 and 25 September 2026 and may be called at any time in the event of certain tax or regulatory changes. The notes are unsecured and subordinated to all creditors of the Company. The notes were originally rated BB+ by Fitch and are currently rated BBB-, following an upgrade on 7 March 2022. The proceeds of the notes are utilised in accordance with the Group\u2019s Green Bond Framework, which is available on its investor website. The carrying value of corporate bonds in the accounts of the Group at 30 September 2024 was \u00a3149.9m (2023: \u00a3145.8m), while the carrying value of the bonds in the accounts of the Company at 30 September 2024 was \u00a3149.6m (2023: \u00a3149.4m), with the difference arising as a result of the hedging treatment described in note 26. ", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfCorporateBonds", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-430": { "value": "
38. Central bank facilities
During the year, the Group has utilised facilities provided by the Bank of England through its Sterling Monetary Framework. These
facilities enable either funding or off balance sheet liquidity to be provided to Paragon Bank PLC (\u2018Paragon Bank\u2019 or \u2018the Bank\u2019) on the
security of eligible collateral, currently in the form of designated pools of the Bank\u2019s first mortgage assets and/or the retained notes
described in note 64, with the amount available based on the value of the security given, subject, where appropriate, to a haircut.
Drawings under the Term Funding Scheme for SMEs (\u2018TFSME\u2019) have a maturity of four years and bear interest at
Bank Base Rate (\u2018BBR\u2019). The average remaining maturity of the Group\u2019s drawings is 14 months (2023: 25 months). As these
drawings were provided at rates below those available commercially, by a government agency, they are accounted for under IAS 20.
Drawings under the Indexed Long-Term Repo Scheme (\u2018ILTR\u2019) have a maturity of six months and a rate of interest set in an auction
process. At 30 September 2024, the average rate of interest on the Group\u2019s ILTR drawings was 0.15% above BBR. The Group makes
drawings under the ILTR programme from time-to-time for liquidity purposes.
The amounts drawn under these facilities are set out below.
2024
2023
\u00a3m
\u00a3m
TFSME
750.0
2,750.0
ILTR
5.0
-
Total central bank facilities
755.0
2,750.0
All TFSME borrowings fall due after more than one year.
During the year ended 30 September 2022 all TFSME borrowings were repaid and redrawn, extending the maturity date to
21 October 2025 for the majority of drawings, with \u00a35.2m falling due on 31 March 2027.
Further first mortgage assets of the Bank have been pre-positioned with the Bank of England for future use in such schemes and
eligible retained notes can also be used to support this funding (note 64). The mortgage assets pledged in support of these drawings
are set out in note 18.
The balances arising from the TFSME carried in the Group accounts are shown below.
2024
2023
\u00a3m
\u00a3m
TFSME at IAS 20 carrying value
745.2
2,716.3
Deferred government assistance
4.8
33.7
750.0
2,750.0
", "dimensions": { "concept": "ifrs-full:DisclosureOfGovernmentGrantsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-466": { "value": "38. Central bank facilities During the year, the Group has utilised facilities provided by the Bank of England through its Sterling Monetary Framework. These facilities enable either funding or off balance sheet liquidity to be provided to Paragon Bank PLC (\u2018Paragon Bank\u2019 or \u2018the Bank\u2019) on the security of eligible collateral, currently in the form of designated pools of the Bank\u2019s first mortgage assets and/or the retained notes described in note 64, with the amount available based on the value of the security given, subject, where appropriate, to a haircut. Drawings under the Term Funding Scheme for SMEs (\u2018TFSME\u2019) have a maturity of four years and bear interest at Bank Base Rate (\u2018BBR\u2019). The average remaining maturity of the Group\u2019s drawings is 14 months (2023: 25 months). As these drawings were provided at rates below those available commercially, by a government agency, they are accounted for under IAS 20. Drawings under the Indexed Long-Term Repo Scheme (\u2018ILTR\u2019) have a maturity of six months and a rate of interest set in an auction process. At 30 September 2024, the average rate of interest on the Group\u2019s ILTR drawings was 0.15% above BBR. The Group makes drawings under the ILTR programme from time-to-time for liquidity purposes. The amounts drawn under these facilities are set out below. 2024 2023 \u00a3m \u00a3m TFSME 750.0 2,750.0 ILTR 5.0 - Total central bank facilities 755.0 2,750.0 All TFSME borrowings fall due after more than one year. During the year ended 30 September 2022 all TFSME borrowings were repaid and redrawn, extending the maturity date to 21 October 2025 for the majority of drawings, with \u00a35.2m falling due on 31 March 2027. Further first mortgage assets of the Bank have been pre-positioned with the Bank of England for future use in such schemes and eligible retained notes can also be used to support this funding (note 64). The mortgage assets pledged in support of these drawings are set out in note 18. The balances arising from the TFSME carried in the Group accounts are shown below. 2024 2023 \u00a3m \u00a3m TFSME at IAS 20 carrying value 745.2 2,716.3 Deferred government assistance 4.8 33.7 750.0 2,750.0 ", "dimensions": { "concept": "paragonbankinggroupplc:DisclosureOfCentralBankFacilities", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-492": { "value": "39. Sale and repurchase agreements From time-to-time the Group enters into short-term sale and repurchase agreements with highly rated UK banks as part of its liquidity management operations. At 30 September 2024, \u00a3100.0m was outstanding under such arrangements (2023: \u00a350.0m). The average term of the agreements was 3.0 months (2023: 3.0 months) and the average remaining term 1.0 month (2023: 2.8 months). The average interest rate payable was 0.44% (2023: 0.80%) above compounded SONIA. The securities subject to the sale and repurchase agreement were certain of the Group\u2019s retained asset backed loan notes, described in note 64. During the year ended 30 September 2020, the Group entered into a back-to-back long / short sale and repurchase (\u2018repo\u2019) transaction with a UK bank which continued throughout the current year. This provides \u00a3150.0m of liquidity (2023: \u00a3150.0m), utilising \u00a326.5m of the loan notes shown above, but does not appear on the Group\u2019s balance sheet. The Group has also entered into short-term repo transactions from time-to-time, including during the current year, and maintains the capability to access the repo market for liquidity purposes. Transactions in place at 30 September 2024 (note 39) utilised \u00a3111.0m of the loan notes shown above (2023: \u00a358.5m). ", "dimensions": { "concept": "ifrs-full:DisclosureOfRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-374": { "value": "
40. Sundry liabilities
(a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Accrued interest
191.7
156.7
42.2
Trade creditors
1.0
1.6
0.7
CSA liabilities
26
103.6
383.4
388.6
Purchase of own shares
47
23.8
-
10.8
Other accruals
41.6
35.6
35.9
Sundry financial liabilities at amortised cost
361.7
577.3
478.2
Contingent consideration
41
-
-
2.2
Sundry financial liabilities
361.7
577.3
480.4
Lease payables
42
2.9
2.6
2.2
Deferred income
4.8
5.9
3.7
Conduct
43
-
-
-
Other taxation and social security
2.7
4.1
3.7
372.1
589.9
490.0
Amounts falling due after more than one year
Accrued interest
35.0
31.5
13.0
Other accruals
1.4
-
-
Sundry financial liabilities at amortised cost
36.4
31.5
13.0
Lease payables
42
5.0
6.3
6.8
Deferred income
3.9
3.5
3.3
45.3
41.3
23.1
Total sundry financial liabilities at amortised cost
398.1
608.8
491.2
Total sundry financial liabilities at fair value
-
-
2.2
Total other sundry liabilities
19.3
22.4
19.7
Total sundry liabilities
417.4
631.2
513.1
CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 26 and 63.
Other accruals relate principally to the operating cost accruals, including annual bonus schemes.
(b) The Company
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Amounts owed to Group companies
23.6
24.0
23.2
Accrued interest
0.1
0.7
0.7
Purchase of own shares
47
23.8
-
10.8
Other financial liabilities
1.5
-
1.4
Sundry financial liabilities at amortised cost
49.0
24.7
36.1
Lease payables
42
1.4
1.3
1.3
50.4
26.0
37.4
Amounts falling due after more than one year
Lease payables
42
11.0
12.4
13.7
Total sundry liabilities
61.4
38.4
51.1
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherCurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-512": { "value": "40. Sundry liabilities (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Accrued interest
191.7
156.7
42.2
Trade creditors
1.0
1.6
0.7
CSA liabilities
26
103.6
383.4
388.6
Purchase of own shares
47
23.8
-
10.8
Other accruals
41.6
35.6
35.9
Sundry financial liabilities at amortised cost
361.7
577.3
478.2
Contingent consideration
41
-
-
2.2
Sundry financial liabilities
361.7
577.3
480.4
Lease payables
42
2.9
2.6
2.2
Deferred income
4.8
5.9
3.7
Conduct
43
-
-
-
Other taxation and social security
2.7
4.1
3.7
372.1
589.9
490.0
Amounts falling due after more than one year
Accrued interest
35.0
31.5
13.0
Other accruals
1.4
-
-
Sundry financial liabilities at amortised cost
36.4
31.5
13.0
Lease payables
42
5.0
6.3
6.8
Deferred income
3.9
3.5
3.3
45.3
41.3
23.1
Total sundry financial liabilities at amortised cost
398.1
608.8
491.2
Total sundry financial liabilities at fair value
-
-
2.2
Total other sundry liabilities
19.3
22.4
19.7
Total sundry liabilities
417.4
631.2
513.1
CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 26 and 63. Other accruals relate principally to the operating cost accruals, including annual bonus schemes. (b) The Company
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Amounts owed to Group companies
23.6
24.0
23.2
Accrued interest
0.1
0.7
0.7
Purchase of own shares
47
23.8
-
10.8
Other financial liabilities
1.5
-
1.4
Sundry financial liabilities at amortised cost
49.0
24.7
36.1
Lease payables
42
1.4
1.3
1.3
50.4
26.0
37.4
Amounts falling due after more than one year
Lease payables
42
11.0
12.4
13.7
Total sundry liabilities
61.4
38.4
51.1
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherPayablesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-506": { "value": "40. Sundry liabilities (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Accrued interest
191.7
156.7
42.2
Trade creditors
1.0
1.6
0.7
CSA liabilities
26
103.6
383.4
388.6
Purchase of own shares
47
23.8
-
10.8
Other accruals
41.6
35.6
35.9
Sundry financial liabilities at amortised cost
361.7
577.3
478.2
Contingent consideration
41
-
-
2.2
Sundry financial liabilities
361.7
577.3
480.4
Lease payables
42
2.9
2.6
2.2
Deferred income
4.8
5.9
3.7
Conduct
43
-
-
-
Other taxation and social security
2.7
4.1
3.7
372.1
589.9
490.0
Amounts falling due after more than one year
Accrued interest
35.0
31.5
13.0
Other accruals
1.4
-
-
Sundry financial liabilities at amortised cost
36.4
31.5
13.0
Lease payables
42
5.0
6.3
6.8
Deferred income
3.9
3.5
3.3
45.3
41.3
23.1
Total sundry financial liabilities at amortised cost
398.1
608.8
491.2
Total sundry financial liabilities at fair value
-
-
2.2
Total other sundry liabilities
19.3
22.4
19.7
Total sundry liabilities
417.4
631.2
513.1
CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 26 and 63. Other accruals relate principally to the operating cost accruals, including annual bonus schemes. (b) The Company
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Amounts owed to Group companies
23.6
24.0
23.2
Accrued interest
0.1
0.7
0.7
Purchase of own shares
47
23.8
-
10.8
Other financial liabilities
1.5
-
1.4
Sundry financial liabilities at amortised cost
49.0
24.7
36.1
Lease payables
42
1.4
1.3
1.3
50.4
26.0
37.4
Amounts falling due after more than one year
Lease payables
42
11.0
12.4
13.7
Total sundry liabilities
61.4
38.4
51.1
", "dimensions": { "concept": "ifrs-full:DisclosureOfAccruedExpensesAndOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-493": { "value": "40. Sundry liabilities (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Accrued interest
191.7
156.7
42.2
Trade creditors
1.0
1.6
0.7
CSA liabilities
26
103.6
383.4
388.6
Purchase of own shares
47
23.8
-
10.8
Other accruals
41.6
35.6
35.9
Sundry financial liabilities at amortised cost
361.7
577.3
478.2
Contingent consideration
41
-
-
2.2
Sundry financial liabilities
361.7
577.3
480.4
Lease payables
42
2.9
2.6
2.2
Deferred income
4.8
5.9
3.7
Conduct
43
-
-
-
Other taxation and social security
2.7
4.1
3.7
372.1
589.9
490.0
Amounts falling due after more than one year
Accrued interest
35.0
31.5
13.0
Other accruals
1.4
-
-
Sundry financial liabilities at amortised cost
36.4
31.5
13.0
Lease payables
42
5.0
6.3
6.8
Deferred income
3.9
3.5
3.3
45.3
41.3
23.1
Total sundry financial liabilities at amortised cost
398.1
608.8
491.2
Total sundry financial liabilities at fair value
-
-
2.2
Total other sundry liabilities
19.3
22.4
19.7
Total sundry liabilities
417.4
631.2
513.1
CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 26 and 63. Other accruals relate principally to the operating cost accruals, including annual bonus schemes. (b) The Company
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Amounts owed to Group companies
23.6
24.0
23.2
Accrued interest
0.1
0.7
0.7
Purchase of own shares
47
23.8
-
10.8
Other financial liabilities
1.5
-
1.4
Sundry financial liabilities at amortised cost
49.0
24.7
36.1
Lease payables
42
1.4
1.3
1.3
50.4
26.0
37.4
Amounts falling due after more than one year
Lease payables
42
11.0
12.4
13.7
Total sundry liabilities
61.4
38.4
51.1
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredIncomeExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-467": { "value": "40. Sundry liabilities (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Accrued interest
191.7
156.7
42.2
Trade creditors
1.0
1.6
0.7
CSA liabilities
26
103.6
383.4
388.6
Purchase of own shares
47
23.8
-
10.8
Other accruals
41.6
35.6
35.9
Sundry financial liabilities at amortised cost
361.7
577.3
478.2
Contingent consideration
41
-
-
2.2
Sundry financial liabilities
361.7
577.3
480.4
Lease payables
42
2.9
2.6
2.2
Deferred income
4.8
5.9
3.7
Conduct
43
-
-
-
Other taxation and social security
2.7
4.1
3.7
372.1
589.9
490.0
Amounts falling due after more than one year
Accrued interest
35.0
31.5
13.0
Other accruals
1.4
-
-
Sundry financial liabilities at amortised cost
36.4
31.5
13.0
Lease payables
42
5.0
6.3
6.8
Deferred income
3.9
3.5
3.3
45.3
41.3
23.1
Total sundry financial liabilities at amortised cost
398.1
608.8
491.2
Total sundry financial liabilities at fair value
-
-
2.2
Total other sundry liabilities
19.3
22.4
19.7
Total sundry liabilities
417.4
631.2
513.1
CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 26 and 63. Other accruals relate principally to the operating cost accruals, including annual bonus schemes. (b) The Company
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Amounts owed to Group companies
23.6
24.0
23.2
Accrued interest
0.1
0.7
0.7
Purchase of own shares
47
23.8
-
10.8
Other financial liabilities
1.5
-
1.4
Sundry financial liabilities at amortised cost
49.0
24.7
36.1
Lease payables
42
1.4
1.3
1.3
50.4
26.0
37.4
Amounts falling due after more than one year
Lease payables
42
11.0
12.4
13.7
Total sundry liabilities
61.4
38.4
51.1
41. Contingent consideration The contingent consideration represented consideration payable in respect of corporate acquisitions which were dependent on the performance of the acquired businesses. Movements in the balance are set out below.
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
-
2.2
Payments
-
(1.5)
Revaluation
-
(0.7)
Unwind of discounting
-
-
At 30 September 2024 (note 40)
-
-
The write downs above were the result of the finalisation of the contingent consideration liability based on actual business volumes. ", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-431": { "value": "40. Sundry liabilities (a) The Group
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Accrued interest
191.7
156.7
42.2
Trade creditors
1.0
1.6
0.7
CSA liabilities
26
103.6
383.4
388.6
Purchase of own shares
47
23.8
-
10.8
Other accruals
41.6
35.6
35.9
Sundry financial liabilities at amortised cost
361.7
577.3
478.2
Contingent consideration
41
-
-
2.2
Sundry financial liabilities
361.7
577.3
480.4
Lease payables
42
2.9
2.6
2.2
Deferred income
4.8
5.9
3.7
Conduct
43
-
-
-
Other taxation and social security
2.7
4.1
3.7
372.1
589.9
490.0
Amounts falling due after more than one year
Accrued interest
35.0
31.5
13.0
Other accruals
1.4
-
-
Sundry financial liabilities at amortised cost
36.4
31.5
13.0
Lease payables
42
5.0
6.3
6.8
Deferred income
3.9
3.5
3.3
45.3
41.3
23.1
Total sundry financial liabilities at amortised cost
398.1
608.8
491.2
Total sundry financial liabilities at fair value
-
-
2.2
Total other sundry liabilities
19.3
22.4
19.7
Total sundry liabilities
417.4
631.2
513.1
CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 26 and 63. Other accruals relate principally to the operating cost accruals, including annual bonus schemes. (b) The Company
Note
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Amounts falling due within one year
Amounts owed to Group companies
23.6
24.0
23.2
Accrued interest
0.1
0.7
0.7
Purchase of own shares
47
23.8
-
10.8
Other financial liabilities
1.5
-
1.4
Sundry financial liabilities at amortised cost
49.0
24.7
36.1
Lease payables
42
1.4
1.3
1.3
50.4
26.0
37.4
Amounts falling due after more than one year
Lease payables
42
11.0
12.4
13.7
Total sundry liabilities
61.4
38.4
51.1
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherNoncurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-375": { "value": "
41. Contingent consideration
The contingent consideration represented consideration payable in respect of corporate acquisitions which were dependent on the
performance of the acquired businesses. Movements in the balance are set out below.
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
-
2.2
Payments
-
(1.5)
Revaluation
-
(0.7)
Unwind of discounting
-
-
At 30 September 2024 (note 40)
-
-
The write downs above were the result of the finalisation of the contingent consideration liability based on actual business volumes.
43. Conduct
The Group, as a regulated participant in the financial services industry, is exposed to a high level of regulatory supervision, which
could in the event of conduct failures expose it to additional liabilities. The objective of the Group\u2019s compliance and conduct
framework, which is supervised by the second line compliance function, is to provide a strong mitigant to this risk, although it is
impossible to eliminate it entirely.
As described below, there is significant uncertainty with regard to legal and regulatory interventions around commissions paid in the
motor finance market. These processes are far from complete, and therefore the scope and extent of any exposure is unclear. It is
also possible that the principles articulated in relation to the motor finance market may turn out to have a broader application.
The broader regulatory environment continues to develop, through regulatory policies, legislative rules and court rulings, and the
Group\u2019s assessment of potential liabilities for issues relating to motor finance commission or other conduct issues, is based on our
current interpretation of requirements and hence further liabilities may arise as these develop over time.
Motor finance commissions
During the year a number of issues were raised surrounding historical practices for the payment of commissions by lenders in the
motor finance market. These claims have been pursued through various regulatory and legal routes, and these approaches are
not mutually exclusive. Paragon Bank, the Group\u2019s principal operating subsidiary was active in this market from 2014, the date of
its authorisation, and had written approximately \u00a31,270.0m of motor finance loans by 30 September 2024, and paid out \u00a348.8m of
commissions to support the origination of the loans. While the Group has not knowingly breached relevant regulations and does not
believe that it has disadvantaged customers, the extent of any potential exposure will not become clear until the issues raised in these
claims are clarified.
In January 2024 the FCA announced that it was conducting a review of the historical use of discretionary commission arrangements
across the motor finance industry, following action taken in this field by the courts and the Financial Ombudsman Service (\u2018FOS\u2019).
At the same time it imposed a pause on the handling of such complaints. The FCA\u2019s original intention was to publish its policy on
the treatment of such matters before 30 September 2024, but in July 2024 it announced that it required more time to address
these issues and now expects to set out its next steps in May 2025. It also proposed to extend its pause on complaint handling until
December 2025, to allow for the development of any redress scheme that might be required.
On 25 October 2024, following the year end, the Court of Appeal handed down judgment in the cases of Hopcraft, Wrench and
Johnson (the \u2018Hopcraft case\u2019). This provided a ruling on claims relating to motor finance loans involving \u2018secret\u2019 or \u2018half secret\u2019
commissions paid to the motor dealer who arranged the finance (a \u2018broker-dealer\u2019) by the lender. In these cases, the disclosure of
commission was deemed to be either: (a) either absent or insufficient to negate secrecy (and thus the commission was \u2018secret\u2019); or
(b) insufficient to obtain the customer\u2019s fully informed consent (and therefore the commission was \u2018half-secret\u2019). The lenders were
deemed to have primary or accessory liability due to the commission paid to the broker-dealer and the claimants were awarded
damages against the lenders. The Court of Appeal\u2019s common law principle goes over and above the current regulatory requirements
and guidance concerning disclosure of commission (including the FCA\u2019s CONC rules). We are awaiting confirmation as to whether the
Hopcraft case will be successfully appealed to the Supreme Court.
From 2014 to September 2024, the Group paid \u00a39.0 million of commission to broker-dealers, comprising 18% of all motor
commissions paid, with the balance being paid to finance brokers and a variety of other different forms of introducers, independent of
the vehicle retailer, reflecting differing customer journeys.
The Group has reviewed its own lending practices for motor finance and has issued revised terms and conditions for both customers
and intermediaries in late October 2024, addressing the points of law in Hopcraft.
The Group has considered its various exposures at 30 September 2024 and the differing customer journeys and fact patterns
underlying them, together with both the potential costs of any remediation or settlement, any interest payable thereon, and the legal
and administrative costs which might be involved with the processing of any claims. For the broker-dealer cases noted above, where
the broad fact patterns are similar to those in the Hopcraft case, and \u00a39.0m of total commissions were originally paid, an estimate of
the liability has been made, and no material provision was identified.
However, the case law in Hopcraft is specific to the fact patterns considered by the Court and therefore additional liabilities may
exist in respect of other fact patterns, or from the results of the FCA review and other ongoing legal and regulatory processes which
address different issues related to motor finance commissions. While these might impact on the Group\u2019s historical lending and result
in additional cash outflows, any such amount is uncertain and therefore these are disclosed as contingent liabilities.
It should be noted that the ultimate liability, if any, will be dependent on the resolution of various legal and regulatory processes
currently in progress, including, but not limited to, the FCA review, or any further regulatory action, and any further appeal arising
from the Hopcraft litigation. These will determine the types of products and lending dates to be considered and thus the size of the
customer population impacted, together with the amount and timing of any cash outflows which might be required in respect of those
customers. However, at this stage the potential total liability remains uncertain.
", "dimensions": { "concept": "ifrs-full:DisclosureOfContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-432": { "value": "41. Contingent consideration The contingent consideration represented consideration payable in respect of corporate acquisitions which were dependent on the performance of the acquired businesses. Movements in the balance are set out below.
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
-
2.2
Payments
-
(1.5)
Revaluation
-
(0.7)
Unwind of discounting
-
-
At 30 September 2024 (note 40)
-
-
The write downs above were the result of the finalisation of the contingent consideration liability based on actual business volumes. ", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-468": { "value": "44. Deferred tax (a) The Group The net deferred tax liability for which provision has been made and the movements in that balance are analysed as follows:
Opening Profit and loss Charge / (credit) Closing
balance charge / (credit) to equity balance
Current
Prior
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Year ended 30 September 2024
Accelerated tax depreciation
(8.3)
(0.3)
5.8
-
(2.8)
Retirement benefit obligations
3.1
0.6
-
1.8
5.5
Interest rate hedging
32.8
(13.2)
-
-
19.6
Loans and other derivatives
1.4
(0.1)
(0.1)
-
1.2
Share based payments
(7.5)
0.8
-
(3.0)
(9.7)
Tax losses
(3.0)
2.9
0.1
-
-
Other timing differences
(0.8)
0.2
0.2
-
(0.4)
Total
17.7
(9.1)
6.0
(1.2)
13.4
Year ended 30 September 2023
Accelerated tax depreciation
(6.9)
(5.0)
3.6
-
(8.3)
Retirement benefit obligations
0.5
1.8
-
0.8
3.1
Interest rate hedging
53.2
(20.4)
-
-
32.8
Loans and other derivatives
2.2
(0.8)
-
-
1.4
Share based payments
(3.7)
(2.8)
-
(1.0)
(7.5)
Tax losses
(0.1)
0.1
(3.0)
-
(3.0)
Other timing differences
(0.8)
(0.2)
0.2
-
(0.8)
44.4
(27.3)
0.8
(0.2)
17.7
Balances in respect of interest rate hedging in the table above relate to derivatives hedging interest rate risk in the Group\u2019s loan and deposit books and related pipelines, and fair value accounting adjustments. The temporary differences shown above have been provided at the rate prevailing when the Group anticipates these temporary differences to reverse. In the event that the temporary differences actually reverse in different periods a credit or charge will arise in a future period to reflect the difference. The timing of reversal of temporary differences will be affected by both matters within the Group\u2019s control (such as the timing and nature of the refinancing of certain portfolios) and matters outside the Group\u2019s control (for example, the timing of the Group\u2019s contributions to its defined benefit pension scheme). If temporary differences reverse within Paragon Bank PLC in a period in which it is subject to the banking surcharge, then the impact of the reversal will be at an effective tax rate that includes the banking surcharge to some extent. The Group has no tax losses in entities whose current taxable profits are insufficient to support the recognition of a deferred tax asset (2023: \u00a33.7m). (b) The Company The net deferred tax (asset) / liability for which provision has been made, and the movements in that balance are analysed as follows:
Opening Profit and loss Charge / (credit) Closing
balance charge / (credit) to equity balance
Current
Prior
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Year ended 30 September 2024
Accelerated tax depreciation
0.1
-
-
-
0.1
Tax losses carried forward
(1.7)
1.7
-
-
-
Other timing differences
-
-
-
-
-
Total
(1.6)
1.7
-
-
0.1
Year ended 30 September 2023
Accelerated tax depreciation
0.1
-
-
-
0.1
Tax losses carried forward
-
-
(1.7)
-
(1.7)
Other timing differences
-
-
-
-
-
0.1
-
(1.7)
-
(1.6)
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-376": { "value": "
45. Called-up share capital
The share capital of the Company consists of a single class of \u00a31 ordinary shares.
Movements in the issued share capital in the year were:
2024
2023
Number
Number
Ordinary shares
At 1 October 2023
228,700,413
241,409,624
Shares issued
-
160,833
Shares cancelled
(18,095,453)
(12,870,044)
At 30 September 2024
210,604,960
228,700,413
During the year ended 30 September 2023, the Company issued 160,833 shares to satisfy options granted under Sharesave schemes
for a consideration of \u00a3543,954. No such issues were made in the year ended 30 September 2024.
On 1 June 2023, 12,870,044 of the shares held in treasury at that date were cancelled, with 12,095,453 further shares cancelled on
23 February 2024, and 6,000,000 cancelled on 30 August 2024 (note 47).
46. Reserves
(a) The Group
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Share premium account
71.4
71.4
71.1
Capital redemption reserve
31.0
12.9
71.8
Merger reserve
(70.2)
(70.2)
(70.2)
Profit and loss account
1,242.1
1,243.4
1,151.2
1,274.3
1,257.5
1,223.9
(b) The Company
2024
2023
2022
(restated) (restated)
\u00a3m
\u00a3m
\u00a3m
Share premium account
71.4
71.4
71.1
Capital redemption reserve
31.0
12.9
71.8
Merger reserve
(23.7)
(23.7)
(23.7)
Profit and loss account
510.5
543.4
345.3
589.2
604.0
464.5
The share premium account and capital redemption reserve are non-distributable reserves which are required by, and operate under
the provisions of, UK company law.
The merger reserve arose, due to the provisions of UK company law at the time, on a group restructuring on 12 May 1989 when the
Company became the parent entity of the Group.
On 28 March 2023 the High Court confirmed the cancellation of the Company\u2019s capital redemption reserve, following shareholder
approval at the AGM on 1 March 2023. This reserve had arisen on the cancellation of ordinary shares which had been purchased in the
market and held in treasury. The balance outstanding on the capital redemption reserve at that time was transferred to the profit and
loss account.
", "dimensions": { "concept": "ifrs-full:DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-434": { "value": "45. Called-up share capital The share capital of the Company consists of a single class of \u00a31 ordinary shares. Movements in the issued share capital in the year were:
2024
2023
Number
Number
Ordinary shares
At 1 October 2023
228,700,413
241,409,624
Shares issued
-
160,833
Shares cancelled
(18,095,453)
(12,870,044)
At 30 September 2024
210,604,960
228,700,413
During the year ended 30 September 2023, the Company issued 160,833 shares to satisfy options granted under Sharesave schemes for a consideration of \u00a3543,954. No such issues were made in the year ended 30 September 2024. On 1 June 2023, 12,870,044 of the shares held in treasury at that date were cancelled, with 12,095,453 further shares cancelled on 23 February 2024, and 6,000,000 cancelled on 30 August 2024 (note 47). ", "dimensions": { "concept": "ifrs-full:DisclosureOfIssuedCapitalExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-433": { "value": "46. Reserves (a) The Group
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Share premium account
71.4
71.4
71.1
Capital redemption reserve
31.0
12.9
71.8
Merger reserve
(70.2)
(70.2)
(70.2)
Profit and loss account
1,242.1
1,243.4
1,151.2
1,274.3
1,257.5
1,223.9
(b) The Company
2024
2023
2022
(restated) (restated)
\u00a3m
\u00a3m
\u00a3m
Share premium account
71.4
71.4
71.1
Capital redemption reserve
31.0
12.9
71.8
Merger reserve
(23.7)
(23.7)
(23.7)
Profit and loss account
510.5
543.4
345.3
589.2
604.0
464.5
The share premium account and capital redemption reserve are non-distributable reserves which are required by, and operate under the provisions of, UK company law. The merger reserve arose, due to the provisions of UK company law at the time, on a group restructuring on 12 May 1989 when the Company became the parent entity of the Group. On 28 March 2023 the High Court confirmed the cancellation of the Company\u2019s capital redemption reserve, following shareholder approval at the AGM on 1 March 2023. This reserve had arisen on the cancellation of ordinary shares which had been purchased in the market and held in treasury. The balance outstanding on the capital redemption reserve at that time was transferred to the profit and loss account.", "dimensions": { "concept": "ifrs-full:DisclosureOfReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-377": { "value": "
47. Own shares
The Group
The Company
2024
2023
2024
2023
(restated*)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Treasury shares
Opening balance
54.0
18.2
54.0
18.2
Shares purchased
76.6
111.5
76.6
111.5
Options exercised
(4.3)
(8.4)
(4.3)
(8.4)
Shares cancelled
(110.0)
(67.3)
(110.0)
(67.3)
Closing balance
16.3
54.0
16.3
54.0
ESOP shares
Opening balance
21.6
19.0
21.6
19.0
Shares purchased
12.9
9.0
12.9
9.0
Options exercised
(9.2)
(6.4)
(9.2)
(6.4)
Closing balance
25.3
21.6
25.3
21.6
Irrevocable authority to purchase
Opening balance
-
10.8
-
10.8
Given in year
23.8
-
23.8
-
Expiring / utilised in year
-
(10.8)
-
(10.8)
Closing balance
23.8
-
23.8
-
Total closing balance
65.4
75.6
65.4
75.6
Total opening balance
75.6
48.0
75.6
48.0
* Restated \u2013 see note 66
At 30 September 2024 the number of the Company\u2019s own shares held in treasury was 2,124,162 (2023: 10,074,002). These shares had a
nominal value of \u00a32,124,162 (2023: \u00a310,074,002). These shares do not qualify for dividends.
At 30 September 2024 an irrecoverable instruction for the purchase of shares with a market value of \u00a323.8m to be held in treasury
was in place. At 31 October 2024, when regulatory approval for the buy-back programme lapsed, \u00a37.5m of this instruction remained
outstanding.
The ESOP shares are held in trust for the benefit of employees exercising their options under the Company\u2019s share option schemes
and awards under the Paragon PSP and Deferred Share Bonus Plan. The trustees\u2019 costs are included in the operating expenses of
the Group.
At 30 September 2024, the trust held 4,182,232 ordinary shares (2023: 4,009,490) with a nominal value of \u00a34,182,232
(2023: \u00a34,009,490) and a market value of \u00a332,516,854 (2023: \u00a319,727,084). Options, or other share-based awards, were outstanding
against all of these shares at 30 September 2024 (2023: all). The dividends on all of these shares have been waived (2023: all).
", "dimensions": { "concept": "ifrs-full:DisclosureOfTreasurySharesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-507": { "value": "
48. Equity dividend
Amounts recognised as distributions to equity shareholders in the Group and the Company in the period:
2024
2023
2024
2023
Per share
Per share
\u00a3m
\u00a3m
Equity dividends on ordinary shares
Final dividend for the previous year
26.4p
19.2p
56.1
43.7
Interim dividend for the current year
13.2p
11.0p
27.4
24.2
39.6p
30.2p
83.5
67.9
Amounts paid and proposed in respect of the year:
2024
2023
2024
2023
Per share
Per share
\u00a3m
\u00a3m
Interim dividend for the current year
13.2p
11.0p
27.4
24.2
Proposed final dividend for the current year
27.2p
26.4p
55.6
56.7
40.4p
37.4p
83.0
80.9
The proposed final dividend for the year ended 30 September 2024 will be paid on 7 March 2025, subject to approval at the AGM, with
a record date of 7 February 2025. The dividend will be recognised in the accounts when it is paid.
(c) Dividend and distribution policy The Company is committed to a long-term sustainable dividend policy. Ordinarily, dividends will increase in line with earnings, subject to the requirements of the business and the availability of cash resources. The Board reviews the policy at least twice a year in advance of announcing its results, taking into account the Group\u2019s strategy, capital requirements, principal risks and the objective of enhancing shareholder value. In determining the level of dividend for any year, the Board expects to follow the dividend policy, but will also take into account the level of available retained earnings in the Company, its cash resources and the cash and capital requirements inherent in its business plans. In addition to the payment of dividends, the Board may also consider whether it is appropriate to apply excess capital in the market purchase of the Group\u2019s shares. The distributable reserves of the Company comprise its profit and loss account balance (note 46) and, other than the regulatory requirement to retain an appropriate level of capital in Paragon Bank PLC, there are no restrictions preventing profits elsewhere in the Group from being distributed to the parent. Since the year ended 30 September 2018, the Company has adopted a policy of paying out approximately 40% of its basic earnings per share as dividend (a dividend cover ratio of around 2.5 times), in the absence of any idiosyncratic factors which might make such a dividend inappropriate. This policy is reviewed by the Board at least annually. The Company considers it has access to sufficient cash resources to pay dividends at this level and that its distributable reserves are abundant for this purpose. To provide greater transparency, the Board also adopted a policy of paying an interim dividend in each year equivalent to half of the preceding final dividend in the absence of any factors which might make such a distribution inappropriate. For the current year, based on its review of the Group\u2019s capital position and forecasts, the Board determined that an interim dividend in line with this policy was appropriate. It therefore declared an interim dividend for the year of 13.2p per share (2023: 11.0p per share). The Board also confirmed that the Group\u2019s normal approach of paying an interim dividend of 50% of the preceding year\u2019s final dividend would continue to apply in future years. The appropriate level of final dividend for the current year was considered by the Board in light of economic and regulatory developments in the year, and the various potential paths for the UK economy. In particular the levels of provision in the Group\u2019s loan portfolios and the potential for further provision under stress in the event of a worsening UK economic position were considered by the Board. These were compared to the regulatory capital position at the year end along with the capital impacts of stress testing carried out as part of the ICAAP and forecasting processes, and the potential impacts of ongoing developments in the regulatory regime for capital including the introduction in the UK of Basel 3.1. The Board particularly considered the appropriateness of including net losses relating to fair value adjustments from hedging in the calculation of any dividend or distribution, as these primarily result from the reversal of gains recorded in earlier years which were disregarded, at the time, for the purpose of determining dividends. Given the size of such adjustments in the period, the Board concluded that their inclusion was not consistent with its overarching aim of delivering a sustainable dividend which grows with the earnings of the business. This is in line with the approach adopted in previous years. On the basis of this analysis the Board concluded that a total dividend of around 40% of earnings excluding fair value items could be paid. The Board will therefore propose a final dividend for the year of 27.2p per share (2023: 26.4p per share) for approval at the 2025 AGM, making a total dividend for the year of 40.4p per share (2023: 37.4p per share). A share buy-back programme for the current financial year, for up to \u00a350.0m of ordinary shares was authorised at the time of the Group\u2019s 2023 results announcement. This was extended to \u00a3100.0m in June 2024. The amount expended in the year was \u00a376.6m (note 47) and the share buy-back continued after the year end, until regulatory authority for the programme lapsed on 31 October 2024, under an irrecoverable purchase instruction given to the Group\u2019s brokers shortly before the end of the financial year. As part of its consideration of capital described above the Board of Directors authorised the completion of the remaining \u00a37.5m of the buy-back programme described above together with a new buy-back of up to \u00a350.0m to commence shortly after the announcement of the 2024 results. All shares acquired in buy-back programmes are initially held in treasury. The directors have considered the distributable resources of the Company and concluded that these distributions are appropriate. The most recent policy review, in November 2024, also confirmed the existing dividend policy would continue to apply for future periods, subject to the impact of any future events, and the Board will consider the appropriateness and scale of any interim dividend in the context of the Group\u2019s results and the operating and economic environment at the time. Share buy-backs will be considered where excess capital has arisen, either operationally or as a result of changed regulatory requirements.", "dimensions": { "concept": "ifrs-full:DisclosureOfDividendsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-472": { "value": "26400000", "decimals": 4, "dimensions": { "concept": "paragonbankinggroupplc:FinalDividendForThePreviousYear", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-473": { "value": "19200000", "decimals": 4, "dimensions": { "concept": "paragonbankinggroupplc:FinalDividendForThePreviousYear", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-471": { "value": "13200000", "decimals": 4, "dimensions": { "concept": "paragonbankinggroupplc:InterimDividendForTheCurrentYear", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-474": { "value": "11000000", "decimals": 4, "dimensions": { "concept": "paragonbankinggroupplc:InterimDividendForTheCurrentYear", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-469": { "value": "0.396", "decimals": 3, "dimensions": { "concept": "ifrs-full:DividendsRecognisedAsDistributionsToOwnersPerShare", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-470": { "value": "0.302", "decimals": 3, "dimensions": { "concept": "ifrs-full:DividendsRecognisedAsDistributionsToOwnersPerShare", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-494": { "value": "0.272", "decimals": 3, "dimensions": { "concept": "ifrs-full:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersPerShare", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-495": { "value": "0.264", "decimals": 3, "dimensions": { "concept": "ifrs-full:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersPerShare", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-496": { "value": "55600000", "decimals": -5, "dimensions": { "concept": "ifrs-full:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwners", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-497": { "value": "56700000", "decimals": -5, "dimensions": { "concept": "ifrs-full:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwners", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2022-10-01T00:00:00/2023-10-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-435": { "value": "
49. Net cash flow from operating activities
(a) The Group
2024
2023
\u00a3m
\u00a3m
Profit before tax
253.8
199.9
Non-cash items included in profit and other adjustments:
Depreciation of operating property, plant and equipment
5.4
4.0
(Profit) on disposal of operating property, plant and equipment
(0.1)
(0.1)
Amortisation and derecognition of intangible assets
1.2
3.6
Non-cash movements on investment securities
(7.8)
-
Non-cash movements on borrowings
4.5
(2.5)
Impairment losses on loans to customers
24.5
18.0
Charge for share based remuneration
9.2
9.6
Net (increase) / decrease in operating assets:
Assets held for leasing
0.7
(2.7)
Loans to customers
(855.7)
(682.0)
Derivative financial instruments
223.6
163.6
Fair value of portfolio hedges
(304.1)
(180.6)
Other receivables
28.0
(15.0)
Net increase / (decrease) in operating liabilities:
Retail deposits
3,032.7
2,596.1
Derivative financial instruments
59.8
(62.2)
Fair value of portfolio hedges
47.6
68.8
Other liabilities
(236.6)
128.3
Cash generated by operations
2,286.7
2,246.8
Income taxes (paid)
(70.3)
(75.1)
2,216.4
2,171.7
Cash flows relating to plant and equipment held for leasing under operating leases are classified as operating cash flows.
(b) The Company
2024
2023
(restated)
\u00a3m
\u00a3m
Profit before tax
165.7
264.2
Non-cash items included in profit and other adjustments:
Depreciation on property, plant and equipment
1.4
1.4
Non-cash movements on borrowings
0.3
0.3
Impairment provision on investments in subsidiaries
0.7
1.2
Charge for share based remuneration
9.2
9.6
Net decrease / (increase) in operating assets:
Other receivables
100.1
(189.5)
Net increase / (decrease) in operating liabilities:
Other liabilities
0.5
(0.6)
Cash generated by operations
277.9
86.6
Income taxes (paid)
(1.6)
(0.8)
276.3
85.8
50. Net cash flow from investing activities
The Group
The Company
2024
2023
2024
2023
(restated)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Investment in securities
(419.6)
-
-
-
Proceeds from sales of operating property, plant and equipment
0.3
0.1
-
-
Purchases of operating property, plant and equipment
(0.9)
(1.6)
-
-
Purchases of intangible assets
(4.5)
(1.6)
-
-
Repayment of loans by subsidiary entities
-
-
-
107.0
Net cash (utilised) / generated by investing activities
(424.7)
(3.1)
-
107.0
51. Net cash flow from financing activities
The Group
The Company
2024
2023
2024
2023
(restated)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Shares issued (note 45)
-
0.5
-
0.5
Dividends paid (note 48)
(83.5)
(67.9)
(83.5)
(67.9)
Repayment of asset backed floating rate notes
(28.3)
(382.1)
-
-
Repayment of retail bond
(112.5)
-
(112.5)
-
Repayment of long-term central bank facilities
(2,000.0)
-
-
-
Movement on short-term central bank facilities
5.0
-
-
-
Movement on other bank facilities
-
(586.0)
-
-
Movement on sale and repurchase agreements
50.0
50.0
-
-
Capital element of lease payments
(2.7)
(2.4)
(1.3)
(1.3)
Purchase of own shares (note 47)
(89.5)
(120.5)
(89.5)
(120.5)
Exercise of share awards
0.7
3.4
0.7
3.4
Net cash (utilised) by financing activities
(2,260.8)
(1,105.0)
(286.1)
(185.8)
52. Reconciliation of net debt
(a) The Group
Cash flows
Opening Debt
Other
Non-cash
Closing
debt issued movements debt
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Asset backed loan notes
28.0
-
(28.3)
0.3
-
Bank borrowings
-
-
-
-
-
Corporate bonds
145.8
-
-
4.1
149.9
Retail bonds
112.4
-
(112.5)
0.1
-
Long-term central bank borrowings
2,750.0
-
(2,000.0)
-
750.0
Short-term central bank borrowings
-
-
5.0
-
5.0
Sale and repurchase agreements
50.0
-
50.0
-
100.0
Lease liabilities
8.9
-
(2.7)
1.7
7.9
Bank overdrafts
0.2
-
0.2
-
0.4
Gross debt
3,095.3
-
(2,088.3)
6.2
1,013.2
Cash
(2,994.3)
-
468.9
-
(2,525.4)
Net debt/(funds)
101.0
-
(1,619.4)
6.2
(1,512.2)
30 September 2023
Asset backed loan notes
409.3
-
(382.1)
0.8
28.0
Bank borrowings
586.0
-
(586.0)
-
-
Corporate bonds
149.2
-
-
(3.4)
145.8
Retail bonds
112.3
-
-
0.1
112.4
Long-term central bank borrowings
2,750.0
-
-
-
2,750.0
Short-term central bank borrowings
-
-
-
-
-
Sale and repurchase agreements
-
-
50.0
-
50.0
Lease liabilities
9.0
-
(2.4)
2.3
8.9
Bank overdrafts
0.4
-
(0.2)
-
0.2
Gross debt
4,016.2
-
(920.7)
(0.2)
3,095.3
Cash
(1,930.9)
-
(1,063.6)
-
(2,994.3)
Net debt
2,085.3
-
(1,984.1)
(0.2)
101.0
Non-cash movements shown above represent:
\u2022 EIR adjustments relating to the spreading of initial costs of the facilities concerned
\u2022 Inception of new lease assets under IFRS 16
\u2022 Hedging fair value adjustments on the corporate bond (note 26)
(b) The Company
Cash flows
Opening Debt
Other
Non-cash
Closing
debt issued movements debt
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Corporate bonds
149.4
-
-
0.2
149.6
Retail bonds
112.4
-
(112.5)
0.1
-
Lease liabilities
13.7
-
(1.3)
-
12.4
Gross debt
275.5
-
(113.8)
0.3
162.0
Cash
(27.6)
-
9.4
-
(18.2)
Net debt
247.9
-
(104.4)
0.3
143.8
30 September 2023
Corporate bonds
149.2
-
-
0.2
149.4
Retail bonds
112.3
-
-
0.1
112.4
Lease liabilities
15.0
-
(1.3)
-
13.7
Gross debt
276.5
-
(1.3)
0.3
275.5
Cash
(19.7)
-
(7.9)
-
(27.6)
Net debt
256.8
-
(9.2)
0.3
247.9
Non-cash changes shown above represent EIR adjustments relating to the spreading of initial costs of the bonds.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCashFlowStatementExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-378": { "value": "
53. Unconsolidated structured entities
Following the Group\u2019s disposal of its residual interest in the Paragon Mortgages (No. 12) PLC securitisation in June 2019, it ceased to
consolidate the assets and liabilities of the entity. The external securitisation borrowings remain in place with their terms unchanged
and the Group continues to act as administrator, for which it charges a fee. It has no other exposure to the profitability of the deal, no
exposure to credit risk, other than on the recoverability of its quarterly fee, and no obligation to make further contribution to the entity.
Fee income from servicing arrangements of \u00a30.4m is included in third party servicing fees (note 7) (2023: \u00a31.3m) and \u00a30.1m is included
in other debtors in respect of unpaid fees at the year end (2023: \u00a30.5m). Outstanding collection monies due to the structured entity of
\u00a31.1m are included in other creditors at 30 September 2024 (2023: \u00a30.1m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfUnconsolidatedStructuredEntitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-379": { "value": "54. Leasing arrangements (a) As Lessor The Group, through its motor finance and asset finance businesses, leases assets under both finance and operating leases. In respect of certain of these assets, the Group also provides maintenance services to the lessee. It also leases green motor vehicles to its employees under a salary sacrifice scheme. Disclosures in respect of these balances are set out in these financial statements as follows
Disclosure
Note
Investment in finance leases
19
Finance income on net investment in finance leases
4
Assets leased under operating leases
29
Operating lease income
6
The undiscounted future minimum lease payments receivable by the Group under operating lease arrangements may be analysed as follows:
2024
2023
\u00a3m
\u00a3m
Amounts falling due:
Within one year
10.2
14.5
Within one to two years
9.0
9.3
Within two to three years
6.3
5.8
Within three to four years
4.5
3.5
Within four to five years
2.9
1.6
After more than five years
2.6
0.3
35.5
35.0
(b) As Lessee The Group\u2019s use of leases as a lessee relates to the rental of office buildings and company cars, together with the procurement of vehicles for leasing to employees under its green car scheme. Under IFRS 16 these have been accounted for as right of use assets and corresponding lease liabilities. The average term of the current building leases from inception or acquisition is 7 years (2023: 8 years) with rents subject to review every five years, while the average term of the vehicle leases is 4 years (2023: 3 years). The Company\u2019s use of leases as lessee is limited to the rental of an office building from a subsidiary entity. The lease term from inception is 15 years. Disclosures relating to these leases are set out in these financial statements as follows.
Disclosure
Note
Depreciation on right of use assets
29
Interest expense on lease liabilities
5
Expense relating to short-term leases
8
Additions to right of use assets
29
Carrying amount of right of use assets
29
Maturity analysis of lease liabilities
64
Salary sacrifice amounts of \u00a30.3m in respect of the green car scheme (2023: \u00a30.1m) are included within operating lease income (note 6). There was no other subleasing of right of use assets and the total cash flows relating to leasing as a lessee were \u00a33.0m (2023: \u00a32.3m).", "dimensions": { "concept": "ifrs-full:DisclosureOfMaturityAnalysisOfOperatingLeasePaymentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-380": { "value": "
55. Related party transactions
(a) The Group
During the year, certain directors of the Group were beneficially interested in savings deposits made with Paragon Bank, on the same
terms as were available to members of the public. Deposits of \u00a3850,000 were outstanding at the year end (2023: \u00a3720,000), and the
maximum amounts outstanding during the year totalled \u00a3939,000 (2023: \u00a3771,000).
The Paragon Pension Plan (the \u2018Plan\u2019) is a related party of the Group. Transactions with the Plan are described in note 60.
The Group had no other transactions with related parties other than the key management compensation disclosed in note 58.
(b) The Company
During the year, the parent company entered into transactions with its subsidiaries, which are related parties. Management services
were provided to the Company by one of its subsidiaries and the Company granted awards to employees of subsidiary undertakings
under the share based payment arrangements described in note 59.
Details of the Company\u2019s investments in subsidiaries and the income derived from them are shown in notes 32 and 72.
Outstanding current account balances with subsidiaries are shown in notes 27 and 40.
During the year the Company incurred interest costs of \u00a31.7m in respect of borrowings from its subsidiaries (2023: \u00a31.5m).
The Company leased an office building from a subsidiary entity (note 54(b)). Finance charges recognised in respect of this lease were
\u00a30.3m (2023: \u00a30.4m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfTransactionsBetweenRelatedPartiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-436": { "value": "55. Related party transactions (a) The Group During the year, certain directors of the Group were beneficially interested in savings deposits made with Paragon Bank, on the same terms as were available to members of the public. Deposits of \u00a3850,000 were outstanding at the year end (2023: \u00a3720,000), and the maximum amounts outstanding during the year totalled \u00a3939,000 (2023: \u00a3771,000). The Paragon Pension Plan (the \u2018Plan\u2019) is a related party of the Group. Transactions with the Plan are described in note 60. The Group had no other transactions with related parties other than the key management compensation disclosed in note 58. (b) The Company During the year, the parent company entered into transactions with its subsidiaries, which are related parties. Management services were provided to the Company by one of its subsidiaries and the Company granted awards to employees of subsidiary undertakings under the share based payment arrangements described in note 59. Details of the Company\u2019s investments in subsidiaries and the income derived from them are shown in notes 32 and 72. Outstanding current account balances with subsidiaries are shown in notes 27 and 40. During the year the Company incurred interest costs of \u00a31.7m in respect of borrowings from its subsidiaries (2023: \u00a31.5m). The Company leased an office building from a subsidiary entity (note 54(b)). Finance charges recognised in respect of this lease were \u00a30.3m (2023: \u00a30.4m).", "dimensions": { "concept": "ifrs-full:DisclosureOfRelatedPartyExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-381": { "value": "
56. Country-by-country reporting
The Capital Requirements (Country-by-Country Reporting) Regulations 2013 came into effect on 1 January 2014 and place certain
reporting obligations on financial institutions as defined by EU Regulation No. 575/2013 (the capital requirements regulation). The
objective of the country-by-country reporting requirements is to provide increased transparency regarding the source of the financial
institution\u2019s income and the locations of its operations.
Paragon Banking Group PLC is a UK registered entity. Details of its subsidiaries are given in note 72 and the activities of the Group are
described in Section A2.
The activities of the Group, described as required by the Regulations for the year ended 30 September 2024 were:
United Kingdom
\u00a3m
Year ended 30 September 2024
Total operating income
496.4
Profit before tax
253.8
Corporation tax paid
70.3
Public subsidies received
-
Average number of full time equivalent employees
1,356
United Kingdom
\u00a3m
Year ended 30 September 2023
Total operating income
466.0
Profit before tax
199.9
Corporation tax paid
75.1
Public subsidies received
-
Average number of full time equivalent employees
1,435
The Group\u2019s participation in Bank of England funding schemes is set out in note 38.
", "dimensions": { "concept": "ifrs-full:DisclosureOfGeographicalAreasExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-437": { "value": "
57. Employees
The average number of persons (including directors) employed by the Group during the year was 1,444 (2023: 1,527). The number of
employees at the end of the year was 1,411 (2023: 1,522).
Costs incurred during the year in respect of these employees were:
2024
2024
2023
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Share based remuneration
9.2
9.6
Other wages and salaries
86.5
84.6
Total wages and salaries
95.7
94.2
National Insurance on share based remuneration
3.4
1.9
Other social security costs
10.5
10.2
Total social security costs
13.9
12.1
Defined benefit pension cost
0.4
0.5
Other pension costs
4.8
4.7
Total pension costs
5.2
5.2
Total employment costs
114.8
111.5
Of which
Included in operating expenses (note 8)
111.1
108.3
Included in maintenance costs (note 6)
3.7
3.2
114.8
111.5
Details of the pension schemes operated by the Group are given in note 60.
The Company has no employees. Details of the directors\u2019 remuneration are given in note 58.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutEmployeesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-382": { "value": "57. Employees The average number of persons (including directors) employed by the Group during the year was 1,444 (2023: 1,527). The number of employees at the end of the year was 1,411 (2023: 1,522). Costs incurred during the year in respect of these employees were:
2024
2024
2023
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Share based remuneration
9.2
9.6
Other wages and salaries
86.5
84.6
Total wages and salaries
95.7
94.2
National Insurance on share based remuneration
3.4
1.9
Other social security costs
10.5
10.2
Total social security costs
13.9
12.1
Defined benefit pension cost
0.4
0.5
Other pension costs
4.8
4.7
Total pension costs
5.2
5.2
Total employment costs
114.8
111.5
Of which
Included in operating expenses (note 8)
111.1
108.3
Included in maintenance costs (note 6)
3.7
3.2
114.8
111.5
Details of the pension schemes operated by the Group are given in note 60. The Company has no employees. Details of the directors\u2019 remuneration are given in note 58.
60. Retirement benefit obligations
(a) Defined benefit plan \u2013 description
The Group operates a funded defined benefit pension scheme in the UK, the Paragon Pension Plan (the \u2018Plan\u2019). The Plan assets are held
in a separate fund, administered by a corporate trustee, to meet long-term pension liabilities to past and present employees. The Trustee
of the Plan is required by law to act in the best interests of the Plan\u2019s beneficiaries and is responsible for the investment policy adopted in
respect of the Plan\u2019s assets. The appointment of directors to the Trustee is determined by the Plan\u2019s trust documentation. The Group has
a policy that one third of all directors of the Trustee should be nominated by active and pensioner members of the Plan.
Employee contributions and benefits
The scheme was closed to new entrants in February 2002. Employees who are members of the Plan are entitled to receive a pension
of 1/60 of their final basic annual salary per year of service up to 30 June 2021. After that date further accrual is at a rate of 1/70 or 1/75
of capped final salary depending on the level of contributions. After 1 July 2021 employee contributions were either 5% or 8% of capped
salary. Before that date all active members contributed at a rate of 5% of salary.
Benefits accrued before 1 July 2021 may be accessed from the age of 60 without any reduction for early payment. Benefits accruing after
1 July 2021 may be accessed without penalty from the age of 65.
Dependants of Plan members are eligible for a dependant\u2019s pension and the payment of a lump sum in the event of death in service.
Actuarial risks
The principal actuarial risks to which the Plan is exposed are:
\u2022 Investment risk \u2013 The present value of the defined benefit liabilities is calculated using a discount rate set by reference to high
quality corporate bond yields. If plan assets underperform corporate bonds, this will reduce the surplus. The strategic allocation
of assets under the Plan has been derisked and now only around 20% is invested in equity assets and diversified growth funds. In
consultation with the Company, the Trustee keeps the allocation of the Plan\u2019s investments under review to manage this risk on a
long-term basis
\u2022 Interest risk \u2013 A fall in corporate bond yields would reduce the discount rate used in valuing the Plan liabilities and increase the value
of the Plan liabilities. The Plan assets would also be expected to increase, to the extent that bond assets are held, but this would not be
expected to fully match the increase in liabilities, given the weighting towards equity assets and diversified growth funds noted above
\u2022 Inflation risk \u2013 Pensions in payment are increased annually in line with the RPI or the Consumer Price Index (\u2018CPI\u2019) for
Guaranteed Minimum Pensions built up since 1988. Pensions built up since 5 April 2006 are capped at 2.5% and pensions built up
before 6 April 2006 are capped at 5%. For employees who have left the Company but have deferred pensions, these also revalue
over the period to retirement, predominantly in line with RPI. Therefore, an increase in inflation would also increase the value of the
pension liabilities. The Plan assets would also be expected to increase, to the extent that they are linked to inflation, but this may
not fully match the increase in liabilities
\u2022 Longevity risk \u2013 The value of the Plan surplus is calculated by reference to the best estimate of the mortality rate among Plan
members both during and after employment. An increase in the life expectancy of the members would reduce the surplus in the Plan
\u2022 Salary risk \u2013 The valuation of the Plan assumes a level of future salary increases based on the expected rate of inflation. Should the
salaries of Plan members increase at a higher rate, then the surplus will be lower. For service from 1 July 2021, a 2.5% annual cap on
individual pensionable salary increases applies, mitigating this risk
The risks relating to death in service payments are insured with an external insurance company.
As a result of the Plan having been closed to new entrants since February 2002, the service cost as a percentage of pensionable salaries
is expected to increase as the average age of active members rises over time. However, the membership is expected to reduce so that
the service cost in monetary terms will gradually reduce. The changes referred to above will also reduce this cost going forward.
Actuarial valuation and recovery plan
The most recent full actuarial valuation of the Plan\u2019s liabilities, obtained by the Trustee, was carried out at 31 March 2022, by
Aon Solutions UK Limited, the Plan\u2019s independent actuary. This showed that the value of the Plan\u2019s liabilities on a buy-out basis in
accordance with Section 224 of the Pensions Act 2004, the level of assets which would be required to buy insurance policies for benefits
earned to the valuation date, was \u00a3195.5m, with a shortfall against the assets of \u00a344.2m (2019: \u00a385.0m). The deficit on the Technical
Provisions Basis, the basis agreed by the Trustee as being appropriate to meet member benefits, assuming the Plan continues as a going
concern, was \u00a35.1m (2019: \u00a318.2m). Many of the demographic assumptions used within the Technical Provisions Basis are also used
within the IAS 19 valuation.
Following the agreement of the 2022 actuarial valuation, the Trustee put in place a revised recovery plan. This recovery plan was
designed to ensure that the statutory funding objective was met during the 2024 financial year, but included provision for the Group
to make further additional payments after that point. The recovery plan continues to include a Pension Funding Partnership (\u2018PFP\u2019)
arrangement effectively granting the Plan a first charge over the Group\u2019s head office building as security for certain payments under
the plan (note 29). However, payments under the PFP are paused when the Plan reaches a prescribed funding level, and this point was
reached in April 2024. No amount is included in the Plan assets in respect of the building, which remains within the Group\u2019s Property,
Plant and Equipment balance (note 29) but this arrangement provides the Plan with additional security in a stress event.
(b) Defined benefit plan \u2013 financial impact
For accounting purposes, the valuation at 31 March 2022 was updated to 30 September 2024 in accordance with the requirements of
IAS 19 (revised) by Mercer, the Group\u2019s independent consulting actuary.
The major categories of assets in the Plan at 30 September 2024, 30 September 2023 and 30 September 2022 and their fair values were:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Cash and cash equivalents
1.1
0.6
0.7
Equity instruments
21.2
44.8
56.6
Debt instruments
91.4
56.6
47.4
Total fair value of Plan assets
113.7
102.0
104.7
Present value of Plan liabilities
(91.5)
(89.3)
(97.6)
Surplus in the Plan
22.2
12.7
7.1
The Group has recognised the surplus as an asset at the balance sheet date as it anticipates being able to access economic benefits
at least as great as the carrying value. However, such assets are eliminated from capital for regulatory purposes (note 59).
At 30 September 2024 the Plan assets were invested in a diversified portfolio that consisted primarily of debt and equity investments.
The majority of the equities held by the Plan are in developed markets. During the year the Trustee has revised its investment strategy,
reducing the proportion of growth assets, including equities, held by the Plan.
The Plan has a benchmark allocation at 30 September 2024 of 54% of total assets to Liability Driven Investments (\u2018LDI\u2019) to provide
hedging against inflation and interest rate risk. This target was maintained at 42% for much of the period (2023: 28%). The hedging
provided now represents some 85% of the Plan\u2019s risks (2023: 60%), with the increased hedging protecting the current surplus position.
During the market turmoil encountered during September / October 2022 the assets of the Plan proved themselves to be robust in
protecting the members\u2019 interests, with no requirement to either divest from LDI nor to reduce the hedge ratio in place at that time.
During October 2018, the High Court made a ruling in the Lloyds Banking Group Pension Scheme GMP (\u2018Guaranteed Minimum
Pension\u2019) equalisation case, which effectively directs defined benefit pension schemes to change their rules to equalise the benefits
of male and female members for the effects of GMPs for employees who were, at one time, contracted out of state schemes. The
Court did not specify a single method which schemes should employ and hence the impact of this on the Plan will not be certain until
the Trustee has determined which method should be adopted and detailed calculations have been performed to evaluate the impact,
as the impact on members will vary from person to person.
The estimated effect of this ruling was accounted for in the accounts of the Group for the year ended 30 September 2019 as a
\u2018past service cost\u2019. This estimate is based on one permissible method, method C2. During the year, the Trustee, with the consent of
the Company, chose to adopt an alternative approach, method B. However, the accounting impact of this is likely to be minimal. Once
detailed calculations are performed it is possible that the final impact may vary due to idiosyncratic impacts on individual members, or
due to the development of a wider legal and accounting consensus on the proper interpretation of the courts\u2019 requirements as further
cases are determined.
In June 2023, the High Court made a ruling in the case of Virgin Media, which related to the validity of changes made to a pension
scheme where an actuarial certificate could not be produced. In July 2024, the Court of Appeal dismissed an appeal brought against
aspects of this ruling, and the conclusions reached in this case may have consequences for other UK defined benefit plans, such as
the Group\u2019s. The Group and the Trustee have identified a number of amendments made to the Plan which are within the scope of this
ruling. Work is ongoing to confirm that the correct actuarial certificates are available in respect of each such amendment. However,
at present, the directors of the Trustee have no reason to believe that any are not in place. The defined benefit liability has therefore
been calculated on the basis that no additional liabilities arise as a result of the Virgin Media ruling.
The movement in the fair value of the Plan assets during the year was as follows:
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
102.0
104.7
Interest on Plan assets
5.7
5.2
Cash flows
Contributions by the Group
2.8
3.9
Contributions by Plan members
0.2
0.2
Benefits paid
(3.1)
(3.6)
Administration expenses paid
(0.9)
(0.6)
Remeasurement gain / (loss)
Return on Plan assets (excluding amounts included in interest)
7.0
(7.8)
At 30 September 2024
113.7
102.0
The actual return on Plan assets in the year ended 30 September 2024 was a gain of \u00a312.7m (2023: loss of \u00a32.6m).
The movement in the present value of the Plan liabilities during the year was as follows
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
89.3
97.6
Current service cost
0.4
0.5
Past service cost
-
-
Funding cost
4.9
4.8
Cash flows
Contributions by Plan members
0.2
0.2
Benefits paid
(3.1)
(3.6)
Remeasurement loss / (gain)
Arising from demographic assumptions
(2.4)
(0.9)
Arising from financial assumptions
3.7
(11.1)
Arising from experience adjustments
(1.5)
1.8
At 30 September 2024
91.5
89.3
The liabilities of the Plan are measured by discounting the best estimate of future cash flows to be paid out by the Plan using the
Projected Unit method. This amount is reflected in the liability in the balance sheet. The Projected Unit method is an accrued benefits
valuation method in which the Plan liabilities are calculated based on service up until the valuation date allowing for future salary
growth until the date of retirement, withdrawal or death, as appropriate. The future service rate is then calculated as the contribution
rate required to fund the service accruing over the next year again allowing for future salary growth.
Liabilities for benefits accruing for service up to 1 July 2021 are calculated separately from those accruing in respect of service after
that date.
The major weighted average assumptions used by the actuary were (in nominal terms):
2024
2023
2022
In determining net pension cost for the year
Discount rate
5.55%
5.00%
2.00%
Rate of compensation increase:
Pre 1 July 2021 accrual
3.25%
3.55%
3.40%
Post 1 July 2021 accrual
2.50%
2.50%
2.50%
Rate of price inflation
3.25%
3.55%
3.40%
Rate of increase of pensions
3.00%
3.25%
3.15%
In determining benefit obligations
Discount rate
5.10%
5.55%
5.00%
Rate of compensation increase:
Pre 1 July 2021 accrual
3.05%
3.25%
3.55%
Post 1 July 2021 accrual
2.50%
2.50%
2.50%
Rate of price inflation
3.05%
3.25%
3.55%
Rate of increase of pensions
2.85%
3.00%
3.25%
Further life expectancy at age 60
Male member aged 60
27
27
27
Female member aged 60
29
29
29
Male member aged 40
29
29
29
Female member aged 40
31
31
31
In the 2024 valuation the base mortality table used was the standard S3PMA/S3PFA_M (All) Year of Birth table, with future
improvements projected by the CMI 2022 projection model with a 1.5% per annum long-term improvement rate.
In the 2023 valuation the base mortality table used was the standard S3PMA/S3PFA_M (All) Year of Birth table, with future
improvements projected by the CMI 2022 projection model with a 1.5% per annum long-term improvement rate.
In the 2022 valuation the base mortality table used was the standard S3PMA/S3PFA_M (All) Year of Birth table, with future
improvements projected by the CMI 2021 projection model with a 1.5% per annum long-term improvement rate.
The amounts charged in the consolidated income statement in respect of the Plan are:
Note
2024
2023
\u00a3m
\u00a3m
Current service cost
0.4
0.5
Past service cost
-
-
Total service cost
57
0.4
0.5
Administration expenses
0.9
0.6
Included within operating expenses
1.3
1.1
Funding cost of Plan liabilities
4.9
4.8
Interest on Plan assets
(5.7)
(5.2)
Net interest (income)
4
(0.8)
(0.4)
Components of defined benefit costs recognised in profit or loss
0.5
0.7
The amounts recognised in the consolidated statement of comprehensive income in respect of the Plan are:
2024
2023
\u00a3m
\u00a3m
Return on Plan assets (excluding amounts included in interest)
7.0
(7.8)
Actuarial gains / (losses)
Arising from demographic assumptions
2.4
0.9
Arising from financial assumptions
(3.7)
11.1
Arising from experience adjustments
1.5
(1.8)
Total actuarial gain
7.2
2.4
Tax thereon
(1.8)
(0.8)
Net actuarial gain
5.4
1.6
Of the remeasurement movements reflected above:
\u2022 The return on plan assets to 30 September 2024 reflects a recovery in the value of investment assets in the year, from the losses
seen in 2023, as a result of a generally more benign global economic climate.
\u2022 The gain attributable to changed demographic assumptions in the current year reflects the adoption of revised commutation
factors by the Trustee. The gain in the 2023 financial year related to the adoption of revised mortality tables indicating a marginal
reduction in life expectancies.
\u2022 The change in financial assumptions in the year ended 30 September 2024 reflects principally a widening of the gap between the
assumed discount and inflation rates as bond yields, which form the basis of the discount rate assumption, fell faster than gilt
yields, which are used to predict inflation. The gain seen in the year ended 30 September 2023 resulted from the continuation of
the upward trend in bond yields seen in the prior periods, which was not matched by the long-term inflation expectations implied
by gilt rates.
\u2022 The experience adjustments in both years shown represent the impact of the difference between actual and forecast UK inflation in
the year on expected benefits, which is more significant than in previous years due to the inflation levels recorded in these periods.
(c) Defined benefit plan \u2013 future cash flows
The sensitivity of the valuation of the defined benefit obligation to the principal assumptions disclosed above at 30 September 2024,
calculating the obligation on the same basis as used in determining the IAS 19 value, is as follows:
Assumption
Increase in assumption
Impact on scheme liabilities
2024
2023
Discount rate
0.25% per annum
(3.9)%
(3.8)%
Rate of inflation*
0.25% per annum
3.9%
3.8%
Rate of salary growth
0.25% per annum
0.8%
0.9%
Rates of mortality
1 year of life expectancy
3.1%
2.5%
* maintaining a 0.0% assumption for real salary growth
The rate of growth for pensions in payment primarily relates to forecast inflation rates.
The sensitivity analysis presented above may not be representative of an actual future change in the defined benefit obligation as it
is unlikely that changes in assumptions would occur in isolation, as some of the assumptions will be correlated. There has been no
change in the method of preparing the analysis from that adopted in previous years, except that 25 basis point sensitivities have been
presented rather than 10 basis points, in accordance with current actuarial good practice. Revised sensitivities for 2023 have been
provided on the same basis. The impacts of equivalent decreases in assumptions are broadly equal and opposite to the effects of the
increases shown above.
In conjunction with the Trustee, the Group has continued to conduct asset-liability reviews of the Plan. These studies are used to
assist the Trustee and the Group to determine the optimal long-term asset allocation with regard to the structure of liabilities within
the Plan. The results of the studies are used to assist the Trustee in managing the volatility in the underlying investment performance
and risk of a significant increase in the scheme deficit by providing information used to determine the investment strategy of the Plan.
There have been no changes in the processes by which the Plan manages its risks from previous periods.
Following a review of the Plan\u2019s investment strategy, the current target asset allocations for the year ending 30 September 2025 are
38% growth assets (primarily equities), and 62% matching assets (primarily bonds) which includes LDI balances, with the hedge ratio
remaining at 85%.
Following the finalisation of the March 2022 valuation, the agreed rate of employer contribution reduced to 12.5% of capped
pensionable salary from 15 March 2023, having been 25% since 1 July 2021. An additional contribution for deficit reduction of \u00a31.9m
payable over the nine-month period ending on 30 November 2023, and an additional contribution of \u00a32.5m per annum, payable
monthly from 1 December 2023 were also agreed. These include amounts payable under the PRP and replace the \u00a32.5m per annum
contribution for deficit reduction included in the previous funding plan. The additional contribution is reduced to a rate of \u00a31.9m per
annum if the funding level meets the target set by the PFP arrangement, which was reached in April 2024. The Group continues to
make an additional \u00a30.4m per annum contribution in respect of the Plan\u2019s running costs, payable monthly.
The present best estimate of the contributions to be made to the Plan by the Group in the year ending 30 September 2025 is \u00a32.7m.
The average durations of the discounted benefit obligations in the Plan at the year end are shown in the table below:
2024
2023
Years
Years
Category of member
Active members
19
18
Deferred pensioners
18
18
Current pensioners
11
11
All members
16
16
(d) Defined contribution arrangements
The Group sponsors a defined contribution (Worksave) pension scheme, open to all employees who are not members of the Plan. The
Group completed the auto-enrolment process mandated by the UK Government in November 2013, using this scheme. Since the year
ended 30 September 2020 the Group\u2019s contribution to the scheme for those employees making the maximum 6% contribution has
been 10% of salary.
The Group also sponsors a number of other defined contribution pension plans relating to acquired entities and makes contributions
to these schemes in respect of employees.
The assets of these schemes are not Group assets and are held separately from those of the Group, under the control of independent
trustees. Contributions made by the Group to these schemes in the year ended 30 September 2024, which represent the total cost
charged against income, were \u00a34.8m (2023: \u00a34.7m) (note 57).
", "dimensions": { "concept": "ifrs-full:DisclosureOfEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-530": { "value": "1444", "decimals": 4, "dimensions": { "concept": "ifrs-full:AverageNumberOfEmployees", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-383": { "value": "
58. Key management remuneration
Key management
The key management personnel of the Group and the Company, as defined by IAS 24 \u2013 \u2018Related Party Transactions\u2019, are considered
by the Group to be the members of its Executive Committees and the members of the Board of Directors of the Company. The details
of key management remuneration required by IAS 24 are set out below. For persons joining or leaving the executive committees in the
year, all remuneration for the twelve months is shown.
2024
2024
2023
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Salaries and fees
5.9
5.3
Cash amount of bonus
3.6
3.3
Social security costs
1.3
1.2
Short-term employee benefits
10.8
9.8
Post-employment benefits
0.5
0.5
IFRS 2 cost in respect of key management
4.6
4.3
National Insurance thereon
0.6
1.0
Share based payment
5.3
5.3
16.6
15.6
Post-employment benefits shown above include pension allowances, contributions to defined contribution pension schemes or costs
of accrual under the Group\u2019s defined benefit pension plan.
Social security costs paid in respect of key management are required to be included in this note by IAS 24, but do not fall within the
scope of the disclosures in the Annual Report on Remuneration.
Costs in respect of share awards shown in the Annual Report on Remuneration are determined on a different basis to the IFRS 2
charge shown above.
Directors
The information in respect of the remuneration of the directors of the Company required to be disclosed in the notes to the
Company\u2019s accounts by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008, as applicable to quoted companies, is set out below.
2024
2023
\u00a3m
\u00a3m
Aggregate amount of remuneration
4.0
3.7
Pension allowances
0.1
0.1
Gains on exercise of share options
2.3
0.7
In the table above, remuneration includes the cash amount of bonuses and the value of benefits in kind. It excludes any amounts
receivable under share-based payment arrangements. Where a monetary amount of salary is paid in shares based on the market price
at the payment date, this is included.
No director accrued benefits under either a defined benefit or defined contribution pension scheme in the year, nor did any director
receive benefits under long-term incentive schemes, other than in the form of share awards.
Further information about the remuneration of individual directors is provided in the Annual Report on Remuneration in Section B7.2.2.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutKeyManagementPersonnelExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-384": { "value": "
59. Share based remuneration
During the year, the Group had various share based payment arrangements with employees. They are accounted for by the Group and
the Company as shown below.
The effect of the share based payment arrangements on the Group\u2019s profit is shown in note 57.
Further details of share based payment arrangements are given in the Annual Report on Remuneration in Section B7.2.2.
A summary of the number of share awards outstanding under each scheme at 30 September 2024 and at 30 September 2023 is set
out below.
Number
Number
2024
2023
(a) Sharesave Plan
2,578,757
3,077,077
(b) Performance Share Plan
5,939,690
5,365,646
(c) Company Share Option Plan
32,940
56,591
(d) Deferred Bonus Plan
493,208
1,123,936
(e) Restricted Stock Units
382,483
412,676
9,427,078
10,035,926
Following the year end, the Remuneration Committee agreed the amounts of variable remuneration in respect of the year to be
satisfied in the form of share based awards. These awards will be granted, following the approval of these accounts, based on the
amounts approved and market pricing data at the date of grant.
(a) Sharesave plan
The Group operates an All Employee Share Option (\u2018Sharesave\u2019) plan. Grants under this scheme vest, in the normal course, after the
completion of the appropriate service period and subject to a savings requirement.
A reconciliation of movements in the number and weighted average exercise price of Sharesave options over \u00a31 ordinary shares
during the year ended 30 September 2024 and the year ended 30 September 2023 is shown below.
2024
2024
2023
2023
Number
Weighted average
Number
Weighted average
exercise price exercise price
p
p
Options outstanding
At 1 October 2023
3,077,077
365.76
3,613,777
318.46
Granted in the year
370,565
603.20
1,235,757
400.40
Exercised or surrendered in the year
(653,069)
320.99
(1,579,263)
285.67
Lapsed during the year
(215,816)
392.62
(193,194)
357.44
At 30 September 2024
2,578,757
408.97
3,077,077
365.76
Options exercisable
69,931
409.80
439,546
279.43
The weighted average remaining contractual life of options outstanding at 30 September 2024 was 29.1 months (2023: 32.8 months).
The weighted average market price at exercise for share options exercised in the year was 663.87p (2023: 515.86p).
Options are outstanding under the Sharesave plans to purchase ordinary shares as follows:
Grant date
Period exercisable
Exercise price
Number
Number
2024
2023
31/07/2018
01/09/2023 to 01/03/2024
408.80p
-
2,933
30/07/2019
01/09/2024 to 01/03/2025
360.16p
832
4,577
29/07/2020
01/09/2023 to 01/03/2024
278.56p
6,461
436,613
29/07/2020
01/09/2025 to 01/03/2026
278.56p
400,804
449,263
28/07/2021
01/09/2024 to 01/03/2025
424.00p
62,638
257,591
28/07/2021
01/09/2026 to 01/03/2027
424.00p
48,671
54,118
27/07/2022
01/09/2025 to 01/03/2026
391.20p
485,510
528,429
27/07/2022
01/09/2027 to 01/03/2028
391.20p
93,388
108,722
15/09/2023
01/10/2026 to 01/04/2027
400.40p
925,076
1,022,746
15/09/2023
01/10/2028 to 01/04/2029
400.40p
188,287
212,085
31/07/2024
01/09/2027 to 01/03/2028
603.20p
306,609
-
31/07/2024
01/09/2029 to 01/03/2030
603.20p
60,481
-
2,578,757
3,077,077
An option holder has the legal right to a payment holiday of up to twelve months without forfeiting their rights. In such cases the exercise
period would be deferred for an equivalent period of time and therefore options might be exercised later than the date shown above.
In the event of the death or redundancy of the employee, options may be exercised early, and the exercise period may also start or
end later than stated above (options may be exercised up to twelve months after the holder\u2019s decease). Awards lapse on cessation of
employment, other than in \u2019good leaver\u2019 circumstances.
The fair value of options granted is determined using a trinomial model. Details of the awards made in the year ended 30 September 2024
and the year ended 30 September 2023, are shown below.
Grant date
31/07/24
31/07/24
15/09/23
15/09/23
Number of awards granted
309,037
61,528
1,203,672
212,085
Market price at date of grant
804.0p
804.0p
506.5p
506.5p
Contractual life (years)
3.5
5.5
3.5
5.5
Fair value per share at date of grant (\u00a3)
1.88
1.95
1.10
1.09
Inputs to valuation model
Expected volatility
29.02%
35.97%
31.02%
35.67%
Expected life at grant date (years)
3.43
5.41
3.43
5.42
Risk-free interest rate
3.78%
3.71%
4.64%
4.39%
Expected annual dividend yield
4.93%
4.93%
5.96%
5.96%
Expected annual departures
5.00%
5.00%
5.00%
5.00%
The expected volatility of the share price used in determining the fair value for the three-year schemes is based on the annualised
standard deviation of daily changes in price over the three years preceding the grant date. The five-year schemes use share price data
for the preceding five years.
(b) Paragon Performance Share Plan (\u2018PSP\u2019)
PSP awards are made annually to executive directors and other senior employees as part of their variable remuneration. The grantees,
and the values of their grants, are approved by the Remuneration Committee.
These awards are the principal means of delivering deferred variable remuneration to executive directors and Material Risk Takers
(\u2018MRTs\u2019) in accordance with regulatory remuneration requirements, although these are not the only employees to receive such awards.
Awards under this plan comprise a right to acquire ordinary shares in the Company for nil or nominal payment and are subject to
performance criteria measured over a three year period beginning with the financial year including the date of grant (the \u2018test period\u2019).
Awards vest on the date on which the Remuneration Committee determines the extent to which the performance conditions have
been satisfied. For employees, other than the executive directors and other employees identified as MRTs for regulatory purposes,
awards may be exercised from the vesting date to the day before the tenth anniversary of the grant date.
Executive directors\u2019 awards made in 2020 and 2021 are exercisable from the time of the Group\u2019s fifth results announcement after the
date of the grant to the day before the tenth anniversary of the grant date.
Vested awards made to the executive directors and other MRTs in December 2022 and December 2023 become exercisable in annual
instalments between the end of the test period and the seventh anniversary of the grant date. The maximum deferral period is based
on the regulatory classification of the individual MRT. The latest possible exercise date is the day before the tenth anniversary of the
grant date.
Where performance conditions are not met in full, awards lapse at the point at which the determination is made. Awards will also lapse
on cessation of employment during the test period, other than in \u2018good leaver\u2019 circumstances. Malus and clawback provisions apply to
awards granted under the PSP as detailed in the Directors\u2019 Remuneration Policy.
The conditional entitlements outstanding under this scheme at 30 September 2024 and 30 September 2023 were:
Grant date
Period exercisable
Number
Number
2024
2023
10/12/2013
10/12/2016 to 09/12/2023
\u2020
-
2,132
18/12/2014
18/12/2017 to 17/12/2024
\u2020
1,465
5,005
22/12/2015
22/12/2018 to 21/12/2025
\u2020
1,899
10,473
01/12/2016
01/12/2019 to 30/11/2026
\u2020
26,406
33,493
08/12/2017
03/12/2020 to 07/12/2027
\u2020
15,664
29,675
14/12/2018
14/12/2021 to 13/12/2028
\u2020
33,883
61,952
06/07/2020
06/12/2022 to 05/07/2030
\u2020
47,784
149,151
06/07/2020
07/12/2024* to 05/07/2030
\u2020
474,210
474,210
11/12/2020
06/12/2023 to 10/12/2030
\u03b4
85,512
1,074,596
11/12/2020
07/12/2025* to 10/12/2030
\u03b4
371,859
385,707
15/12/2021
07/12/2024* to 14/12/2031
\u03bb
1,030,106
1,034,343
15/12/2021
07/12/2026* to 14/12/2031
\u03bb
339,936
339,936
16/12/2022
07/12/2025* to 15/12/2032
\u03c8
927,038
932,315
16/12/2022
07/12/2026* to 15/12/2032
\u03c8
259,233
259,233
16/12/2022
07/12/2027* to 15/12/2032
\u03c8
268,683
268,683
16/12/2022
07/12/2028* to 15/12/2032
\u03c8
148,229
148,229
16/12/2022
07/12/2029* to 15/12/2032
\u03c8
156,513
156,513
15/12/2023
07/12/2026* to 14/12/2033
\u03c6
897,767
-
15/12/2023
07/12/2027* to 14/12/2033
\u03c6
271,818
-
15/12/2023
07/12/2028* to 14/12/2033
\u03c6
277,361
-
15/12/2023
07/12/2029* to 14/12/2033
\u03c6
147,294
-
15/12/2023
07/12/2030* to 14/12/2033
\u03c6
157,030
-
5,939,690
5,365,646
*
Estimated date.
\u2020
These awards, which were conditional on the achievement of performance-based criteria, vested before the start of the financial year. Any reduction in
entitlements resulting from the application of those criteria is reflected in the numbers above.
\u03b4
These awards were subject to performance criteria, assessed over a period of three financial years, starting with the year of grant.
\u2022 25% to a Total Shareholder Return (\u2018TSR\u2019) test based on a ranking of the Company\u2019s TSR against those of a comparator group of UK listed financial services
companies, determined at the date of grant. This tranche vests in full for upper quartile performance, 25% vests for median performance and vesting between
those points is determined on a straight line basis
\u2022 25% to an EPS test. This tranche vests in full if basic EPS for the third year of the test period is at least 66.0p, 25% vesting if EPS in this year is 58.0p and vesting
between those points on a straight line basis
\u2022 25% to a risk test. The risk condition comprises two components. 50% of the risk element is based on an assessment by the CRO of the six key measures of
the Group\u2019s risk appetite: regulatory breaches; customer service performance; conduct; operational risk incidents; capital and liquidity; and credit losses. The
remaining 50% is based on a strategic risk assessment reflecting the management of risk as it impacts on the delivery of the Group\u2019s medium term strategy.
Following the Remuneration Committee\u2019s assessment, the trance will vest between 0% and 100%
\u2022 12.5% of the grant is determined based on a customer service condition. This condition is based on the performance of the Group against its most significant
customer service metrics including insight feedback on key product lines and complaint levels. The Remuneration Committee will determine the extent to which
the condition has been met between 0% and 100%. 50% of this tranche will vest for on-target performance, below a 25% threshold no vesting will occur
\u2022 12.5% of the grant is determined based on a people test. The people test is based on the performance of the Group against its most significant employment
metrics including employee engagement, voluntary attrition and gender diversity levels. The Remuneration Committee will determine the extent to which the
condition has been met between 0% and 100%. 50% of this tranche will vest for on-target performance, below a 25% threshold no vesting will occur
An \u2018underpin\u2019 condition also operates, such that the Remuneration Committee has to be satisfied with the Group\u2019s underlying financial performance over the
performance period. An individual performance condition relating to the grantee\u2019s performance in the final financial year of the test period also applies.
\u03bb
These awards are subject to performance criteria, similar to those described at \u03b4 above except that:
\u2022 Under the EPS condition full vesting occurs if EPS for the third year of the test period is at least 72.0p, 25% vesting if EPS in this year is 63.0p and vesting
between those points on a straight line basis
\u2022 Under the risk condition, the key measures component covers: regulatory breaches; conduct; operational incidents; capital and liquidity; and credit losses
\u03c8
These awards are subject to performance criteria, similar to those described at \u03bb above except that:
\u2022 Under the EPS condition full vesting occurs if EPS for the third year of the test period is at least 88.1p, 25% vesting if EPS in this year is 74.4p and vesting
between those points on a straight line basis
\u2022 The risk condition relates to 20% of the grant, the customer service condition applies to 10% of the grant and the people condition relates to 10% of the grant
\u2022 The 25% and 50% vesting thresholds no longer apply to the customer service and people conditions
\u2022 10% of the grant relates to a climate condition. The climate condition is based on the performance of the Group against its most significant climate-related
targets, including the development of systems to quantify and manage its climate-related impacts
\u03c6
These awards are subject to performance criteria, similar to those described at \u03c8 above except that:
\u2022 Under the EPS condition, full vesting occurs if EPS for the third year of the test period is at least 100.0p, 25% vesting if EPS in that year is 80.0p and vesting
between those points is on a straight line basis.
\u2022 The diversity element of the people condition is based on wider diversity of senior management rather than simply gender diversity
\u2022 The climate condition is based on: operational footprint emission reduction; financed emissions decarbonisation assessments; sustainable products; and
education and engagement
On exercise, holders of awards granted between February 2013 and December 2021 receive a payment equivalent to the dividends
accruing on the vested shares during the vesting period. No such payment is made in respect of awards granted at other dates.
The fair value of awards granted under the PSP is determined using a Monte Carlo simulation model, to take account of the effect of
the market based condition. Fair values are calculated separately for grant elements which became exercisable at different dates to
allow for the impact of dividends. The principal inputs to this model for grants made in the year ended 30 September 2024 and the
year ended 30 September 2023 are shown below:
Grant date
15/12/23
16/12/22
Market price at date of grant
627.5p
541.5p
Contractual life (years)
10.0
10.0
Expected volatility
30.01%
40.54%
Risk-free interest rate
3.85%
3.27%
Expected annual dividend yield
5.96%
5.28%
For all the above grants no departures are expected, and grantees are expected to exercise awards at the earliest opportunity. The
expected volatility is based on the annualised standard deviation of daily changes in price over the three years preceding the grant date.
For the purposes of the valuation, non-market conditions are assumed to be achieved 100% although this is unlikely to occur in practice.
The number of awards granted and their fair values for IFRS 2 purposes are set out below
Grant date
15/12/23
16/12/22
Time to exercise
Number of awards
IFRS 2 fair value
Number of awards
IFRS 2 fair value
(Years)
3
897,767
403.29p
926,721
423.32p
4
271,818
388.63p
259,233
404.23p
5
277,361
372.89p
268,683
385.55p
6
147,294
356.71p
148,229
367.43p
7
157,030
340.46p
156,513
349.93p
1,751,270
1,759,379
(c) Company Share Option Plan (\u2018CSOP\u2019)
Before its amendment at the 2023 AGM, the PSP included a tax advantaged element under which CSOP options could be granted.
The CSOPs may be exercised alongside their accompanying PSPs based upon the exercise price that was set at the grant date. No
new CSOP awards were made in the years ended 30 September 2024 or 30 September 2023, and the current PSP rules contain no
provision to make CSOP grants.
A reconciliation of movements in the number and weighted average exercise price of CSOP options over \u00a31 ordinary shares during the
year ended 30 September 2024 and the year ended 30 September 2023 is shown below.
2024
2024
2023
2023
Number
Weighted average
Number
Weighted average
exercise price exercise price
p
p
Options outstanding
At 1 October 2023
56,591
402.29
87,716
406.31
Exercised or surrendered in the year
(23,651)
419.16
(28,715)
408.25
Lapsed during the year
-
-
(2,410)
477.76
At 30 September 2024
32,940
390.17
56,591
402.29
Options exercisable
32,940
390.17
56,591
402.29
The weighted average remaining contractual life of options outstanding at 30 September 2024 was 36.5 months (2023: 49.9 months).
The weighted average market price at exercise for share options exercised in the year was 699.67p.
The entitlements outstanding under this scheme at 30 September 2024 and 30 September 2023 were:
Grant date
Period exercisable
Exercise price
Number
Number
2024
2023
01/12/2016
01/12/2019 to 30/11/2026
361.88p
16,317
21,732
08/12/2017
08/12/2020 to 07/12/2027
477.76p
4,455
13,409
14/12/2018 14/12/2021 to 13/12/2028
396.04p
12,168
21,450
32,940
56,591
These awards, which were conditional on the achievement of performance-based criteria, vested before the start of the financial year.
Any reduction in entitlements resulting from the application of those criteria is reflected in the numbers above.
(d) Deferred Bonus awards
During the current financial year this plan has been used to defer annual bonus awards for executive directors and certain other MRTs
to meet deferral levels required by regulatory remuneration rules. The plan has also been used, from time-to-time, to facilitate other
long-term incentive arrangements.
Before the financial year ended 30 September 2023 such plans were generally used for the deferral in shares of annual bonus awards
made to executive directors and certain other senior managers (\u2018executive awards\u2019). Additionally in 2020 a one-off award was made on
an all-employee basis.
Awards under these plans comprise a right to acquire ordinary shares in the Company for nil or nominal payment. The conditional
entitlements outstanding under these plans at 30 September 2024 and 30 September 2023 were:
Grant date
Period exercisable
Number
Number
2024
2023
18/12/2014
18/12/2017 to 17/12/2024
-
52,888
22/12/2015
22/12/2018 to 21/12/2025
-
60,042
11/12/2020
11/12/2023 to 10/12/2030
4,223
382,334
11/12/2020 \u2020
11/12/2023 to 01/06/2024
-
206,135
15/12/2021
15/12/2024 to 10/12/2031
244,953
244,953
16/12/2022
06/12/2023 to 15/12/2032
-
5,011
16/12/2022
07/12/2024 * to 15/12/2032
104,089
104,089
16/12/2022
07/12/2025 * to 15/12/2032
14,742
14,742
16/12/2022
07/12/2026 * to 15/12/2032
15,565
15,565
16/12/2022
07/12/2027 * to 15/12/2032
16,018
16,018
16/12/2022
07/12/2028 * to 15/12/2032
10,775
10,775
16/12/2022
07/12/2029 * to 15/12/2032
11,384
11,384
15/12/2023
07/12/2024 * to 14/12/2033
2,712
-
15/12/2023
07/12/2025 * to 14/12/2033
5,821
-
15/12/2023
07/12/2026 * to 14/12/2033
16,425
-
15/12/2023
07/12/2027 * to 14/12/2033
17,449
-
15/12/2023
07/12/2028 * to 14/12/2033
11,139
-
15/12/2023
07/12/2029 * to 14/12/2033
8,667
-
15/12/2023
07/12/2030 * to 14/12/2033
9,246
-
493,208
1,123,936
* Estimated date
\u2020 All-employee award
Awards made to executive directors and other MRTs in December 2022 and December 2023 become exercisable in annual
instalments after the announcement of each year\u2019s results from the third anniversary of the grant to the seventh anniversary. The
maximum deferral for each employee depends on the regulatory classification of the individual MRT.
Exercise arrangements for grants made to other employees in December 2022 and December 2023 are individually structured at the
discretion of the Remuneration Committee at the point of grant.
All of these awards will lapse if the grantee ceases employment with the Group before the grant becomes exercisable, other than in
\u2018good leaver\u2019 circumstances.
The Deferred Bonus shares granted in 2021 and earlier years under the executive awards can be exercised from the third anniversary
of the award date (or other vesting date determined by the Remuneration Committee) until the day before the tenth anniversary of the
date of grant.
The all-employee awards vested on the third anniversary of the grant date and the shares were automatically transferred to the
participants as soon as reasonably practicable thereafter.
In the event of death or redundancy the all-employee awards could vest early. Awards lapsed on the cessation of employment,
other than in \u2018good leaver\u2019 circumstances. Except in these regards the all-employee awards operated in the same way as the
executive awards.
The Deferred Bonus shares granted between December 2016 and December 2021 accrue dividends over the vesting period,
unlike earlier grants which accrued dividends until the point of exercise. Awards granted in December 2022 and subsequently do not
include the right to payment in lieu of dividend. The fair value of Deferred Bonus awards issued in the year was determined using a
Black-Scholes Merton model and allows for these dividend arrangements.
Details of the inputs to the valuation model for awards made in the year ended 30 September 2024 and the year ended
30 September 2023 are shown below.
Grant date
15/12/23
16/12/22
Market price at date of grant
627.5p
541.5p
Expected annual dividend yield
5.96%
5.28%
No departures are expected for grantees under this plan. Grantees are assumed to exercise their awards at the earliest
possible opportunity.
The number of awards granted and their fair values for IFRS 2 purposes are set out below
Grant date
15/12/23
16/12/22
Time to exercise
Number of awards
IFRS 2 fair value
Number of awards
IFRS 2 fair value
(Years)
1
5,643
591.9p
5,011
513.6p
2
9,080
557.0p
104,089
487.2p
3
16,771
524.8p
14,742
462.2p
4
10,913
494.4p
15,565
438.4p
5
11,139
465.8p
16,018
415.9p
6
8,667
438.8p
10,775
394.5p
7
9,246
413.5p
11,384
374.2p
71,459
177,584
(e) Restricted Stock Units (RSU)
The Company permitted certain employees to elect to receive RSU awards instead of PSP awards in respect of financial years
between 2016 and 2022. The use of such awards is no longer part of the Group\u2019s remuneration policy and hence no RSU awards have
been made in recent years.
In addition, in the financial year ended 30 September 2022, a one-off RSU grant with a four-year vesting period was made to certain
employees designated as MRTs.
For RSU awards to vest, the grantee\u2019s personal performance must be satisfactory during the financial year preceding the vesting date.
In addition, a risk based performance condition, assessed against the Group\u2019s risk management metrics must also be met. The level
to which this condition is met will be determined by the Remuneration Committee and vesting levels scaled back as appropriate.
The conditional entitlements outstanding under this scheme at 30 September 2024 and 30 September 2023 were:
Grant date
Period exercisable
Number
Number
2024
2023
11/12/2020
06/12/2023 to 10/12/2030
-
30,193
15/12/2021
07/12/2024* to 15/12/2031
26,603
26,603
15/12/2021
07/12/2025* to 15/12/2031
355,880
355,880
382,483
412,676
* Estimated date
", "dimensions": { "concept": "ifrs-full:DisclosureOfSharebasedPaymentArrangementsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-438": { "value": "(a) Defined benefit plan \u2013 description The Group operates a funded defined benefit pension scheme in the UK, the Paragon Pension Plan (the \u2018Plan\u2019). The Plan assets are held in a separate fund, administered by a corporate trustee, to meet long-term pension liabilities to past and present employees. The Trustee of the Plan is required by law to act in the best interests of the Plan\u2019s beneficiaries and is responsible for the investment policy adopted in respect of the Plan\u2019s assets. The appointment of directors to the Trustee is determined by the Plan\u2019s trust documentation. The Group has a policy that one third of all directors of the Trustee should be nominated by active and pensioner members of the Plan. Employee contributions and benefits The scheme was closed to new entrants in February 2002. Employees who are members of the Plan are entitled to receive a pension of 1/60 of their final basic annual salary per year of service up to 30 June 2021. After that date further accrual is at a rate of 1/70 or 1/75 of capped final salary depending on the level of contributions. After 1 July 2021 employee contributions were either 5% or 8% of capped salary. Before that date all active members contributed at a rate of 5% of salary. Benefits accrued before 1 July 2021 may be accessed from the age of 60 without any reduction for early payment. Benefits accruing after 1 July 2021 may be accessed without penalty from the age of 65. Dependants of Plan members are eligible for a dependant\u2019s pension and the payment of a lump sum in the event of death in service. Actuarial risks The principal actuarial risks to which the Plan is exposed are: \u2022 Investment risk \u2013 The present value of the defined benefit liabilities is calculated using a discount rate set by reference to high quality corporate bond yields. If plan assets underperform corporate bonds, this will reduce the surplus. The strategic allocation of assets under the Plan has been derisked and now only around 20% is invested in equity assets and diversified growth funds. In consultation with the Company, the Trustee keeps the allocation of the Plan\u2019s investments under review to manage this risk on a long-term basis \u2022 Interest risk \u2013 A fall in corporate bond yields would reduce the discount rate used in valuing the Plan liabilities and increase the value of the Plan liabilities. The Plan assets would also be expected to increase, to the extent that bond assets are held, but this would not be expected to fully match the increase in liabilities, given the weighting towards equity assets and diversified growth funds noted above \u2022 Inflation risk \u2013 Pensions in payment are increased annually in line with the RPI or the Consumer Price Index (\u2018CPI\u2019) for Guaranteed Minimum Pensions built up since 1988. Pensions built up since 5 April 2006 are capped at 2.5% and pensions built up before 6 April 2006 are capped at 5%. For employees who have left the Company but have deferred pensions, these also revalue over the period to retirement, predominantly in line with RPI. Therefore, an increase in inflation would also increase the value of the pension liabilities. The Plan assets would also be expected to increase, to the extent that they are linked to inflation, but this may not fully match the increase in liabilities \u2022 Longevity risk \u2013 The value of the Plan surplus is calculated by reference to the best estimate of the mortality rate among Plan members both during and after employment. An increase in the life expectancy of the members would reduce the surplus in the Plan \u2022 Salary risk \u2013 The valuation of the Plan assumes a level of future salary increases based on the expected rate of inflation. Should the salaries of Plan members increase at a higher rate, then the surplus will be lower. For service from 1 July 2021, a 2.5% annual cap on individual pensionable salary increases applies, mitigating this risk The risks relating to death in service payments are insured with an external insurance company. As a result of the Plan having been closed to new entrants since February 2002, the service cost as a percentage of pensionable salaries is expected to increase as the average age of active members rises over time. However, the membership is expected to reduce so that the service cost in monetary terms will gradually reduce. The changes referred to above will also reduce this cost going forward. Actuarial valuation and recovery plan The most recent full actuarial valuation of the Plan\u2019s liabilities, obtained by the Trustee, was carried out at 31 March 2022, by Aon Solutions UK Limited, the Plan\u2019s independent actuary. This showed that the value of the Plan\u2019s liabilities on a buy-out basis in accordance with Section 224 of the Pensions Act 2004, the level of assets which would be required to buy insurance policies for benefits earned to the valuation date, was \u00a3195.5m, with a shortfall against the assets of \u00a344.2m (2019: \u00a385.0m). The deficit on the Technical Provisions Basis, the basis agreed by the Trustee as being appropriate to meet member benefits, assuming the Plan continues as a going concern, was \u00a35.1m (2019: \u00a318.2m). Many of the demographic assumptions used within the Technical Provisions Basis are also used within the IAS 19 valuation. Following the agreement of the 2022 actuarial valuation, the Trustee put in place a revised recovery plan. This recovery plan was designed to ensure that the statutory funding objective was met during the 2024 financial year, but included provision for the Group to make further additional payments after that point. The recovery plan continues to include a Pension Funding Partnership (\u2018PFP\u2019) arrangement effectively granting the Plan a first charge over the Group\u2019s head office building as security for certain payments under the plan (note 29). However, payments under the PFP are paused when the Plan reaches a prescribed funding level, and this point was reached in April 2024. No amount is included in the Plan assets in respect of the building, which remains within the Group\u2019s Property, Plant and Equipment balance (note 29) but this arrangement provides the Plan with additional security in a stress event. (b) Defined benefit plan \u2013 financial impact For accounting purposes, the valuation at 31 March 2022 was updated to 30 September 2024 in accordance with the requirements of IAS 19 (revised) by Mercer, the Group\u2019s independent consulting actuary. The major categories of assets in the Plan at 30 September 2024, 30 September 2023 and 30 September 2022 and their fair values were:
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
Cash and cash equivalents
1.1
0.6
0.7
Equity instruments
21.2
44.8
56.6
Debt instruments
91.4
56.6
47.4
Total fair value of Plan assets
113.7
102.0
104.7
Present value of Plan liabilities
(91.5)
(89.3)
(97.6)
Surplus in the Plan
22.2
12.7
7.1
The Group has recognised the surplus as an asset at the balance sheet date as it anticipates being able to access economic benefits at least as great as the carrying value. However, such assets are eliminated from capital for regulatory purposes (note 59). At 30 September 2024 the Plan assets were invested in a diversified portfolio that consisted primarily of debt and equity investments. The majority of the equities held by the Plan are in developed markets. During the year the Trustee has revised its investment strategy, reducing the proportion of growth assets, including equities, held by the Plan. The Plan has a benchmark allocation at 30 September 2024 of 54% of total assets to Liability Driven Investments (\u2018LDI\u2019) to provide hedging against inflation and interest rate risk. This target was maintained at 42% for much of the period (2023: 28%). The hedging provided now represents some 85% of the Plan\u2019s risks (2023: 60%), with the increased hedging protecting the current surplus position. During the market turmoil encountered during September / October 2022 the assets of the Plan proved themselves to be robust in protecting the members\u2019 interests, with no requirement to either divest from LDI nor to reduce the hedge ratio in place at that time. During October 2018, the High Court made a ruling in the Lloyds Banking Group Pension Scheme GMP (\u2018Guaranteed Minimum Pension\u2019) equalisation case, which effectively directs defined benefit pension schemes to change their rules to equalise the benefits of male and female members for the effects of GMPs for employees who were, at one time, contracted out of state schemes. The Court did not specify a single method which schemes should employ and hence the impact of this on the Plan will not be certain until the Trustee has determined which method should be adopted and detailed calculations have been performed to evaluate the impact, as the impact on members will vary from person to person. The estimated effect of this ruling was accounted for in the accounts of the Group for the year ended 30 September 2019 as a \u2018past service cost\u2019. This estimate is based on one permissible method, method C2. During the year, the Trustee, with the consent of the Company, chose to adopt an alternative approach, method B. However, the accounting impact of this is likely to be minimal. Once detailed calculations are performed it is possible that the final impact may vary due to idiosyncratic impacts on individual members, or due to the development of a wider legal and accounting consensus on the proper interpretation of the courts\u2019 requirements as further cases are determined. In June 2023, the High Court made a ruling in the case of Virgin Media, which related to the validity of changes made to a pension scheme where an actuarial certificate could not be produced. In July 2024, the Court of Appeal dismissed an appeal brought against aspects of this ruling, and the conclusions reached in this case may have consequences for other UK defined benefit plans, such as the Group\u2019s. The Group and the Trustee have identified a number of amendments made to the Plan which are within the scope of this ruling. Work is ongoing to confirm that the correct actuarial certificates are available in respect of each such amendment. However, at present, the directors of the Trustee have no reason to believe that any are not in place. The defined benefit liability has therefore been calculated on the basis that no additional liabilities arise as a result of the Virgin Media ruling. The movement in the fair value of the Plan assets during the year was as follows:
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
102.0
104.7
Interest on Plan assets
5.7
5.2
Cash flows
Contributions by the Group
2.8
3.9
Contributions by Plan members
0.2
0.2
Benefits paid
(3.1)
(3.6)
Administration expenses paid
(0.9)
(0.6)
Remeasurement gain / (loss)
Return on Plan assets (excluding amounts included in interest)
7.0
(7.8)
At 30 September 2024
113.7
102.0
The actual return on Plan assets in the year ended 30 September 2024 was a gain of \u00a312.7m (2023: loss of \u00a32.6m). The movement in the present value of the Plan liabilities during the year was as follows
2024
2023
\u00a3m
\u00a3m
At 1 October 2023
89.3
97.6
Current service cost
0.4
0.5
Past service cost
-
-
Funding cost
4.9
4.8
Cash flows
Contributions by Plan members
0.2
0.2
Benefits paid
(3.1)
(3.6)
Remeasurement loss / (gain)
Arising from demographic assumptions
(2.4)
(0.9)
Arising from financial assumptions
3.7
(11.1)
Arising from experience adjustments
(1.5)
1.8
At 30 September 2024
91.5
89.3
The liabilities of the Plan are measured by discounting the best estimate of future cash flows to be paid out by the Plan using the Projected Unit method. This amount is reflected in the liability in the balance sheet. The Projected Unit method is an accrued benefits valuation method in which the Plan liabilities are calculated based on service up until the valuation date allowing for future salary growth until the date of retirement, withdrawal or death, as appropriate. The future service rate is then calculated as the contribution rate required to fund the service accruing over the next year again allowing for future salary growth. Liabilities for benefits accruing for service up to 1 July 2021 are calculated separately from those accruing in respect of service after that date. The major weighted average assumptions used by the actuary were (in nominal terms):
2024
2023
2022
In determining net pension cost for the year
Discount rate
5.55%
5.00%
2.00%
Rate of compensation increase:
Pre 1 July 2021 accrual
3.25%
3.55%
3.40%
Post 1 July 2021 accrual
2.50%
2.50%
2.50%
Rate of price inflation
3.25%
3.55%
3.40%
Rate of increase of pensions
3.00%
3.25%
3.15%
In determining benefit obligations
Discount rate
5.10%
5.55%
5.00%
Rate of compensation increase:
Pre 1 July 2021 accrual
3.05%
3.25%
3.55%
Post 1 July 2021 accrual
2.50%
2.50%
2.50%
Rate of price inflation
3.05%
3.25%
3.55%
Rate of increase of pensions
2.85%
3.00%
3.25%
Further life expectancy at age 60
Male member aged 60
27
27
27
Female member aged 60
29
29
29
Male member aged 40
29
29
29
Female member aged 40
31
31
31
In the 2024 valuation the base mortality table used was the standard S3PMA/S3PFA_M (All) Year of Birth table, with future improvements projected by the CMI 2022 projection model with a 1.5% per annum long-term improvement rate. In the 2023 valuation the base mortality table used was the standard S3PMA/S3PFA_M (All) Year of Birth table, with future improvements projected by the CMI 2022 projection model with a 1.5% per annum long-term improvement rate. In the 2022 valuation the base mortality table used was the standard S3PMA/S3PFA_M (All) Year of Birth table, with future improvements projected by the CMI 2021 projection model with a 1.5% per annum long-term improvement rate. The amounts charged in the consolidated income statement in respect of the Plan are:
Note
2024
2023
\u00a3m
\u00a3m
Current service cost
0.4
0.5
Past service cost
-
-
Total service cost
57
0.4
0.5
Administration expenses
0.9
0.6
Included within operating expenses
1.3
1.1
Funding cost of Plan liabilities
4.9
4.8
Interest on Plan assets
(5.7)
(5.2)
Net interest (income)
4
(0.8)
(0.4)
Components of defined benefit costs recognised in profit or loss
0.5
0.7
The amounts recognised in the consolidated statement of comprehensive income in respect of the Plan are:
2024
2023
\u00a3m
\u00a3m
Return on Plan assets (excluding amounts included in interest)
7.0
(7.8)
Actuarial gains / (losses)
Arising from demographic assumptions
2.4
0.9
Arising from financial assumptions
(3.7)
11.1
Arising from experience adjustments
1.5
(1.8)
Total actuarial gain
7.2
2.4
Tax thereon
(1.8)
(0.8)
Net actuarial gain
5.4
1.6
Of the remeasurement movements reflected above: \u2022 The return on plan assets to 30 September 2024 reflects a recovery in the value of investment assets in the year, from the losses seen in 2023, as a result of a generally more benign global economic climate. \u2022 The gain attributable to changed demographic assumptions in the current year reflects the adoption of revised commutation factors by the Trustee. The gain in the 2023 financial year related to the adoption of revised mortality tables indicating a marginal reduction in life expectancies. \u2022 The change in financial assumptions in the year ended 30 September 2024 reflects principally a widening of the gap between the assumed discount and inflation rates as bond yields, which form the basis of the discount rate assumption, fell faster than gilt yields, which are used to predict inflation. The gain seen in the year ended 30 September 2023 resulted from the continuation of the upward trend in bond yields seen in the prior periods, which was not matched by the long-term inflation expectations implied by gilt rates. \u2022 The experience adjustments in both years shown represent the impact of the difference between actual and forecast UK inflation in the year on expected benefits, which is more significant than in previous years due to the inflation levels recorded in these periods. (c) Defined benefit plan \u2013 future cash flows The sensitivity of the valuation of the defined benefit obligation to the principal assumptions disclosed above at 30 September 2024, calculating the obligation on the same basis as used in determining the IAS 19 value, is as follows:
Assumption
Increase in assumption
Impact on scheme liabilities
2024
2023
Discount rate
0.25% per annum
(3.9)%
(3.8)%
Rate of inflation*
0.25% per annum
3.9%
3.8%
Rate of salary growth
0.25% per annum
0.8%
0.9%
Rates of mortality
1 year of life expectancy
3.1%
2.5%
* maintaining a 0.0% assumption for real salary growth The rate of growth for pensions in payment primarily relates to forecast inflation rates. The sensitivity analysis presented above may not be representative of an actual future change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation, as some of the assumptions will be correlated. There has been no change in the method of preparing the analysis from that adopted in previous years, except that 25 basis point sensitivities have been presented rather than 10 basis points, in accordance with current actuarial good practice. Revised sensitivities for 2023 have been provided on the same basis. The impacts of equivalent decreases in assumptions are broadly equal and opposite to the effects of the increases shown above. In conjunction with the Trustee, the Group has continued to conduct asset-liability reviews of the Plan. These studies are used to assist the Trustee and the Group to determine the optimal long-term asset allocation with regard to the structure of liabilities within the Plan. The results of the studies are used to assist the Trustee in managing the volatility in the underlying investment performance and risk of a significant increase in the scheme deficit by providing information used to determine the investment strategy of the Plan. There have been no changes in the processes by which the Plan manages its risks from previous periods. Following a review of the Plan\u2019s investment strategy, the current target asset allocations for the year ending 30 September 2025 are 38% growth assets (primarily equities), and 62% matching assets (primarily bonds) which includes LDI balances, with the hedge ratio remaining at 85%. Following the finalisation of the March 2022 valuation, the agreed rate of employer contribution reduced to 12.5% of capped pensionable salary from 15 March 2023, having been 25% since 1 July 2021. An additional contribution for deficit reduction of \u00a31.9m payable over the nine-month period ending on 30 November 2023, and an additional contribution of \u00a32.5m per annum, payable monthly from 1 December 2023 were also agreed. These include amounts payable under the PRP and replace the \u00a32.5m per annum contribution for deficit reduction included in the previous funding plan. The additional contribution is reduced to a rate of \u00a31.9m per annum if the funding level meets the target set by the PFP arrangement, which was reached in April 2024. The Group continues to make an additional \u00a30.4m per annum contribution in respect of the Plan\u2019s running costs, payable monthly. The present best estimate of the contributions to be made to the Plan by the Group in the year ending 30 September 2025 is \u00a32.7m. The average durations of the discounted benefit obligations in the Plan at the year end are shown in the table below:
2024
2023
Years
Years
Category of member
Active members
19
18
Deferred pensioners
18
18
Current pensioners
11
11
All members
16
16
", "dimensions": { "concept": "ifrs-full:DisclosureOfDefinedBenefitPlansExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-439": { "value": "(d) Defined contribution arrangements The Group sponsors a defined contribution (Worksave) pension scheme, open to all employees who are not members of the Plan. The Group completed the auto-enrolment process mandated by the UK Government in November 2013, using this scheme. Since the year ended 30 September 2020 the Group\u2019s contribution to the scheme for those employees making the maximum 6% contribution has been 10% of salary. The Group also sponsors a number of other defined contribution pension plans relating to acquired entities and makes contributions to these schemes in respect of employees. The assets of these schemes are not Group assets and are held separately from those of the Group, under the control of independent trustees. Contributions made by the Group to these schemes in the year ended 30 September 2024, which represent the total cost charged against income, were \u00a34.8m (2023: \u00a34.7m) (note 57).", "dimensions": { "concept": "ifrs-full:DisclosureOfDefinedContributionPlansExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-475": { "value": "
61. Capital management
The Group\u2019s objectives in managing capital are:
\u2022 To ensure that the Group has sufficient capital to meet its operational requirements and strategic objectives
\u2022 To safeguard the Group\u2019s ability to continue as a going concern, so that it can continue to provide returns to shareholders and
benefits for other stakeholders
\u2022 To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk
\u2022 To ensure that sufficient regulatory capital is available to meet any externally imposed requirements
The protection of the Group\u2019s capital base and its long-term viability are key strategic priorities.
The Group sets its target amount of capital in proportion to risk, availability and cost. The Group manages the capital structure and
makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets, having
particular regard to the relative costs and availability of debt and equity finance at any given time. In order to maintain or adjust the
capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new
shares, issue or redeem other capital instruments, such as retail or corporate bonds, or sell assets to reduce debt.
The Group is subject to regulatory capital rules imposed by the PRA on a consolidated basis as a group containing an authorised
bank. This is discussed further below.
(a) Regulatory capital
The Group is subject to supervision by the PRA on a consolidated basis, as a group containing an authorised bank. For regulatory
purposes the Company is designated as a CRR consolidation entity, as defined by the PRA rulebook. As part of this supervision the
regulator will issue a Total Capital Requirement (\u2018TCR\u2019) setting the amount of regulatory capital relative to its Total Risk Exposure
(\u2018TRE\u2019) which the Group is required to hold at all times, in order to safeguard depositors from loss through the business cycle. This
requirement is set in accordance with the international Basel 3 rules, issued by the Basel Committee on Banking Supervision
(\u2018BCBS\u2019), which are implemented through the PRA Rulebook.
The Group\u2019s regulatory capital is monitored by the Board, its Risk and Compliance Committee and by the Executive Risk Committee
(\u2018ERC\u2019) and the Asset and Liability Committee, which ensure that appropriate action is taken to ensure compliance with the regulator\u2019s
requirements. The future regulatory capital requirement is also considered as part of the Group\u2019s forecasting and strategic
planning process.
The Group has elected to take advantage of the IFRS 9 transitional arrangements set out in Article 473a of the CRR,
which allow the capital impact of expected credit losses to be phased in over a five-year period. The phase-in factors applying to
transition adjustments will allow for a 95% add back to CET1 capital and Risk Weighted Assets (\u2018RWA\u2019) in the financial year ended
30 September 2019, reducing to 85%, 70%, 50% and 25% for the financial years ending in 2020 to 2023, with full recognition of the
impact on CET1 capital in the current financial year.
As part of the regulatory response to Covid, Article 473a was revised to extend the transitional arrangements for Stage 1 and Stage 2
impairment provisions created in the financial year ended 30 September 2020 and the financial year ended 30 September 2021, while
maintaining the transitional arrangements for impairment provisions created before those years. In order to increase institutions lending
capacity in the short term, the EU determined that these additional provisions should be phased into capital over the financial years
ending 30 September 2022 to 30 September 2024, rather than recognising the reduction in capital immediately.
Where these reliefs are taken, firms are also required to disclose their capital positions calculated as if the reliefs were not available
(the \u2018fully loaded\u2019 basis). From 1 October 2024 the reliefs will be fully phased out and the fully loaded and regulatory bases for the
Group will be equal.
The tables below demonstrate that at 30 September 2024 the Group\u2019s total regulatory capital of \u00a31,327.9m (2023: \u00a31,338.9m)
exceeded the amounts required by the regulator, including \u00a3724.1m (2023: \u00a3673.4m) in respect of its TCR, which is comprised of fixed
and variable elements (amounts not subject to audit).
The total regulatory capital at 30 September 2024 on the fully loaded basis of \u00a31,325.2m (2023: \u00a31,325.4m) was in excess of the
TCR of \u00a3723.8m (2023: \u00a3672.2m) on the same basis (amounts not subject to audit).
At 30 September 2024, the Group\u2019s TCR represented 8.7% of TRE (2023: 8.8%).
The CRR also requires firms to hold additional capital buffers, including a Capital Conservation Buffer (\u2018CCoB\u2019) of 2.5% of TRE
(at 30 September 2024) (2023: 2.5%) and a Counter-cyclical Capital Buffer (\u2018CCyB\u2019), currently 2.0% of TRE (2023: 2.0%). This is
expected to be the long term rate of the CCyB in a standard risk environment. Firm specific buffers may also be required.
The Group\u2019s regulatory capital differs from its equity as certain adjustments are required by the PRA Rulebook. A reconciliation of the
Group\u2019s equity to its regulatory capital determined in accordance with the PRA Rulebook at 30 September 2024 is set out below.
Regulatory basis
Fully loaded basis
Note
2024
2023
2024
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Total equity
1,419.5
1,410.6
1,419.5
1,410.6
Deductions
Proposed final dividend
48
(55.6)
(56.7)
(55.6)
(56.7)
IFRS 9 transitional relief *
2.7
13.5
-
-
Intangible assets
30
(171.5)
(168.2)
(171.5)
(168.2)
Pension surplus net of deferred tax
60
(16.7)
(9.6)
(16.7)
(9.6)
Prudent valuation adjustments
\u00a7
(0.5)
(0.6)
(0.5)
(0.6)
Insufficient coverage
\u03c8
-
(0.1)
-
(0.1)
Common Equity Tier 1 (\u2018CET1\u2019) capital
1,177.9
1,188.9
1,175.2
1,175.4
Other Tier 1 capital
-
-
-
-
Total tier 1 capital
1,177.9
1,188.9
1,175.2
1,175.4
Corporate bond
[37]
150.0
150.0
150.0
150.0
Eligibility cap
\u0424
-
-
-
-
Total tier 2 capital
150.0
150.0
150.0
150.0
Total regulatory capital (\u2018TRC\u2019)
1,327.9
1,338.9
1,325.2
1,325.4
*
Firms are permitted to phase in the impact of IFRS 9 transition as described above.
\u00a7
For capital purposes, assets and liabilities held at fair value, such as the Group\u2019s derivatives, are required to be valued on a more conservative basis than the market value basis
set out in IFRS 13. This difference is represented by the prudent valuation adjustment above, calculated using the \u2018Simplified Approach\u2019 set out in the PRA Rulebook.
\u03c8
Regulatory deduction where there is insufficient coverage for non-performing exposures required under Article 47(c) of the CRR. This remained in force in the UK, under the Brexit
arrangements, but was removed by the PRA with effect from 14 November 2023.
\u0424 The PRA Rulebook restricts the amount of tier 2 capital which is eligible for regulatory purposes to 25% of TCR.
The TRE amount calculated under the PRA Rulebook framework against which this capital is held, which includes Risk Weighted Asset
(\u2018RWA\u2019) amounts for credit risk, and the proportion of these assets which that capital represents, are calculated as shown below.
Regulatory basis
Fully loaded basis
2024
2023
2024
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Credit risk
Balance sheet assets
7,303.0
6,784.2
7,303.0
6,784.3
Off balance sheet
95.8
87.2
95.8
87.2
IFRS 9 transitional relief
2.7
13.5
-
-
Total credit risk
7,401.5
6,884.9
7,398.8
6,871.5
Operational risk
848.0
740.2
848.0
740.2
Market risk
-
-
-
-
Other
29.2
43.6
29.2
43.6
Total risk exposure amount (\u2018TRE\u2019)
8,278.7
7,668.7
8,276.0
7,655.3
Solvency ratios
%
%
%
%
CET1
14.2
15.5
14.2
15.4
TRC
16.0
17.5
16.0
17.3
This table is not subject to audit
The risk weightings for credit risk exposures are currently calculated using the Standardised Approach (\u2018SA\u2019). The Basic Indicator
Approach is used for operational risk.
Leverage ratio
The table below shows the calculation of the Group\u2019s leverage ratio as defined in the PRA Rulebook. This rate is based on
consolidated balance sheet assets adjusted as shown. The PRA has set a minimum UK leverage ratio of 3.25% for UK firms with retail
deposits of over \u00a350.0 billion, or with significant overseas assets. In addition, in October 2021 the PRA stated its expectation that all
other UK firms, such as the Group, should manage their leverage risk so that this ratio does not ordinarily fall below 3.25%.
Note
2024
2023
\u00a3m
\u00a3m
Total balance sheet assets
19,270.0
18,420.2
Add:
Credit fair value adjustments on loans to customers
18
75.2
379.3
Debit fair value adjustments on retail deposits
33
-
30.9
Adjusted balance sheet assets
19,345.2
18,830.4
Less:
Derivative assets
26
(391.8)
(615.4)
Central bank deposits
16
(2,315.5)
(2,783.3)
CRDs
27
-
(38.0)
Accrued interest on sovereign exposures
(3.8)
(4.2)
On balance sheet items
16,634.1
15,389.5
Less: Intangible assets
30
(171.5)
(168.2)
Pension surplus
60
(22.2)
(12.7)
Total on balance sheet exposures
16,440.4
15,208.6
Regulatory exposure for derivatives
154.7
179.6
Total derivative exposures
154.7
179.6
Post offer pipeline at gross notional amount
1,210.2
993.3
Adjustment to convert to credit equivalent amounts
(1,000.1)
(815.7)
Off balance sheet items
210.1
177.6
Tier 1 capital
1,177.9
1,188.9
Total leverage exposure before IFRS 9 relief
16,805.2
15,565.8
IFRS 9 relief
2.7
13.5
Total leverage exposure
16,807.9
15,579.3
UK leverage ratio
7.0%
7.6%
This table is not subject to audit
The fully loaded leverage ratio is calculated as follows
2024
2023
\u00a3m
\u00a3m
Fully loaded tier 1 capital
1,175.2
1,175.4
Total leverage exposure before IFRS 9 relief
16,805.2
15,565.8
Fully loaded UK leverage ratio
7.0%
7.6%
This table is not subject to audit.
The Group calculates regulatory exposure on derivatives using the Standardised Approach for Counterparty Credit Risk (\u2018SA-CCR\u2019),
which includes elements based on the market value of derivative assets adjusted for collateral, amongst other things, and based on
potential future exposure in respect of all derivatives held.
The UK leverage ratio is prescribed by the PRA and differs from the leverage ratio defined by Basel due to the exclusion of central
bank balances from exposures.
Capital requirements in subsidiary entities
The regulatory capital disclosures in these financial statements relate only to the consolidated position for the Group. Individual
entities within the Group are also subject to supervision on a standalone basis. All such entities complied with the requirements to
which they were subject during the year.
(b) Return on tangible equity (\u2018RoTE\u2019)
RoTE is a measure of an entity\u2019s profitability used by investors. RoTE is defined by the Group by comparing the profit after tax for the
year, adjusted for amortisation charged on intangible assets, to the average of the opening and closing equity positions, excluding
intangible assets and goodwill.
It effectively reflects a return on equity as if all intangible assets are eliminated immediately against reserves. As this is similar to the
approach used for the capital of financial institutions it is widely used in the sector.
The Group\u2019s consolidated RoTE for the year ended 30 September 2024 is derived as follows:
Note
2024
2023
\u00a3m
\u00a3m
Profit for the year after tax
186.0
153.9
Amortisation and derecognition of intangible assets
30
1.2
3.6
Adjusted profit
187.2
157.5
Divided by
Opening equity
1,410.6
1,417.3
Opening intangible assets
30
(168.2)
(170.2)
Opening tangible equity
1,242.4
1,247.1
Closing equity
1,419.5
1,410.6
Closing intangible assets
30
(171.5)
(168.2)
Closing tangible equity
1,248.0
1,242.4
Average tangible equity
1,245.2
1,244.7
Return on Tangible Equity
15.0%
12.7%
This table is not subject to audit
(c) Dividend and distribution policy
The Company is committed to a long-term sustainable dividend policy. Ordinarily, dividends will increase in line with earnings, subject
to the requirements of the business and the availability of cash resources. The Board reviews the policy at least twice a year in
advance of announcing its results, taking into account the Group\u2019s strategy, capital requirements, principal risks and the objective of
enhancing shareholder value.
In determining the level of dividend for any year, the Board expects to follow the dividend policy, but will also take into account the
level of available retained earnings in the Company, its cash resources and the cash and capital requirements inherent in its business
plans. In addition to the payment of dividends, the Board may also consider whether it is appropriate to apply excess capital in the
market purchase of the Group\u2019s shares.
The distributable reserves of the Company comprise its profit and loss account balance (note 46) and, other than the regulatory
requirement to retain an appropriate level of capital in Paragon Bank PLC, there are no restrictions preventing profits elsewhere in the
Group from being distributed to the parent.
Since the year ended 30 September 2018, the Company has adopted a policy of paying out approximately 40% of its basic earnings
per share as dividend (a dividend cover ratio of around 2.5 times), in the absence of any idiosyncratic factors which might make such a
dividend inappropriate. This policy is reviewed by the Board at least annually. The Company considers it has access to sufficient cash
resources to pay dividends at this level and that its distributable reserves are abundant for this purpose.
To provide greater transparency, the Board also adopted a policy of paying an interim dividend in each year equivalent to half of the
preceding final dividend in the absence of any factors which might make such a distribution inappropriate. For the current year, based
on its review of the Group\u2019s capital position and forecasts, the Board determined that an interim dividend in line with this policy was
appropriate. It therefore declared an interim dividend for the year of 13.2p per share (2023: 11.0p per share). The Board also confirmed
that the Group\u2019s normal approach of paying an interim dividend of 50% of the preceding year\u2019s final dividend would continue to apply
in future years.
The appropriate level of final dividend for the current year was considered by the Board in light of economic and regulatory
developments in the year, and the various potential paths for the UK economy. In particular the levels of provision in the Group\u2019s loan
portfolios and the potential for further provision under stress in the event of a worsening UK economic position were considered by
the Board. These were compared to the regulatory capital position at the year end along with the capital impacts of stress testing
carried out as part of the ICAAP and forecasting processes, and the potential impacts of ongoing developments in the regulatory
regime for capital including the introduction in the UK of Basel 3.1.
The Board particularly considered the appropriateness of including net losses relating to fair value adjustments from hedging in the
calculation of any dividend or distribution, as these primarily result from the reversal of gains recorded in earlier years which were
disregarded, at the time, for the purpose of determining dividends. Given the size of such adjustments in the period, the Board
concluded that their inclusion was not consistent with its overarching aim of delivering a sustainable dividend which grows with the
earnings of the business. This is in line with the approach adopted in previous years.
On the basis of this analysis the Board concluded that a total dividend of around 40% of earnings excluding fair value items could be paid.
The Board will therefore propose a final dividend for the year of 27.2p per share (2023: 26.4p per share) for approval at the 2025 AGM,
making a total dividend for the year of 40.4p per share (2023: 37.4p per share).
A share buy-back programme for the current financial year, for up to \u00a350.0m of ordinary shares was authorised at the time of the
Group\u2019s 2023 results announcement. This was extended to \u00a3100.0m in June 2024. The amount expended in the year was \u00a376.6m
(note 47) and the share buy-back continued after the year end, until regulatory authority for the programme lapsed on
31 October 2024, under an irrecoverable purchase instruction given to the Group\u2019s brokers shortly before the end of the financial year.
As part of its consideration of capital described above the Board of Directors authorised the completion of the remaining \u00a37.5m of the
buy-back programme described above together with a new buy-back of up to \u00a350.0m to commence shortly after the announcement
of the 2024 results. All shares acquired in buy-back programmes are initially held in treasury.
The directors have considered the distributable resources of the Company and concluded that these distributions are appropriate.
The most recent policy review, in November 2024, also confirmed the existing dividend policy would continue to apply for future
periods, subject to the impact of any future events, and the Board will consider the appropriateness and scale of any interim dividend
in the context of the Group\u2019s results and the operating and economic environment at the time. Share buy-backs will be considered
where excess capital has arisen, either operationally or as a result of changed regulatory requirements.
", "dimensions": { "concept": "ifrs-full:DisclosureOfObjectivesPoliciesAndProcessesForManagingCapitalExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-440": { "value": "
62. Financial risk management
The principal risks arising from the Group\u2019s exposure to financial instruments are credit risk, liquidity risk and market risk
(particularly interest rate risk and a limited amount of currency risk). The nature and extent of these risks are discussed in
notes 63 to 65 respectively.
The Board has a Risk and Compliance Committee, consisting of the Chair of the Board and the non-executive directors, which is
responsible for providing oversight and challenge to the Group\u2019s risk management arrangements. Executive responsibility for the
oversight and operation of the Group\u2019s risk management framework is delegated to the ERC. ERC discharges its duties through a
number of sub-committees and escalates issues of concern to the Risk and Compliance Committee where appropriate.
The Credit Committee and ALCO are sub-committees of the ERC which monitor performance against the risk appetites set by the Board
and make recommendations for changes in risk appetite where appropriate. They also review and, where authorised to do so, agree or
amend policies for managing each of these risks, which are summarised in the relevant note. The Corporate Governance Statement in
Section B3 (which is not subject to audit) provides further detail on the operations of these committees.
The financial risk management policies have remained unchanged throughout the year and since the year end. The position discussed in
notes 63 to 65 is materially similar to that existing throughout the year.
63. Credit risk
The assets of the Group and the Company which are subject to credit risk are set out below.
The Group
The Company
Note
2024
2023
2024
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial assets at amortised cost
Loans to customers
18
15,705.5
14,874.3
-
-
Trade receivables
27
1.5
1.5
-
-
Intra-group cash deposits
27
-
-
107.6
193.6
Amounts owed by Group companies
27
-
-
20.9
35.1
Investment securities
17
427.4
-
-
-
Cash
16
2,525.4
2,994.3
18.2
27.6
CRDs
27
-
38.0
-
-
Accrued interest income
27
11.1
4.6
0.1
0.1
18,670.9
17,912.7
146.8
256.4
Financial assets at fair value
Derivative financial assets
26
391.8
615.4
-
-
Maximum exposure to credit risk
19,062.7
18,528.1
146.8
256.4
All financial assets at amortised cost are subject to the requirements of IFRS 9 relating to impairment.
Further information on the Group\u2019s exposure to credit risk by asset type, including the credit quality of assets and any potential
concentrations of credit risk, is set out below for:
\u2022 Loans to customers
\u2022 Investment securities
\u2022 Cash balances (including CSA assets, CRDs and accrued interest)
\u2022 Trade receivables
\u2022 Derivative financial assets
Loans to customers
The Group\u2019s credit risk is primarily attributable to its loans to customers and its business objectives rely on maintaining a high-quality
customer base and place strong emphasis on prudent credit management, both at the time of acquiring or underwriting a new loan,
where robust lending criteria are applied, and throughout the loan\u2019s life.
Primary responsibility for the management of credit risk relating to lending activities across the Group lies with the Credit Committee.
The Credit Committee, which reports to the ERC, is made up of senior employees, drawn from financial and risk functions
independent of the underwriting process. It is chaired by the Credit Risk Director. Its key responsibilities include setting and reviewing
credit policy, controlling applicant quality, tracking account performance against targets, agreeing product criteria and lending
guidelines and monitoring performance and trends.
The Group\u2019s underwriting philosophy is based on sophisticated individual credit assessment supported by the automated efficiencies
of statistically based evaluation models. Information on each applicant is combined with data taken from credit reference agencies
and other external sources to provide a complete credit picture of the applicant and the borrowing requested. Key information
is validated through a combination of documentation and statistical data which collectively provides evidence of the applicant\u2019s
ability and willingness to pay the amount contracted under the loan agreement. Similarly, where assets form part of the security to
support the loan, robust asset valuation processes ensure appropriate risk mitigation is in place. Even so, in assessing credit risk, an
applicant\u2019s ability and propensity to repay the loan remain the principal factors in the decision to lend, even where the Group would
have security on the proposed loan.
In considering whether to acquire pools of loan assets, the Group will undertake a due diligence exercise on the underlying loan
accounts. Such assets are generally not fully performing and are offered at a discount to their current balance. The Group\u2019s
procedures may include inspection of original loan documents, verification of security and the examination of the credit status
of borrowers. Current and historic cash flow data will also be examined. The objective of the exercise is to establish, to a level of
confidence similar to that provided by the underwriting process, that the assets will generate sufficient cash flows to recover the
Group\u2019s investment and generate an appropriate return without exposing the Group to material operational or conduct risks.
This section sets out information relevant to assessing the credit risk inherent in the Group\u2019s loans to customers balances. It is set out
in the following subsections:
\u2022 Types of lending and related security
\u2022 Overall credit grading
\u2022 Credit characteristics of particular portfolios
\u2022 Arrears performance
\u2022 Acquired assets
Types of lending
The Group\u2019s balance sheet loan assets at 30 September 2024 are analysed as follows:
2024
2023
\u00a3m
%
\u00a3m
%
Buy-to-let mortgages
13,279.3
84.6%
12,720.1
85.5%
Owner-occupied mortgages
20.3
0.1%
27.7
0.2%
Total first charge residential mortgages
13,299.6
84.7%
12,747.8
85.7%
Second charge mortgage loans
116.1
0.7%
154.5
1.0%
Loans secured on residential property
13,415.7
85.4%
12,902.3
86.7%
Development finance
884.0
5.6%
747.8
5.0%
Loans secured on property
14,299.7
91.0%
13,650.1
91.7%
Asset finance loans
633.2
4.1%
559.1
3.8%
Motor finance loans
331.4
2.1%
297.7
2.0%
Aircraft mortgages
31.2
0.2%
26.9
0.2%
Secured BBB schemes
31.0
0.2%
50.5
0.4%
Structured lending
256.9
1.6%
169.0
1.1%
Invoice finance
32.7
0.2%
31.7
0.2%
Total secured loans
15,616.1
99.4%
14,785.0
99.4%
Professions finance
53.0
0.3%
52.2
0.4%
Unsecured BBB schemes
10.5
0.1%
16.7
0.1%
Other unsecured commercial loans
25.9
0.2%
20.4
0.1%
Total loans to customers
15,705.5
100.0%
14,874.3
100.0%
First and second charge mortgages are secured by charges over residential properties in England and Wales, or similar Scottish or
Northern Irish securities.
Development finance loans are secured by a first charge (or similar Scottish security) over the development property and various
charges over the build.
Asset finance loans and motor finance loans are effectively secured by the financed asset, while aircraft mortgages are secured by a
charge on the aircraft funded.
Structured lending and invoice finance balances are effectively secured over the assets of the customer, with security enhanced by
maintaining balances at a level less than the total amount of the security (the advance percentage).
Professions finance balances are generally short-term unsecured loans made to firms of lawyers and accountants for
working capital purposes.
Loans made under BBB supported schemes have the benefit of a guarantee underwritten by the UK Government.
There are no significant concentrations of credit risk to individual counterparties due to the large number of customers included in
the portfolios. All lending is to customers within the UK. The total gross carrying value of the Group\u2019s loans to customers due from
customers with total portfolio exposures over \u00a310.0m is analysed below by product type.
2024
2023
\u00a3m
\u00a3m
Buy-to-let mortgages
162.0
149.6
Development finance
497.9
390.6
Structured lending
239.3
160.3
Asset finance
11.5
24.6
910.7
725.1
The threshold of \u00a310.0m is used internally for monitoring large exposures.
Credit grading
An analysis of the Group\u2019s loans to customers by absolute level of credit risk at 30 September 2024 is set out below. The analysed
amount represents gross carrying amount.
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Very low risk
12,028.0
75.6
1.1
3.3
12,108.0
Low risk
2,194.7
343.9
44.9
0.7
2,584.2
Moderate risk
182.1
199.5
16.4
1.4
399.4
High risk
127.6
78.1
12.4
3.0
221.1
Very high risk
37.0
76.3
205.2
8.2
326.7
Not graded
135.8
2.7
3.6
0.5
142.6
Total gross carrying amount
14,705.2
776.1
283.6
17.1
15,782.0
Impairment
(16.0)
(7.2)
(50.8)
(2.5)
(76.5)
Total loans to customers
14,689.2
768.9
232.8
14.6
15,705.5
30 September 2023
Very low risk
11,393.7
23.0
1.9
6.6
11,425.2
Low risk
2,236.4
395.5
73.8
2.5
2,708.2
Moderate risk
157.1
147.3
9.7
1.8
315.9
High risk
34.0
113.3
13.6
3.2
164.1
Very high risk
37.7
63.3
104.1
9.3
214.4
Not graded
113.4
2.4
2.9
1.4
120.1
Total gross carrying amount
13,972.3
744.8
206.0
24.8
14,947.9
Impairment
(19.6)
(9.4)
(39.8)
(4.8)
(73.6)
Total loans to customers
13,952.7
735.4
166.2
20.0
14,874.3
Gradings above are based on credit scorecards or internally assigned risk ratings as appropriate for the individual asset class. These
measures are calibrated across product types and used internally to monitor the Group\u2019s overall credit risk profile against its risk appetite.
These gradings represent current credit quality on an absolute basis and this may result in assets in higher IFRS 9 stages with low risk
grades, especially where a case qualifies through breaching, for example, an arrears threshold but is making regular payments. This will
apply especially to Stage 3 cases reported in note 22, other than those shown as \u2018realisations\u2019.
Examples of lower risk cases in higher IFRS 9 stages include fully up-to-date receiver of rent cases; accounts where the customer is
in arrears on their account with the Group but up to date on accounts with other lenders, creating an overall positive credit rating; and
accounts where the default on the Group\u2019s loan has yet to impact on the external credit score.
A small proportion of the loan book (2024: 0.9%, 2023: 0.8%) is classed as \u2018not graded\u2019 above. This rating generally relates to
loans that have been fully underwritten at origination but where the customer falls outside the automated assessment techniques
used post-completion.
Credit characteristics by portfolio
Loans secured on residential property
First mortgage loans have a contractual term of up to thirty-five years and second charge mortgage loans up to twenty five years. In
all cases the customer is entitled to settle the loan at any point and in most cases early settlement does take place. All customers on
these accounts are required to make monthly payments.
An analysis of the indexed Loan-to-Value (\u2018LTV\u2019) ratio for those loan accounts secured on residential property by value at
30 September 2024 is set out below. LTVs for second charge mortgages are calculated allowing for the interest of the first charge
holder, based on the most recent first charge amount held by the Group, while for acquired accounts the effect of any discount on
purchase is allowed for.
First charge mortgages
Second charge mortgages
2024
2023
2024
2023
%
%
%
%
Loan to value ratio
Less than 70%
71.5
72.7
96.1
94.6
70% to 80%
25.9
23.8
2.3
3.2
80% to 90%
1.7
2.5
0.8
0.9
90% to 100%
0.2
0.2
0.2
0.3
Over 100%
0.7
0.8
0.6
1.0
100.0
100.0
100.0
100.0
Average LTV ratio
62.8
62.7
50.3
52.3
Of which:
Buy-to-let
62.8
62.8
Owner-occupied
38.9
39.0
The regionally indexed LTVs shown above are affected by changes in house prices, with the Nationwide house price index, for the UK
as a whole, registering an annual increase of 3.2% in the year ended 30 September 2024 (2023: decrease of 5.3%).
The geographical distribution of the Group\u2019s residential mortgage assets by gross carrying value is set out below.
First charge
Second charge
2024
2023
2024
2023
%
%
%
%
East Anglia
3.3
3.3
3.3
3.4
East Midlands
6.0
5.9
6.3
6.2
Greater London
18.0
18.2
7.5
7.4
North
3.4
3.5
4.4
4.2
North West
10.1
10.3
7.4
7.5
South East
31.0
30.6
37.8
37.8
South West
9.1
9.0
8.0
8.4
West Midlands
6.3
6.2
7.2
7.3
Yorkshire and Humberside
7.1
7.4
6.0
6.2
Total England
94.3
94.4
87.9
88.4
Northern Ireland
-
-
2.5
2.3
Scotland
2.6
2.5
5.8
5.5
Wales
3.1
3.1
3.8
3.8
100.0
100.0
100.0
100.0
Development finance
Development finance loans have an average term of 28 months (2023: 26 months). Settlement of principal and accrued interest takes
place either on the sale of the development, or units within it, where appropriate, or on the refinancing of the property following its
completion. The customer is not normally required to make payments during the term of the loan. The loans are secured by a legal
charge over the site and/or property together with other charges and warranties related to the build.
As customers are not required to make payments during the life of the loan, arrears and past due measures cannot be used to
monitor credit risk. Instead, cases are monitored on an individual basis against the costs and progress in the agreed development
programme by management and Credit Risk. The average loan to gross development value (\u2018LTGDV\u2019) ratio for the portfolio at year end,
a measure of security cover, is analysed below.
2024
2024
2023
2023
By value
By number
By value
By number
%
%
%
%
LTGDV
50% or less
12.4
8.9
8.2
6.1
50% to 60%
13.4
20.1
17.3
21.7
60% to 65%
27.5
27.3
37.7
33.0
65% to 70%
24.1
30.1
25.5
27.4
70% to 75%
8.1
7.2
5.8
7.4
Over 75%
14.5
6.4
5.5
4.4
100.0
100.0
100.0
100.0
The average LTGDV cover at the year end was 63.0% (2023: 63.1%).
LTGDV is calculated by comparing the current expected end of term exposure with the latest estimate of the value of the completed
development based on surveyors\u2019 reports. The focus on residential property development within the portfolio means that asset values
will generally move in line with the UK residential property market.
At 30 September 2024, the development finance portfolio comprised 251 accounts (2023: 230) with a total carrying value of
\u00a3884.0m (2023: \u00a3747.8m). Of these accounts 17 were included in Stage 2 at 30 September 2024 (2023: 15), with 19 accounts classified
as Stage 3 (2023: 12). In addition, one acquired account had been classified as POCI (2023: one). An allowance for this loss was made
in the IFRS 3 fair value calculation.
The geographical distribution of the Group\u2019s development finance loans by gross carrying value is set out below.
2024
2023
%
%
East Anglia
4.6
4.4
East Midlands
11.2
11.8
Greater London
11.0
11.8
North
0.6
0.8
North West
0.7
0.4
South East
33.9
34.0
South West
19.7
21.3
West Midlands
7.9
6.2
Yorkshire and Humberside
6.1
6.6
Total England
95.7
97.3
Northern Ireland
-
-
Scotland
3.8
2.7
Wales
0.5
-
100.0
100.0
Asset finance and motor finance
Asset and motor finance lending includes finance lease and hire purchase arrangements, which are accounted for as finance leases
under IFRS 16. The average contractual life of the asset finance loans was 51 months (2023: 49 months) while that of the motor finance
loans was 69 months (2023: 68 months), but historical behaviour suggests that a significant proportion of customers will choose to
settle their obligations early.
Asset finance customers are generally small or medium sized businesses. The nature of the assets underlying the Group\u2019s asset
finance lending, including loans financed through BBB sponsored schemes, by gross carrying value is set out below.
2024
2023
%
%
Commercial vehicles
45.3
41.9
Construction plant
29.4
30.9
Manufacturing
5.3
6.3
Technology
4.2
4.8
Other vehicles
4.4
4.7
Refuse disposal vehicles
4.2
3.4
Agriculture
1.6
2.1
Print and paper
1.1
1.6
Other
4.5
4.3
100.0
100.0
Motor finance loans are secured over cars, leisure vehicles (motorhomes, caravans and campervans) and light commercial vehicles
and represent exposure to consumers and small businesses.
Structured lending
The Group\u2019s structured lending division provides revolving loan facilities to support non-bank lending businesses. Loans are made to a
Special Purpose Vehicle (\u2018SPV\u2019) company controlled by the customer and effectively secured on the loans made by the SPV. Exposure
is limited to a percentage of the underlying assets, providing a buffer against credit loss.
Summary details of the structured lending portfolio are set out below.
2024
2023
Number of active facilities
11
9
Total facilities (\u00a3m)
330.0
235.7
Carrying value (\u00a3m)
256.9
169.0
The maximum advance under these facilities is generally 80% of the underlying assets, except where loans secured by residential
property form the security for the facility, where 90% is permissible.
Customers are charged interest on their drawn balance at a rate linked to SONIA, and a commitment fee on the undrawn amount of
their facility. However, there is generally no requirement to make regular payments of specific amounts, with the facilities operating on
a revolving basis, able to be paid down and redrawn over their term.
The performance of each loan is monitored monthly on a case by case basis by the Group\u2019s Credit Risk function, assessing
compliance with covenants relating to both the customer and the performance and composition of the asset pool. These
assessments, which are reported to Credit Committee, are used to inform the assessment of expected credit loss under IFRS 9.
At 30 September 2024 one of these facilities was identified as Stage 2 (2023: none) with the remainder in Stage 1.
BBB supported schemes
These schemes are managed by the British Business Bank (\u2018BBB\u2019) and loans made under them have the benefit of guarantees
underwritten by the UK Government. They were originally launched as a response to the impact of Covid on UK SMEs, but remain
in place.
The Coronavirus Business Interruption Loan Scheme (\u2018CBILS\u2019) and the Bounce Back Loan Scheme (\u2018BBLS\u2019) were launched in
2020 and remained open for new applications until March 2021. The Recovery Loan Scheme (\u2018RLS\u2019) was launched in April 2021 as a
successor scheme and has subsequently been extended twice. It was available for new lending until June 2024 at which point it was
rebranded as the Growth Guarantee Scheme (\u2018GGS\u2019), on broadly similar terms.
The Group offered term loans and asset finance loans under the CBIL scheme. Interest and fees were paid by the UK Government
for the first twelve months and the government guarantee covers up to 80% of the lender\u2019s principal loss after the application of any
proceeds from the asset financed (if applicable).
Loans under the BBL scheme are six year term loans at a standard 2.5% per annum interest rate. The UK Government paid the
interest on the loan for the first twelve months and provides lenders with a guarantee covering the whole outstanding balance.
The Group offers term loans and asset finance loans under the RLS. Interest and fees are payable by the customer from inception.
The government guarantee covers up to 80% of the lender\u2019s principal loss, after the application of any proceeds from the asset
financed (if applicable), on applications received before 1 January 2022 and up to 70% for applications received thereafter under the
RLS or under the successor GGS.
The Group\u2019s outstanding RLS / GGS, CBILS and BBLS loans at 30 September 2024 were:
2024
2023
\u00a3m
\u00a3m
RLS / GGS
Term loans
0.6
1.0
Asset finance
23.4
36.0
Total RLS / GGS
24.0
37.0
CBILS
Term loans
7.7
12.6
Asset finance
7.6
14.5
Total CBILS
15.3
27.1
BBLS
2.2
3.1
41.5
67.2
Total term loans
10.5
16.7
Total asset finance (note 19)
31.0
50.5
41.5
67.2
At 30 September 2024, \u00a30.5m of this balance was considered to be non-performing (2023: \u00a30.7m).
Arrears performance
The number of accounts in arrears by asset class, based on the most commonly quoted definition of arrears for the type of asset, at
30 September 2024 and 30 September 2023, compared to the industry averages at those dates published by UK Finance (\u2018UKF\u2019) and
the Finance and Leasing Association (\u2018FLA\u2019), was:
2024
2023
%
%
First mortgages
Accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases
0.38
0.34
Buy-to-let accounts excluding receiver of rent cases
0.19
0.15
Owner-occupied accounts
6.59
2.93
UKF data for mortgage accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases
0.86
0.64
Buy-to-let accounts excluding receiver of rent cases
0.76
0.60
Owner-occupied accounts
0.97
0.87
All mortgages
0.93
0.82
Second charge mortgage loans
Accounts more than 2 months in arrears
All accounts
24.63
23.48
Post-2010 originations
2.92
2.42
Legacy cases (pre-2010 originations)
26.88
26.58
Purchased assets
31.47
30.10
FLA data for second mortgage loans
6.50
6.30
Motor finance loans
Accounts more than 2 months in arrears
All accounts
1.06
1.08
Originated cases
1.06
1.07
Purchased assets
1.13
1.32
FLA data for consumer point of sale hire purchase
4.10
3.60
Asset finance loans
Accounts more than 2 months in arrears
0.14
0.23
FLA data for business lease / hire purchase loans
0.70
0.60
No published industry data for asset classes comparable to the Group\u2019s other books has been identified. Where revised data at
30 September 2023 has been published by the FLA or UKF, the comparative industry figures above have been amended.
Arrears information is not given for development finance, structured lending or invoice finance activities as the structure of the
products means that such a measure is not appropriate.
No figure has been calculated for unsecured commercial lending balances due to the size of the exposure.
The Group calculates its headline arrears measure for buy-to-let mortgages, shown above, based on the numbers of accounts
three months or more in arrears, including purchased assets, but excluding those cases in possession and receiver of rent cases
designated for sale. This is consistent with the methodology used by UKF in compiling its statistics for the buy-to-let mortgage market
as a whole.
The number of accounts in arrears will naturally be higher for legacy books, such as the Group\u2019s legacy second charge mortgages and
residential first mortgages than for comparable active ones, as performing accounts pay off their balances, leaving arrears accounts
representing a greater proportion of the total.
The figures shown above for second charge mortgage loans incorporate purchased portfolios which generally include a high
proportion of cases in arrears at the time of purchase and where this level of performance is allowed for in the discount to current
balance represented by the purchase price. However, this will lead to higher than average reported arrears.
Acquired assets
A significant proportion of the Group\u2019 second charge mortgage balances were part of purchased debt portfolios, where the
consideration paid was based on the credit quality and performance of the loans at the point of the transaction. No additional loans to
customers treated as POCI were acquired in the year ended 30 September 2023 or the year ended 30 September 2024.
Collections on purchased accounts have been comfortably in excess of those implicit in the purchase prices.
In the debt purchase industry, Estimated Remaining Collections (\u2018ERC\u2019) is commonly used as a measure of the value of a portfolio.
This is defined as the sum of the undiscounted cash flows expected to be received over a specified future period. In the Group\u2019s view,
this measure may be suitable for heavily discounted, unsecured, distressed portfolios (which will be treated as POCI under IFRS 9),
but is less applicable for the types of portfolio in which the Group has invested, where cash flows are higher on acquisition, loans may
be secured on property and customers may not be in default. In such cases, the IFRS 9 amortised cost balance, at which these assets
are carried in the Group balance sheet, provides a better indication of value.
However, to aid comparability, the 84 and 120 month ERCs value for the Group\u2019s purchased consumer loan assets, are set out below.
These are derived using the same models and assumptions used in the EIR calculations. ERCs are set out both for all purchased
consumer portfolios and for those classified as POCI under IFRS 9.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
All purchased consumer assets
Carrying value
41.1
58.6
75.3
84 month ERCs
48.6
68.9
88.6
120 month ERCs
52.9
73.4
94.2
POCI assets only
Carrying value
10.6
17.7
21.4
84 month ERCs
15.6
24.5
29.9
120 month ERCs
18.7
27.8
33.0
Amounts shown above are disclosed as loans to customers (note 18). They include first mortgages and second charge mortgage loans.
Investment securities
The credit risk inherent in the Group\u2019s investment securities is controlled by ALCO, which determines the nature of securities which
may be invested in and the types of issuers in whose securities the Group may invest. The Group has formal risk appetites, policies
and limits, approved by the Risk and Compliance Committee.
The Group\u2019s holdings at 30 September 2024, described in note 17, comprise gilts issued by the UK Government and covered bonds
issued by UK institutions.
The Group\u2019s investments are analysed below according to the public credit rating assigned to institutional exposures, or by the credit
ratings assigned by Fitch for sovereign (UK Government) exposures.
2024
2023
Sovereign
Institutional
Total
Sovereign
Institutional
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Rating
AAA
-
23.0
23.0
-
-
-
AA-
404.4
-
404.4
-
-
-
404.4
23.0
427.4
-
-
-
Cash balances
The credit risk inherent in the cash positions of the Group and the Company is controlled by ALCO, which determines
which institutions deposits may be placed with. The Group has formal risk appetites, policies and limits, approved by the
Risk and Compliance Committee. These include limitations on large exposures to mitigate any concentration risk in
respect of its investments.
For cash deposits within the Group\u2019s securitisation structures, the scheme documents will set out criteria for allowable
investments, including rating thresholds.
The Group\u2019s cash balances are held in sterling at the Bank of England and at highly rated banks in current and call accounts.
Cash is also invested as short fixed-term money market deposits from time-to-time.
The carrying value of the Group\u2019s and the Company\u2019s cash balances analysed by their long-term credit rating as determined by
Fitch is set out below.
2024
2023
\u00a3m
\u00a3m
The Group
Cash with central banks rated:
AA-
Cash with retail banks rated:
2,315.5
2,783.3
AA-
98.2
78.9
A+
111.7
132.1
209.9
211.0
Total exposure
2,525.4
2,994.3
The Company
Cash with retail banks rated:
A+
18.3
28.1
CRDs were exposures to the Bank of England and thus share the central bank rating noted above while CSA assets, placed with
retail banks, have similar ratings to those shown above for retail bank deposits.
Credit risk on all these balances, and any interest accrued thereon, is considered to be minimal. These balances are considered as
Stage 1 for IFRS 9 impairment purposes with a PD such that any provision required would be immaterial.
Trade debtors
The Group\u2019s trade debtors balance represents principally amounts outstanding on unpaid operating lease obligations in the asset
finance business, where similar acceptance criteria to those used for finance lease cases apply.
Financial assets at fair value
The Group\u2019s financial assets held at fair value comprise solely derivative financial instruments used for hedging purposes (note 26).
In order to control credit risk relating to counterparties to the Group\u2019s derivative financial instruments, ALCO reviews and approves
which counterparties the Group will deal with, establishes limits for each counterparty and monitors compliance with those limits. Any
changes necessary are advised to ERC. The Group\u2019s counterparties are typically highly rated banks and, for all derivative positions
held within securitisation structures, must comply with criteria set out in the financing arrangements, which are monitored externally.
Since June 2019, the Group has been centrally clearing certain eligible derivatives with a Central Clearing Counterparty (\u2018CCP\u2019) which
removes credit risk between bilateral counterparties and ensures timely settlement and / or porting of derivative contracts in the
event of the failure of a counterparty.
The Group uses the ISDA Master Agreement and Credit Support Annex (\u2018CSA\u2019) for documenting uncleared derivative activity. Under
a CSA, collateral is passed between counterparties to mitigate the market contingent counterparty risk inherent in the outstanding
positions. Collateral pledged to such counterparties by the Group is shown in note 27, while collateral pledged to the Group is shown
in note 40.
The Group\u2019s exposure to credit risk in respect of the counterparties to its derivative financial assets, analysed by their long-term credit
rating as determined by Fitch is set out below.
2024
2023
\u00a3m
\u00a3m
Carrying value of derivative financial assets
Counterparties rated
AA
0.4
-
AA-
2.0
3.3
A+
357.8
588.9
A
-
5.5
A-
31.6
17.7
Gross exposure (note 26)
391.8
615.4
Collateral amounts posted
CSA collateral amounts (note 40)
(103.6)
(383.4)
Total collateral
(103.6)
(383.4)
Net exposure
288.2
232.0
64. Liquidity risk
Liquidity risk is the risk that the Group might be unable to meet its liabilities and financial commitments as they fall due.
The Group\u2019s principal source of liquidity risk is from its retail deposit funding. Amounts raised are typically used to support lending
activities where maturity is over a longer period than that of the deposits. This maturity transformation exposes the Group to
liquidity risk.
Other sources of liquidity risk in the normal course of business include that arising:
\u2022 In the medium term from the Group\u2019s corporate and retail bonds which are used to support its general operations and from its
participation in central bank funding schemes
\u2022 From the Group\u2019s derivatives portfolio which gives rise to liquidity risk due to the collateral requirements to cover adverse changes
in valuation
\u2022 From the Group\u2019s participation in wholesale funding, including SPVs, where sufficient funding must be available
Liquidity is also required to provide capital support for new loans and working capital for the Group.
Where assets are funded by non-recourse arrangements, through the securitisation process, liquidity risk is effectively eliminated.
As an authorised deposit taker, the liquidity position of Paragon Bank PLC, the Group\u2019s banking subsidiary, is also managed on a
stand-alone basis.
Set out below is a summary of the contractual cash flows expected to arise from the Group\u2019s financial and leasing liabilities, based on
the earliest date at which repayment can be demanded.
Amounts payable
In one year In more than In more than In more than Total
or less, or on one year, but two years but five years
demand not more than not more than
two years five years
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Retail deposits
14,559.7
1,657.2
740.7
63.0
17,020.6
Borrowings
150.3
761.6
28.0
163.0
1,102.9
Total non-derivative liabilities
14,710.0
2,418.8
768.7
226.0
18,123.5
Derivative liabilities
21.8
31.3
52.0
7.5
112.6
14,731.8
2,450.1
820.7
233.5
18,236.1
30 September 2023
Retail deposits
11,278.3
1,782.5
734.5
44.4
13,839.7
Borrowings
327.1
160.3
2,811.3
170.1
3,468.8
Total non-derivative liabilities
11,605.4
1,942.8
3,545.8
214.5
17,308.5
Derivative liabilities
52.8
(5.9)
8.7
0.3
55.9
11,658.2
1,936.9
3,554.5
214.8
17,364.4
Non-recourse balances are payable only to the extent that funds are available, as described further below, and do not expose the Group
to any material liquidity risk. They are therefore not included in the table above.
As the amounts set out above include all expected future cash flows, including principal and interest, they will not correspond to
amortised cost or fair value amounts reported in the balance sheet.
Further information on the liquidity exposure arising from the Group\u2019s retail deposits, securitisation and other borrowings is
set out below.
The liquidity exposures of the Company arise only from its borrowings, and are set out below.
The overall responsibility for the management of liquidity risk rests with ALCO which makes recommendations for the Group\u2019s liquidity
policy for board approval. ALCO monitors liquidity risk metrics within limits set by the Board and/or regulators and uses detailed cash
flow projections to ensure that an adequate level of liquidity is available at all times.
The Group\u2019s and the Bank\u2019s liquidity position is managed on a day-to-day basis by the treasury function, under the supervision of ALCO.
Retail deposits
The Group\u2019s retail funding strategy is focussed on building a stable mix of deposit products. A high proportion of balances, around
95%, are protected by the FSCS which mitigates against the possibility of a retail run.
The cash outflows, including principal and estimated interest contractually required by the Group\u2019s retail deposit balances, analysed
by the earliest date at which repayment can be demanded are set out below:
2024
2023
\u00a3m
\u00a3m
Payable on demand
7,697.6
4,181.5
Payable in less than three months
1,718.0
1,649.5
Payable in less than one year but more than three months
5,144.1
5,447.3
Payable in less than one year or on demand
14,559.7
11,278.3
Payable in one to two years
1,657.2
1,782.5
Payable in two to five years
740.7
734.5
Payable after more than five years
63.0
44.4
17,020.6
13,839.7
In order to reduce the liquidity risk inherent in the Group\u2019s retail deposit balances, the PRA requires that the Bank, like other regulated
banks, maintains a buffer of liquid assets to ensure it has sufficient available funds at all times to protect against unforeseen
circumstances. The amount of this buffer is calculated using Individual Liquidity Guidance (\u2018ILG\u2019) set by the PRA based on the Internal
Liquidity Adequacy Assessment Process (\u2018ILAAP\u2019) undertaken by the Bank. The ILAAP determines the liquid resources that must be
maintained in the Bank to meet the Overall Liquidity Adequacy Rule (\u2018OLAR\u2019) and to ensure that it can meet its liabilities as they fall
due. It is based on an analysis of its business as usual forecast cash requirements but also considers their predicted behaviour in
stressed conditions.
At 30 September 2024 the liquidity buffer comprised the following on and off balance sheet assets. All these assets are held within
Paragon Bank. Balances with central banks are immediately available, while investment securities can be readily monetised with third
parties, through repo transactions or by use of liquidity facilities available at the Bank of England.
Note
2024
2023
\u00a3m
\u00a3m
Balances with central banks
2,207.9
2,589.7
Investment securities
17
427.4
-
Total on balance sheet liquidity
2,635.3
2,589.7
Long / short repo transaction
150.0
150.0
2,785.3
2,739.7
Balances with central banks above exclude group treasury balances placed on deposit at the Bank of England through Paragon Bank
(note 27).
Paragon Bank manages its Liquidity Coverage Ratio (\u2018LCR\u2019), the level of its High Quality Liquid Assets (\u2018HQLA\u2019) relative to its
short-term forecast net cash outflows. A minimum level of LCR is set through regulation for all regulated financial institutions. As at
30 September 2024, the Bank\u2019s LCR was comfortably above the required minimum regulatory standard. The Bank also monitors its
Net Stable Funding Ratio (\u2018NSFR\u2019) which measures the stability of the funding profile in relation to the composition of its assets and
off balance sheet activities.
Liquidity is not regulated at Group level.
Borrowings
Set out below is the contractual maturity profile of the Group\u2019s and the Company\u2019s borrowings at 30 September 2024 and
30 September 2023 based on their carrying values. These are analysed between non-recourse (securitisation) and other funding,
with the liquidity position arising principally from the other funding.
The Group
Financial liabilities falling due:
In one year In more than In more than In more than Total
or less, or on one year, but two years but five years
demand not more than not more than
two years five years
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Asset backed loan notes
-
-
-
-
-
Total non-recourse funding
-
-
-
-
-
Bank overdrafts
0.4
-
-
-
0.4
Retail bonds
-
-
-
-
-
Corporate bond
-
-
-
149.9
149.9
Central bank facilities
5.0
744.8
5.2
-
755.0
Sale and repurchase agreements
100.0
-
-
-
100.0
Lease liabilities
2.9
2.1
2.9
-
7.9
108.3
746.9
8.1
149.9
1,013.2
30 September 2023
Asset backed loan notes
-
-
-
28.0
28.0
Total non-recourse funding
-
-
-
28.0
28.0
Bank overdrafts
0.2
-
-
-
0.2
Retail bonds
112.4
-
-
-
112.4
Corporate bond
-
-
-
145.8
145.8
Central bank facilities
-
-
2,750.0
-
2,750.0
Sale and repurchase agreements
50.0
-
-
-
50.0
Lease liabilities
2.6
2.4
3.4
0.5
8.9
165.2
2.4
2,753.4
174.3
3,095.3
The Company
Financial liabilities falling due:
In one year In more than In more than In more than Total
or less, or on one year, but two years but five years
demand not more than not more than
two years five years
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Retail bonds
-
-
-
-
-
Corporate bond
-
-
-
149.6
149.6
Lease liabilities
1.4
1.4
4.4
5.2
12.4
1.4
1.4
4.4
154.8
162.0
30 September 2023
Retail bonds
112.4
-
-
-
112.4
Corporate bond
-
-
-
149.4
149.4
Lease liabilities
1.3
4.3
1.4
6.7
13.7
113.7
4.3
1.4
156.1
275.5
IFRS 7 requires the disclosure of future contractual cash flows (including interest) on these borrowings, and these are described and
set out on the following pages.
Non-recourse funding
The Group has historically used securitisation as a principal source of funding, but currently only accesses this market on a strategic
basis with no external balances outstanding at 30 September 2024. In a securitisation an SPV company within the Group will issue
asset backed loan notes secured on a pool of mortgage or other loan assets beneficially owned by the SPV either to external investors
in a public offer, or to another group company. Notes held internally can be used as security to access other funding sources.
The notes have a maturity date later than the final repayment date for any asset in the pool, typically over thirty years from the issue
date. The noteholders are entitled to receive repayment of the note principal from principal funds generated by the loan assets from
time-to-time, but their right to the repayment of principal is limited to the cash available in the SPV. Similarly, payment of accrued
interest to the noteholders is limited to cash generated within the SPV. There is no requirement for any group company other than
the issuing SPV to make principal or interest payments in respect of the notes. This matching of the maturities of the assets and
the related funding substantially reduces the Group\u2019s exposure to liquidity risk. Details of notes in issue are given in note 34 and the
assets backing the notes are shown in note 18.
In each case the Group provides funding to the SPV at inception, subordinated to the notes, which means that the primary credit risk
on the pool assets is retained within the Group. The Group receives the residual income generated by the assets. These factors mean
that the risks and rewards of ownership of the assets remain with the Group, and hence the loans remain on the Group\u2019s balance
sheet, whether the notes are issued externally or retained.
Cash received from time-to-time in each SPV is held until the next interest payment date when, following payment of principal,
interest and the associated costs of the SPV, the remaining balances become available to the Group. Cash balances are also held
within each SPV to provide credit enhancement for the particular securitisation, allowing interest and principal payments to be made
even if some of the loans default. The cash balances of the SPV companies are included within the restricted cash balances disclosed
in note 16 as \u2018securitisation cash\u2019.
The sterling principal amount outstanding at 30 September 2024 under the SPV and warehouse arrangements was
\u00a3nil (2023: \u00a328.4m). The total sterling amount payable under these arrangements, were these principal amounts to remain
outstanding until the final repayment date, would be \u00a3nil (2023: \u00a343.3m). As the principal will, as discussed above, reduce as
customers repay or redeem their accounts, the cash flow will be far less than this amount in practice.
Corporate debt
The Group issued \u00a3150.0m of tier-2 debt in March 2021. This bond is optionally callable between 25 June 2026 and 25 September 2026
and has a final maturity date of 25 September 2031.
In February 2013, the Company initiated a Euro Medium Term Note issuance programme, with a maximum issuance of \u00a31,000.0m. The
Company had the ability to issue further notes under the programme and has issued three fixed rate bonds for a total of \u00a3297.5m, with
interest rates ranging from 6.000% to 6.125% and maturities ranging from December 2020 to August 2024. The last of these bonds
was repaid in the year.
The Group\u2019s ability to issue debt is supported by its credit rating issued by Fitch which was affirmed at BBB+ in February 2024. At the
same time, the Group\u2019s principal operating subsidiary, Paragon Bank PLC, was also guaranteed a Long-term Issuer Default rating of
BBB+ by Fitch, increasing the range of funding solutions available.
Central bank facilities
The Group has accessed term credit facilities under the central bank schemes described in note 38. No amounts fall due under these
schemes before October 2025, but substantial repayments have already been made. The Group has prepositioned further assets with
the Bank of England which can be used to release more funds for liquidity or other purposes. At 30 September 2024 the amount of
drawings available in respect of prepositioned assets was \u00a34,445.9m (2023: \u00a31,715.4m).
Additional liquidity
The Group holds certain of its own listed, externally rated, asset backed securities which may be used as security to access term
credit and other facilities, including those offered by the Bank of England. The principal value of these notes is analysed by credit
grade and utilisation status below.
2024
2023
Utilised
Available
Total
Utilised
Available
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Rating
AAA
225.5
1,536.2
1,761.7
222.1
986.9
1,209.0
AA+ / AA / AA-
5.8
109.4
115.2
5.3
100.9
106.2
A+ / A / A-
3.7
70.0
73.7
3.1
59.9
63.0
BBB+ / BBB / BBB-
4.3
81.6
85.9
3.1
57.9
61.0
239.3
1,797.2
2,036.5
233.6
1,205.6
1,439.2
As these notes are held internally, they are not included in balance sheet liabilities. Mortgage assets backing these securities remain
on the Group\u2019s balance sheet and are included in amounts pledged as collateral in note 18.
Utilised notes includes those which the Group is obliged to hold under regulations governing securitisation issuance.
The available AAA notes would give access to \u00a3751.9m (2023: \u00a3769.8m) if used to secure drawings on Bank of England facilities.
The Group\u2019s holdings of investment securities (note 17) are also available to access term credit and other facilities in a similar way.
During the year ended 30 September 2020, the Group entered into a back-to-back long / short sale and repurchase (\u2018repo\u2019)
transaction with a UK bank which continued throughout the current year. This provides \u00a3150.0m of liquidity (2023: \u00a3150.0m), utilising
\u00a326.5m of the loan notes shown above, but does not appear on the Group\u2019s balance sheet.
The Group has also entered into short-term repo transactions from time-to-time, including during the current year, and maintains the
capability to access the repo market for liquidity purposes. Transactions in place at 30 September 2024 (note 39) utilised \u00a3111.0m of
the loan notes shown above (2023: \u00a358.5m).
Contractual cash flows
The total undiscounted amounts, inclusive of estimated interest, which would be payable in respect of the non-securitisation
borrowings of the Group and the Company, should those balances remain outstanding until the contracted repayment date, or the
earliest date on which repayment can be required, are set out below.
Corporate Retail Central bank Sale and Lease Total
bonds bonds facilities repurchase liabilities
transactions
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
a) The Group
30 September 2024
Payable in:
Less than one year
6.6
-
39.4
101.4
2.9
150.3
One to two years
6.6
-
752.9
-
2.1
761.6
Two to five years
19.7
-
5.3
-
3.0
28.0
Over five years
163.0
-
-
-
-
163.0
195.9
-
797.6
101.4
8.0
1,102.9
30 September 2023
Payable in:
Less than one year
6.6
119.3
147.8
50.8
2.6
327.1
One to two years
6.6
-
151.3
-
2.4
160.3
Two to five years
19.7
-
2,788.2
-
3.4
2,811.3
Over five years
169.6
-
-
-
0.5
170.1
202.5
119.3
3,087.3
50.8
8.9
3,468.8
Corporate Retail Lease Total
bonds bonds liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
b) The Company
30 September 2024
Payable in:
Less than one year
6.6
-
1.7
8.3
One to two years
6.6
-
1.7
8.3
Two to five years
19.7
-
5.0
24.7
Over five years
163.0
-
4.9
167.9
195.9
-
13.3
209.2
30 September 2023
Payable in:
Less than one year
6.6
119.3
1.7
127.6
One to two years
6.6
-
1.7
8.3
Two to five years
19.7
-
5.0
24.7
Over five years
169.6
-
7.0
176.6
202.5
119.3
15.4
337.2
Amounts payable in respect of the \u2018other accruals\u2019 and \u2018trade creditors\u2019 shown in note 40 fall due within one year. The cash flows
described above will include those for interest on borrowings accrued at 30 September 2024 disclosed in note 40.
The cash flows which are expected to arise from derivative contracts in place at the year end, estimating future floating rate payments
and receipts on the basis of the yield curve at the balance sheet date are as follows:
2024
2023
Total cash Total cash
outflow / (inflow) outflow / (inflow)
\u00a3m
\u00a3m
On derivative liabilities
Payable in less than one year
21.8
52.8
Payable in one to two years
31.3
(5.9)
Payable in two to five years
52.0
8.7
Payable in over five years
7.5
0.3
112.6
55.9
On derivative assets
Payable in less than one year
(117.4)
(218.2)
Payable in one to two years
(106.5)
(175.4)
Payable in two to five years
(46.5)
(162.3)
Payable in over five years
(8.4)
-
(278.8)
(555.9)
(166.2)
(500.0)
65. Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. The Group\u2019s exposure to market risk is mainly through interest rate risk, though there is some minor exposure to currency risk.
These exposures arise solely through the Group\u2019s lending and deposit taking business - no speculative trading in financial instruments
is undertaken.
Interest rate risk
Interest rate risk is the current or prospective risk to capital or earnings arising from adverse movements in interest rates. The
Group\u2019s exposure to this risk is a natural consequence of its lending, deposit-taking and other borrowing activities, as some of its
financial assets and liabilities bear interest at rates which float with various market rates, principally SONIA, some at variable rates,
controlled by the Group, subject to market pressures, while others are fixed, either for a term or for their whole lives. Such risk is
referred to as Interest Rate Risk in the Banking Book (\u2018IRRBB\u2019). The Group does not seek to generate income from taking interest
rate risk and aims to minimise exposures that occur as a natural consequence of carrying out its normal business activities.
The Group balance sheet also includes assets, liabilities and equity which, by their nature, do not attract interest.
IRRBB is managed through board approved risk appetite limits and policies. The Group seeks to match the structure of assets and
liabilities naturally where possible or by using appropriate financial instruments, such as interest rate swaps.
In developing this strategy, the Group also has regard to the potential impact of fixed rate lending and deposit pipelines, and of the
difference in value between total interest-earning assets and total interest-bearing liabilities, largely represented by the Group\u2019s
equity, both of which can lead to additional exposure to interest rate movements.
Day-to-day management of interest rate risk is the responsibility of the Group\u2019s Treasury function, with control and oversight
provided by ALCO.
The Group\u2019s risk management framework for IRRBB continues to evolve in line with updates in regulatory guidance on methods
expected to be used by banks measuring, managing, monitoring and controlling such risks.
IRRBB exposures
Risk exposure in the Group\u2019s operations might occur through:
\u2022 Duration or re-pricing risk. The risk created when interest rates on assets, liabilities and off balance sheet items reprice at different
times causing them to move by different amounts
\u2022 Basis risk. The risk arising where assets and liabilities re-price with reference to different reference interest rates, for example rates
set by the Group and market rates, such as Bank of England base rate and SONIA. Relative changes in the difference between the
reference rates over time may impact earnings
\u2022 Optionality or prepayment risk. The risk that settlement of asset and liability balances at different times from those forecast due to
economic conditions or customer behaviour may create a mismatch in future periods
Due to the maturity transformation inherent in the Group\u2019s business model it is also exposed to the risk that the relationship between
the rates affecting the shorter-term funding balance and the rates affecting the longer-term lending balance will have altered when the
funding has to be refinanced.
The Group measures these risks through a combination of economic value and earnings-based measures considering prepayment risk:
\u2022 Economic Value (\u2018EV\u2019) \u2013 a range of parallel and non-parallel interest rate stresses are applied to assess the change in market value
from assets, liabilities and off balance sheet items re-pricing at different times
\u2022 Net Interest Income (\u2018NII\u2019) - impact on earnings from a range of interest rate stresses
The Group\u2019s use of financial derivatives for hedging interest rate risk relating to its fixed rate lending, deposit taking, investing and
borrowing activities is discussed further in note 26.
Interest rate sensitivity
To provide a broad indication of the Group\u2019s exposure to interest rate movements, the notional impact of a 1.0% change in UK interest
rates on the equity of the Group at 30 September 2024, and the notional annualised impact of such a change on the operating profit
of the Group, based on the year-end balance sheet have been calculated.
As a simplification this calculation assumes that all relevant UK interest rates move by the same amount in parallel and that all
repricing takes place at the balance sheet date.
On this basis, a 1.0% increase in UK interest rates would increase profit before tax by \u00a33.5m (2023: increase by \u00a316.1m).
The principal direct point in time impact on the Group\u2019s equity would result from the revaluation of derivative assets and liabilities
which are not part of fair value hedges at the balance sheet date. A 1.0% increase in rate expectations would increase equity by
\u00a314.1m (2023: increase by \u00a316.0m). For this illustration no ineffectiveness in hedging relationships is assumed.
These calculations allow only for the direct effects of any change in UK interest rates. In practice, such a change might have wider
economic consequences which would themselves potentially affect the Group\u2019s business and results.
It should be noted that these sensitivities are illustrative only, and much simplified from those used to manage IRRBB in practice .
The Company
All the borrowings of the Company have fixed interest rates. The Company\u2019s investments in loans to subsidiary companies include
a Tier-2 Bond issued by Paragon Bank PLC, with terms matching the Tier-2 Bond issued by the Company. Its intercompany balance
with Paragon Bank (note 27) also includes \u00a3107.6m which is placed on deposit with the Bank of England (2023: \u00a3193.6m). Interest is
received on this balance at the same rate as that paid by the Bank of England. Other assets and liabilities with group entities bear
interest at rates based on SONIA. All other balances in the Company balance sheet are non-interest bearing.
Currency risk
Currency risk, also referred to as foreign exchange or forex risk, is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates.
The Group has little appetite for material amounts of exposure to currency risk and applies a hedging strategy for any material open
positions through the use of spot or forward contracts or derivatives.
All the Group\u2019s significant assets and liabilities at 30 September 2024 and 30 September 2023 are denominated in sterling.
The SME lending business has a limited amount of lending denominated in US dollars, principally \u00a34.4m of aircraft mortgage balances
(2023: \u00a37.6m). It may also contract to purchase assets for leasing in currency. These balances are hedged by the purchase of currency
derivatives and / or appropriate currency balances.
As a result of these arrangements the Group has no material exposure to foreign currency risk, and no sensitivity analysis is presented
for currency risk.
The Group\u2019s use of financial derivatives to manage currency risk is described further in note 26.
None of the assets or liabilities of the Company are denominated in foreign currencies.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialRiskManagementExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-476": { "value": "63. Credit risk The assets of the Group and the Company which are subject to credit risk are set out below.
The Group
The Company
Note
2024
2023
2024
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial assets at amortised cost
Loans to customers
18
15,705.5
14,874.3
-
-
Trade receivables
27
1.5
1.5
-
-
Intra-group cash deposits
27
-
-
107.6
193.6
Amounts owed by Group companies
27
-
-
20.9
35.1
Investment securities
17
427.4
-
-
-
Cash
16
2,525.4
2,994.3
18.2
27.6
CRDs
27
-
38.0
-
-
Accrued interest income
27
11.1
4.6
0.1
0.1
18,670.9
17,912.7
146.8
256.4
Financial assets at fair value
Derivative financial assets
26
391.8
615.4
-
-
Maximum exposure to credit risk
19,062.7
18,528.1
146.8
256.4
All financial assets at amortised cost are subject to the requirements of IFRS 9 relating to impairment. Further information on the Group\u2019s exposure to credit risk by asset type, including the credit quality of assets and any potential concentrations of credit risk, is set out below for: \u2022 Loans to customers \u2022 Investment securities \u2022 Cash balances (including CSA assets, CRDs and accrued interest) \u2022 Trade receivables \u2022 Derivative financial assets Loans to customers The Group\u2019s credit risk is primarily attributable to its loans to customers and its business objectives rely on maintaining a high-quality customer base and place strong emphasis on prudent credit management, both at the time of acquiring or underwriting a new loan, where robust lending criteria are applied, and throughout the loan\u2019s life. Primary responsibility for the management of credit risk relating to lending activities across the Group lies with the Credit Committee. The Credit Committee, which reports to the ERC, is made up of senior employees, drawn from financial and risk functions independent of the underwriting process. It is chaired by the Credit Risk Director. Its key responsibilities include setting and reviewing credit policy, controlling applicant quality, tracking account performance against targets, agreeing product criteria and lending guidelines and monitoring performance and trends. The Group\u2019s underwriting philosophy is based on sophisticated individual credit assessment supported by the automated efficiencies of statistically based evaluation models. Information on each applicant is combined with data taken from credit reference agencies and other external sources to provide a complete credit picture of the applicant and the borrowing requested. Key information is validated through a combination of documentation and statistical data which collectively provides evidence of the applicant\u2019s ability and willingness to pay the amount contracted under the loan agreement. Similarly, where assets form part of the security to support the loan, robust asset valuation processes ensure appropriate risk mitigation is in place. Even so, in assessing credit risk, an applicant\u2019s ability and propensity to repay the loan remain the principal factors in the decision to lend, even where the Group would have security on the proposed loan. In considering whether to acquire pools of loan assets, the Group will undertake a due diligence exercise on the underlying loan accounts. Such assets are generally not fully performing and are offered at a discount to their current balance. The Group\u2019s procedures may include inspection of original loan documents, verification of security and the examination of the credit status of borrowers. Current and historic cash flow data will also be examined. The objective of the exercise is to establish, to a level of confidence similar to that provided by the underwriting process, that the assets will generate sufficient cash flows to recover the Group\u2019s investment and generate an appropriate return without exposing the Group to material operational or conduct risks. This section sets out information relevant to assessing the credit risk inherent in the Group\u2019s loans to customers balances. It is set out in the following subsections: \u2022 Types of lending and related security \u2022 Overall credit grading \u2022 Credit characteristics of particular portfolios \u2022 Arrears performance \u2022 Acquired assets Types of lending The Group\u2019s balance sheet loan assets at 30 September 2024 are analysed as follows:
2024
2023
\u00a3m
%
\u00a3m
%
Buy-to-let mortgages
13,279.3
84.6%
12,720.1
85.5%
Owner-occupied mortgages
20.3
0.1%
27.7
0.2%
Total first charge residential mortgages
13,299.6
84.7%
12,747.8
85.7%
Second charge mortgage loans
116.1
0.7%
154.5
1.0%
Loans secured on residential property
13,415.7
85.4%
12,902.3
86.7%
Development finance
884.0
5.6%
747.8
5.0%
Loans secured on property
14,299.7
91.0%
13,650.1
91.7%
Asset finance loans
633.2
4.1%
559.1
3.8%
Motor finance loans
331.4
2.1%
297.7
2.0%
Aircraft mortgages
31.2
0.2%
26.9
0.2%
Secured BBB schemes
31.0
0.2%
50.5
0.4%
Structured lending
256.9
1.6%
169.0
1.1%
Invoice finance
32.7
0.2%
31.7
0.2%
Total secured loans
15,616.1
99.4%
14,785.0
99.4%
Professions finance
53.0
0.3%
52.2
0.4%
Unsecured BBB schemes
10.5
0.1%
16.7
0.1%
Other unsecured commercial loans
25.9
0.2%
20.4
0.1%
Total loans to customers
15,705.5
100.0%
14,874.3
100.0%
First and second charge mortgages are secured by charges over residential properties in England and Wales, or similar Scottish or Northern Irish securities. Development finance loans are secured by a first charge (or similar Scottish security) over the development property and various charges over the build. Asset finance loans and motor finance loans are effectively secured by the financed asset, while aircraft mortgages are secured by a charge on the aircraft funded. Structured lending and invoice finance balances are effectively secured over the assets of the customer, with security enhanced by maintaining balances at a level less than the total amount of the security (the advance percentage). Professions finance balances are generally short-term unsecured loans made to firms of lawyers and accountants for working capital purposes. Loans made under BBB supported schemes have the benefit of a guarantee underwritten by the UK Government. There are no significant concentrations of credit risk to individual counterparties due to the large number of customers included in the portfolios. All lending is to customers within the UK. The total gross carrying value of the Group\u2019s loans to customers due from customers with total portfolio exposures over \u00a310.0m is analysed below by product type.
2024
2023
\u00a3m
\u00a3m
Buy-to-let mortgages
162.0
149.6
Development finance
497.9
390.6
Structured lending
239.3
160.3
Asset finance
11.5
24.6
910.7
725.1
The threshold of \u00a310.0m is used internally for monitoring large exposures. Credit grading An analysis of the Group\u2019s loans to customers by absolute level of credit risk at 30 September 2024 is set out below. The analysed amount represents gross carrying amount.
Stage 1
Stage 2
Stage 3
POCI
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Very low risk
12,028.0
75.6
1.1
3.3
12,108.0
Low risk
2,194.7
343.9
44.9
0.7
2,584.2
Moderate risk
182.1
199.5
16.4
1.4
399.4
High risk
127.6
78.1
12.4
3.0
221.1
Very high risk
37.0
76.3
205.2
8.2
326.7
Not graded
135.8
2.7
3.6
0.5
142.6
Total gross carrying amount
14,705.2
776.1
283.6
17.1
15,782.0
Impairment
(16.0)
(7.2)
(50.8)
(2.5)
(76.5)
Total loans to customers
14,689.2
768.9
232.8
14.6
15,705.5
30 September 2023
Very low risk
11,393.7
23.0
1.9
6.6
11,425.2
Low risk
2,236.4
395.5
73.8
2.5
2,708.2
Moderate risk
157.1
147.3
9.7
1.8
315.9
High risk
34.0
113.3
13.6
3.2
164.1
Very high risk
37.7
63.3
104.1
9.3
214.4
Not graded
113.4
2.4
2.9
1.4
120.1
Total gross carrying amount
13,972.3
744.8
206.0
24.8
14,947.9
Impairment
(19.6)
(9.4)
(39.8)
(4.8)
(73.6)
Total loans to customers
13,952.7
735.4
166.2
20.0
14,874.3
Gradings above are based on credit scorecards or internally assigned risk ratings as appropriate for the individual asset class. These measures are calibrated across product types and used internally to monitor the Group\u2019s overall credit risk profile against its risk appetite. These gradings represent current credit quality on an absolute basis and this may result in assets in higher IFRS 9 stages with low risk grades, especially where a case qualifies through breaching, for example, an arrears threshold but is making regular payments. This will apply especially to Stage 3 cases reported in note 22, other than those shown as \u2018realisations\u2019. Examples of lower risk cases in higher IFRS 9 stages include fully up-to-date receiver of rent cases; accounts where the customer is in arrears on their account with the Group but up to date on accounts with other lenders, creating an overall positive credit rating; and accounts where the default on the Group\u2019s loan has yet to impact on the external credit score. A small proportion of the loan book (2024: 0.9%, 2023: 0.8%) is classed as \u2018not graded\u2019 above. This rating generally relates to loans that have been fully underwritten at origination but where the customer falls outside the automated assessment techniques used post-completion. Credit characteristics by portfolio Loans secured on residential property First mortgage loans have a contractual term of up to thirty-five years and second charge mortgage loans up to twenty five years. In all cases the customer is entitled to settle the loan at any point and in most cases early settlement does take place. All customers on these accounts are required to make monthly payments. An analysis of the indexed Loan-to-Value (\u2018LTV\u2019) ratio for those loan accounts secured on residential property by value at 30 September 2024 is set out below. LTVs for second charge mortgages are calculated allowing for the interest of the first charge holder, based on the most recent first charge amount held by the Group, while for acquired accounts the effect of any discount on purchase is allowed for.
First charge mortgages
Second charge mortgages
2024
2023
2024
2023
%
%
%
%
Loan to value ratio
Less than 70%
71.5
72.7
96.1
94.6
70% to 80%
25.9
23.8
2.3
3.2
80% to 90%
1.7
2.5
0.8
0.9
90% to 100%
0.2
0.2
0.2
0.3
Over 100%
0.7
0.8
0.6
1.0
100.0
100.0
100.0
100.0
Average LTV ratio
62.8
62.7
50.3
52.3
Of which:
Buy-to-let
62.8
62.8
Owner-occupied
38.9
39.0
The regionally indexed LTVs shown above are affected by changes in house prices, with the Nationwide house price index, for the UK as a whole, registering an annual increase of 3.2% in the year ended 30 September 2024 (2023: decrease of 5.3%). The geographical distribution of the Group\u2019s residential mortgage assets by gross carrying value is set out below.
First charge
Second charge
2024
2023
2024
2023
%
%
%
%
East Anglia
3.3
3.3
3.3
3.4
East Midlands
6.0
5.9
6.3
6.2
Greater London
18.0
18.2
7.5
7.4
North
3.4
3.5
4.4
4.2
North West
10.1
10.3
7.4
7.5
South East
31.0
30.6
37.8
37.8
South West
9.1
9.0
8.0
8.4
West Midlands
6.3
6.2
7.2
7.3
Yorkshire and Humberside
7.1
7.4
6.0
6.2
Total England
94.3
94.4
87.9
88.4
Northern Ireland
-
-
2.5
2.3
Scotland
2.6
2.5
5.8
5.5
Wales
3.1
3.1
3.8
3.8
100.0
100.0
100.0
100.0
Development finance Development finance loans have an average term of 28 months (2023: 26 months). Settlement of principal and accrued interest takes place either on the sale of the development, or units within it, where appropriate, or on the refinancing of the property following its completion. The customer is not normally required to make payments during the term of the loan. The loans are secured by a legal charge over the site and/or property together with other charges and warranties related to the build. As customers are not required to make payments during the life of the loan, arrears and past due measures cannot be used to monitor credit risk. Instead, cases are monitored on an individual basis against the costs and progress in the agreed development programme by management and Credit Risk. The average loan to gross development value (\u2018LTGDV\u2019) ratio for the portfolio at year end, a measure of security cover, is analysed below.
2024
2024
2023
2023
By value
By number
By value
By number
%
%
%
%
LTGDV
50% or less
12.4
8.9
8.2
6.1
50% to 60%
13.4
20.1
17.3
21.7
60% to 65%
27.5
27.3
37.7
33.0
65% to 70%
24.1
30.1
25.5
27.4
70% to 75%
8.1
7.2
5.8
7.4
Over 75%
14.5
6.4
5.5
4.4
100.0
100.0
100.0
100.0
The average LTGDV cover at the year end was 63.0% (2023: 63.1%). LTGDV is calculated by comparing the current expected end of term exposure with the latest estimate of the value of the completed development based on surveyors\u2019 reports. The focus on residential property development within the portfolio means that asset values will generally move in line with the UK residential property market. At 30 September 2024, the development finance portfolio comprised 251 accounts (2023: 230) with a total carrying value of \u00a3884.0m (2023: \u00a3747.8m). Of these accounts 17 were included in Stage 2 at 30 September 2024 (2023: 15), with 19 accounts classified as Stage 3 (2023: 12). In addition, one acquired account had been classified as POCI (2023: one). An allowance for this loss was made in the IFRS 3 fair value calculation. The geographical distribution of the Group\u2019s development finance loans by gross carrying value is set out below.
2024
2023
%
%
East Anglia
4.6
4.4
East Midlands
11.2
11.8
Greater London
11.0
11.8
North
0.6
0.8
North West
0.7
0.4
South East
33.9
34.0
South West
19.7
21.3
West Midlands
7.9
6.2
Yorkshire and Humberside
6.1
6.6
Total England
95.7
97.3
Northern Ireland
-
-
Scotland
3.8
2.7
Wales
0.5
-
100.0
100.0
Asset finance and motor finance Asset and motor finance lending includes finance lease and hire purchase arrangements, which are accounted for as finance leases under IFRS 16. The average contractual life of the asset finance loans was 51 months (2023: 49 months) while that of the motor finance loans was 69 months (2023: 68 months), but historical behaviour suggests that a significant proportion of customers will choose to settle their obligations early. Asset finance customers are generally small or medium sized businesses. The nature of the assets underlying the Group\u2019s asset finance lending, including loans financed through BBB sponsored schemes, by gross carrying value is set out below.
2024
2023
%
%
Commercial vehicles
45.3
41.9
Construction plant
29.4
30.9
Manufacturing
5.3
6.3
Technology
4.2
4.8
Other vehicles
4.4
4.7
Refuse disposal vehicles
4.2
3.4
Agriculture
1.6
2.1
Print and paper
1.1
1.6
Other
4.5
4.3
100.0
100.0
Motor finance loans are secured over cars, leisure vehicles (motorhomes, caravans and campervans) and light commercial vehicles and represent exposure to consumers and small businesses. Structured lending The Group\u2019s structured lending division provides revolving loan facilities to support non-bank lending businesses. Loans are made to a Special Purpose Vehicle (\u2018SPV\u2019) company controlled by the customer and effectively secured on the loans made by the SPV. Exposure is limited to a percentage of the underlying assets, providing a buffer against credit loss. Summary details of the structured lending portfolio are set out below.
2024
2023
Number of active facilities
11
9
Total facilities (\u00a3m)
330.0
235.7
Carrying value (\u00a3m)
256.9
169.0
The maximum advance under these facilities is generally 80% of the underlying assets, except where loans secured by residential property form the security for the facility, where 90% is permissible. Customers are charged interest on their drawn balance at a rate linked to SONIA, and a commitment fee on the undrawn amount of their facility. However, there is generally no requirement to make regular payments of specific amounts, with the facilities operating on a revolving basis, able to be paid down and redrawn over their term. The performance of each loan is monitored monthly on a case by case basis by the Group\u2019s Credit Risk function, assessing compliance with covenants relating to both the customer and the performance and composition of the asset pool. These assessments, which are reported to Credit Committee, are used to inform the assessment of expected credit loss under IFRS 9. At 30 September 2024 one of these facilities was identified as Stage 2 (2023: none) with the remainder in Stage 1. BBB supported schemes These schemes are managed by the British Business Bank (\u2018BBB\u2019) and loans made under them have the benefit of guarantees underwritten by the UK Government. They were originally launched as a response to the impact of Covid on UK SMEs, but remain in place. The Coronavirus Business Interruption Loan Scheme (\u2018CBILS\u2019) and the Bounce Back Loan Scheme (\u2018BBLS\u2019) were launched in 2020 and remained open for new applications until March 2021. The Recovery Loan Scheme (\u2018RLS\u2019) was launched in April 2021 as a successor scheme and has subsequently been extended twice. It was available for new lending until June 2024 at which point it was rebranded as the Growth Guarantee Scheme (\u2018GGS\u2019), on broadly similar terms. The Group offered term loans and asset finance loans under the CBIL scheme. Interest and fees were paid by the UK Government for the first twelve months and the government guarantee covers up to 80% of the lender\u2019s principal loss after the application of any proceeds from the asset financed (if applicable). Loans under the BBL scheme are six year term loans at a standard 2.5% per annum interest rate. The UK Government paid the interest on the loan for the first twelve months and provides lenders with a guarantee covering the whole outstanding balance. The Group offers term loans and asset finance loans under the RLS. Interest and fees are payable by the customer from inception. The government guarantee covers up to 80% of the lender\u2019s principal loss, after the application of any proceeds from the asset financed (if applicable), on applications received before 1 January 2022 and up to 70% for applications received thereafter under the RLS or under the successor GGS. The Group\u2019s outstanding RLS / GGS, CBILS and BBLS loans at 30 September 2024 were:
2024
2023
\u00a3m
\u00a3m
RLS / GGS
Term loans
0.6
1.0
Asset finance
23.4
36.0
Total RLS / GGS
24.0
37.0
CBILS
Term loans
7.7
12.6
Asset finance
7.6
14.5
Total CBILS
15.3
27.1
BBLS
2.2
3.1
41.5
67.2
Total term loans
10.5
16.7
Total asset finance (note 19)
31.0
50.5
41.5
67.2
At 30 September 2024, \u00a30.5m of this balance was considered to be non-performing (2023: \u00a30.7m). Arrears performance The number of accounts in arrears by asset class, based on the most commonly quoted definition of arrears for the type of asset, at 30 September 2024 and 30 September 2023, compared to the industry averages at those dates published by UK Finance (\u2018UKF\u2019) and the Finance and Leasing Association (\u2018FLA\u2019), was:
2024
2023
%
%
First mortgages
Accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases
0.38
0.34
Buy-to-let accounts excluding receiver of rent cases
0.19
0.15
Owner-occupied accounts
6.59
2.93
UKF data for mortgage accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases
0.86
0.64
Buy-to-let accounts excluding receiver of rent cases
0.76
0.60
Owner-occupied accounts
0.97
0.87
All mortgages
0.93
0.82
Second charge mortgage loans
Accounts more than 2 months in arrears
All accounts
24.63
23.48
Post-2010 originations
2.92
2.42
Legacy cases (pre-2010 originations)
26.88
26.58
Purchased assets
31.47
30.10
FLA data for second mortgage loans
6.50
6.30
Motor finance loans
Accounts more than 2 months in arrears
All accounts
1.06
1.08
Originated cases
1.06
1.07
Purchased assets
1.13
1.32
FLA data for consumer point of sale hire purchase
4.10
3.60
Asset finance loans
Accounts more than 2 months in arrears
0.14
0.23
FLA data for business lease / hire purchase loans
0.70
0.60
No published industry data for asset classes comparable to the Group\u2019s other books has been identified. Where revised data at 30 September 2023 has been published by the FLA or UKF, the comparative industry figures above have been amended. Arrears information is not given for development finance, structured lending or invoice finance activities as the structure of the products means that such a measure is not appropriate. No figure has been calculated for unsecured commercial lending balances due to the size of the exposure. The Group calculates its headline arrears measure for buy-to-let mortgages, shown above, based on the numbers of accounts three months or more in arrears, including purchased assets, but excluding those cases in possession and receiver of rent cases designated for sale. This is consistent with the methodology used by UKF in compiling its statistics for the buy-to-let mortgage market as a whole. The number of accounts in arrears will naturally be higher for legacy books, such as the Group\u2019s legacy second charge mortgages and residential first mortgages than for comparable active ones, as performing accounts pay off their balances, leaving arrears accounts representing a greater proportion of the total. The figures shown above for second charge mortgage loans incorporate purchased portfolios which generally include a high proportion of cases in arrears at the time of purchase and where this level of performance is allowed for in the discount to current balance represented by the purchase price. However, this will lead to higher than average reported arrears. Acquired assets A significant proportion of the Group\u2019 second charge mortgage balances were part of purchased debt portfolios, where the consideration paid was based on the credit quality and performance of the loans at the point of the transaction. No additional loans to customers treated as POCI were acquired in the year ended 30 September 2023 or the year ended 30 September 2024. Collections on purchased accounts have been comfortably in excess of those implicit in the purchase prices. In the debt purchase industry, Estimated Remaining Collections (\u2018ERC\u2019) is commonly used as a measure of the value of a portfolio. This is defined as the sum of the undiscounted cash flows expected to be received over a specified future period. In the Group\u2019s view, this measure may be suitable for heavily discounted, unsecured, distressed portfolios (which will be treated as POCI under IFRS 9), but is less applicable for the types of portfolio in which the Group has invested, where cash flows are higher on acquisition, loans may be secured on property and customers may not be in default. In such cases, the IFRS 9 amortised cost balance, at which these assets are carried in the Group balance sheet, provides a better indication of value. However, to aid comparability, the 84 and 120 month ERCs value for the Group\u2019s purchased consumer loan assets, are set out below. These are derived using the same models and assumptions used in the EIR calculations. ERCs are set out both for all purchased consumer portfolios and for those classified as POCI under IFRS 9.
2024
2023
2022
\u00a3m
\u00a3m
\u00a3m
All purchased consumer assets
Carrying value
41.1
58.6
75.3
84 month ERCs
48.6
68.9
88.6
120 month ERCs
52.9
73.4
94.2
POCI assets only
Carrying value
10.6
17.7
21.4
84 month ERCs
15.6
24.5
29.9
120 month ERCs
18.7
27.8
33.0
Amounts shown above are disclosed as loans to customers (note 18). They include first mortgages and second charge mortgage loans. Investment securities The credit risk inherent in the Group\u2019s investment securities is controlled by ALCO, which determines the nature of securities which may be invested in and the types of issuers in whose securities the Group may invest. The Group has formal risk appetites, policies and limits, approved by the Risk and Compliance Committee. The Group\u2019s holdings at 30 September 2024, described in note 17, comprise gilts issued by the UK Government and covered bonds issued by UK institutions. The Group\u2019s investments are analysed below according to the public credit rating assigned to institutional exposures, or by the credit ratings assigned by Fitch for sovereign (UK Government) exposures.
2024
2023
Sovereign
Institutional
Total
Sovereign
Institutional
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Rating
AAA
-
23.0
23.0
-
-
-
AA-
404.4
-
404.4
-
-
-
404.4
23.0
427.4
-
-
-
Cash balances The credit risk inherent in the cash positions of the Group and the Company is controlled by ALCO, which determines which institutions deposits may be placed with. The Group has formal risk appetites, policies and limits, approved by the Risk and Compliance Committee. These include limitations on large exposures to mitigate any concentration risk in respect of its investments. For cash deposits within the Group\u2019s securitisation structures, the scheme documents will set out criteria for allowable investments, including rating thresholds. The Group\u2019s cash balances are held in sterling at the Bank of England and at highly rated banks in current and call accounts. Cash is also invested as short fixed-term money market deposits from time-to-time. The carrying value of the Group\u2019s and the Company\u2019s cash balances analysed by their long-term credit rating as determined by Fitch is set out below.
2024
2023
\u00a3m
\u00a3m
The Group
Cash with central banks rated:
AA-
Cash with retail banks rated:
2,315.5
2,783.3
AA-
98.2
78.9
A+
111.7
132.1
209.9
211.0
Total exposure
2,525.4
2,994.3
The Company
Cash with retail banks rated:
A+
18.3
28.1
CRDs were exposures to the Bank of England and thus share the central bank rating noted above while CSA assets, placed with retail banks, have similar ratings to those shown above for retail bank deposits. Credit risk on all these balances, and any interest accrued thereon, is considered to be minimal. These balances are considered as Stage 1 for IFRS 9 impairment purposes with a PD such that any provision required would be immaterial. Trade debtors The Group\u2019s trade debtors balance represents principally amounts outstanding on unpaid operating lease obligations in the asset finance business, where similar acceptance criteria to those used for finance lease cases apply. Financial assets at fair value The Group\u2019s financial assets held at fair value comprise solely derivative financial instruments used for hedging purposes (note 26). In order to control credit risk relating to counterparties to the Group\u2019s derivative financial instruments, ALCO reviews and approves which counterparties the Group will deal with, establishes limits for each counterparty and monitors compliance with those limits. Any changes necessary are advised to ERC. The Group\u2019s counterparties are typically highly rated banks and, for all derivative positions held within securitisation structures, must comply with criteria set out in the financing arrangements, which are monitored externally. Since June 2019, the Group has been centrally clearing certain eligible derivatives with a Central Clearing Counterparty (\u2018CCP\u2019) which removes credit risk between bilateral counterparties and ensures timely settlement and / or porting of derivative contracts in the event of the failure of a counterparty. The Group uses the ISDA Master Agreement and Credit Support Annex (\u2018CSA\u2019) for documenting uncleared derivative activity. Under a CSA, collateral is passed between counterparties to mitigate the market contingent counterparty risk inherent in the outstanding positions. Collateral pledged to such counterparties by the Group is shown in note 27, while collateral pledged to the Group is shown in note 40. The Group\u2019s exposure to credit risk in respect of the counterparties to its derivative financial assets, analysed by their long-term credit rating as determined by Fitch is set out below.
2024
2023
\u00a3m
\u00a3m
Carrying value of derivative financial assets
Counterparties rated
AA
0.4
-
AA-
2.0
3.3
A+
357.8
588.9
A
-
5.5
A-
31.6
17.7
Gross exposure (note 26)
391.8
615.4
Collateral amounts posted
CSA collateral amounts (note 40)
(103.6)
(383.4)
Total collateral
(103.6)
(383.4)
Net exposure
288.2
232.0
", "dimensions": { "concept": "ifrs-full:DisclosureOfCreditRiskExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-477": { "value": "64. Liquidity risk Liquidity risk is the risk that the Group might be unable to meet its liabilities and financial commitments as they fall due. The Group\u2019s principal source of liquidity risk is from its retail deposit funding. Amounts raised are typically used to support lending activities where maturity is over a longer period than that of the deposits. This maturity transformation exposes the Group to liquidity risk. Other sources of liquidity risk in the normal course of business include that arising: \u2022 In the medium term from the Group\u2019s corporate and retail bonds which are used to support its general operations and from its participation in central bank funding schemes \u2022 From the Group\u2019s derivatives portfolio which gives rise to liquidity risk due to the collateral requirements to cover adverse changes in valuation \u2022 From the Group\u2019s participation in wholesale funding, including SPVs, where sufficient funding must be available Liquidity is also required to provide capital support for new loans and working capital for the Group. Where assets are funded by non-recourse arrangements, through the securitisation process, liquidity risk is effectively eliminated. As an authorised deposit taker, the liquidity position of Paragon Bank PLC, the Group\u2019s banking subsidiary, is also managed on a stand-alone basis. Set out below is a summary of the contractual cash flows expected to arise from the Group\u2019s financial and leasing liabilities, based on the earliest date at which repayment can be demanded.
Amounts payable
In one year In more than In more than In more than Total
or less, or on one year, but two years but five years
demand not more than not more than
two years five years
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Retail deposits
14,559.7
1,657.2
740.7
63.0
17,020.6
Borrowings
150.3
761.6
28.0
163.0
1,102.9
Total non-derivative liabilities
14,710.0
2,418.8
768.7
226.0
18,123.5
Derivative liabilities
21.8
31.3
52.0
7.5
112.6
14,731.8
2,450.1
820.7
233.5
18,236.1
30 September 2023
Retail deposits
11,278.3
1,782.5
734.5
44.4
13,839.7
Borrowings
327.1
160.3
2,811.3
170.1
3,468.8
Total non-derivative liabilities
11,605.4
1,942.8
3,545.8
214.5
17,308.5
Derivative liabilities
52.8
(5.9)
8.7
0.3
55.9
11,658.2
1,936.9
3,554.5
214.8
17,364.4
Non-recourse balances are payable only to the extent that funds are available, as described further below, and do not expose the Group to any material liquidity risk. They are therefore not included in the table above. As the amounts set out above include all expected future cash flows, including principal and interest, they will not correspond to amortised cost or fair value amounts reported in the balance sheet. Further information on the liquidity exposure arising from the Group\u2019s retail deposits, securitisation and other borrowings is set out below. The liquidity exposures of the Company arise only from its borrowings, and are set out below. The overall responsibility for the management of liquidity risk rests with ALCO which makes recommendations for the Group\u2019s liquidity policy for board approval. ALCO monitors liquidity risk metrics within limits set by the Board and/or regulators and uses detailed cash flow projections to ensure that an adequate level of liquidity is available at all times. The Group\u2019s and the Bank\u2019s liquidity position is managed on a day-to-day basis by the treasury function, under the supervision of ALCO. Retail deposits The Group\u2019s retail funding strategy is focussed on building a stable mix of deposit products. A high proportion of balances, around 95%, are protected by the FSCS which mitigates against the possibility of a retail run. The cash outflows, including principal and estimated interest contractually required by the Group\u2019s retail deposit balances, analysed by the earliest date at which repayment can be demanded are set out below:
2024
2023
\u00a3m
\u00a3m
Payable on demand
7,697.6
4,181.5
Payable in less than three months
1,718.0
1,649.5
Payable in less than one year but more than three months
5,144.1
5,447.3
Payable in less than one year or on demand
14,559.7
11,278.3
Payable in one to two years
1,657.2
1,782.5
Payable in two to five years
740.7
734.5
Payable after more than five years
63.0
44.4
17,020.6
13,839.7
In order to reduce the liquidity risk inherent in the Group\u2019s retail deposit balances, the PRA requires that the Bank, like other regulated banks, maintains a buffer of liquid assets to ensure it has sufficient available funds at all times to protect against unforeseen circumstances. The amount of this buffer is calculated using Individual Liquidity Guidance (\u2018ILG\u2019) set by the PRA based on the Internal Liquidity Adequacy Assessment Process (\u2018ILAAP\u2019) undertaken by the Bank. The ILAAP determines the liquid resources that must be maintained in the Bank to meet the Overall Liquidity Adequacy Rule (\u2018OLAR\u2019) and to ensure that it can meet its liabilities as they fall due. It is based on an analysis of its business as usual forecast cash requirements but also considers their predicted behaviour in stressed conditions. At 30 September 2024 the liquidity buffer comprised the following on and off balance sheet assets. All these assets are held within Paragon Bank. Balances with central banks are immediately available, while investment securities can be readily monetised with third parties, through repo transactions or by use of liquidity facilities available at the Bank of England.
Note
2024
2023
\u00a3m
\u00a3m
Balances with central banks
2,207.9
2,589.7
Investment securities
17
427.4
-
Total on balance sheet liquidity
2,635.3
2,589.7
Long / short repo transaction
150.0
150.0
2,785.3
2,739.7
Balances with central banks above exclude group treasury balances placed on deposit at the Bank of England through Paragon Bank (note 27). Paragon Bank manages its Liquidity Coverage Ratio (\u2018LCR\u2019), the level of its High Quality Liquid Assets (\u2018HQLA\u2019) relative to its short-term forecast net cash outflows. A minimum level of LCR is set through regulation for all regulated financial institutions. As at 30 September 2024, the Bank\u2019s LCR was comfortably above the required minimum regulatory standard. The Bank also monitors its Net Stable Funding Ratio (\u2018NSFR\u2019) which measures the stability of the funding profile in relation to the composition of its assets and off balance sheet activities. Liquidity is not regulated at Group level. Borrowings Set out below is the contractual maturity profile of the Group\u2019s and the Company\u2019s borrowings at 30 September 2024 and 30 September 2023 based on their carrying values. These are analysed between non-recourse (securitisation) and other funding, with the liquidity position arising principally from the other funding. The Group
Financial liabilities falling due:
In one year In more than In more than In more than Total
or less, or on one year, but two years but five years
demand not more than not more than
two years five years
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Asset backed loan notes
-
-
-
-
-
Total non-recourse funding
-
-
-
-
-
Bank overdrafts
0.4
-
-
-
0.4
Retail bonds
-
-
-
-
-
Corporate bond
-
-
-
149.9
149.9
Central bank facilities
5.0
744.8
5.2
-
755.0
Sale and repurchase agreements
100.0
-
-
-
100.0
Lease liabilities
2.9
2.1
2.9
-
7.9
108.3
746.9
8.1
149.9
1,013.2
30 September 2023
Asset backed loan notes
-
-
-
28.0
28.0
Total non-recourse funding
-
-
-
28.0
28.0
Bank overdrafts
0.2
-
-
-
0.2
Retail bonds
112.4
-
-
-
112.4
Corporate bond
-
-
-
145.8
145.8
Central bank facilities
-
-
2,750.0
-
2,750.0
Sale and repurchase agreements
50.0
-
-
-
50.0
Lease liabilities
2.6
2.4
3.4
0.5
8.9
165.2
2.4
2,753.4
174.3
3,095.3
The Company
Financial liabilities falling due:
In one year In more than In more than In more than Total
or less, or on one year, but two years but five years
demand not more than not more than
two years five years
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
30 September 2024
Retail bonds
-
-
-
-
-
Corporate bond
-
-
-
149.6
149.6
Lease liabilities
1.4
1.4
4.4
5.2
12.4
1.4
1.4
4.4
154.8
162.0
30 September 2023
Retail bonds
112.4
-
-
-
112.4
Corporate bond
-
-
-
149.4
149.4
Lease liabilities
1.3
4.3
1.4
6.7
13.7
113.7
4.3
1.4
156.1
275.5
IFRS 7 requires the disclosure of future contractual cash flows (including interest) on these borrowings, and these are described and set out on the following pages. Non-recourse funding The Group has historically used securitisation as a principal source of funding, but currently only accesses this market on a strategic basis with no external balances outstanding at 30 September 2024. In a securitisation an SPV company within the Group will issue asset backed loan notes secured on a pool of mortgage or other loan assets beneficially owned by the SPV either to external investors in a public offer, or to another group company. Notes held internally can be used as security to access other funding sources. The notes have a maturity date later than the final repayment date for any asset in the pool, typically over thirty years from the issue date. The noteholders are entitled to receive repayment of the note principal from principal funds generated by the loan assets from time-to-time, but their right to the repayment of principal is limited to the cash available in the SPV. Similarly, payment of accrued interest to the noteholders is limited to cash generated within the SPV. There is no requirement for any group company other than the issuing SPV to make principal or interest payments in respect of the notes. This matching of the maturities of the assets and the related funding substantially reduces the Group\u2019s exposure to liquidity risk. Details of notes in issue are given in note 34 and the assets backing the notes are shown in note 18. In each case the Group provides funding to the SPV at inception, subordinated to the notes, which means that the primary credit risk on the pool assets is retained within the Group. The Group receives the residual income generated by the assets. These factors mean that the risks and rewards of ownership of the assets remain with the Group, and hence the loans remain on the Group\u2019s balance sheet, whether the notes are issued externally or retained. Cash received from time-to-time in each SPV is held until the next interest payment date when, following payment of principal, interest and the associated costs of the SPV, the remaining balances become available to the Group. Cash balances are also held within each SPV to provide credit enhancement for the particular securitisation, allowing interest and principal payments to be made even if some of the loans default. The cash balances of the SPV companies are included within the restricted cash balances disclosed in note 16 as \u2018securitisation cash\u2019. The sterling principal amount outstanding at 30 September 2024 under the SPV and warehouse arrangements was \u00a3nil (2023: \u00a328.4m). The total sterling amount payable under these arrangements, were these principal amounts to remain outstanding until the final repayment date, would be \u00a3nil (2023: \u00a343.3m). As the principal will, as discussed above, reduce as customers repay or redeem their accounts, the cash flow will be far less than this amount in practice. Corporate debt The Group issued \u00a3150.0m of tier-2 debt in March 2021. This bond is optionally callable between 25 June 2026 and 25 September 2026 and has a final maturity date of 25 September 2031. In February 2013, the Company initiated a Euro Medium Term Note issuance programme, with a maximum issuance of \u00a31,000.0m. The Company had the ability to issue further notes under the programme and has issued three fixed rate bonds for a total of \u00a3297.5m, with interest rates ranging from 6.000% to 6.125% and maturities ranging from December 2020 to August 2024. The last of these bonds was repaid in the year. The Group\u2019s ability to issue debt is supported by its credit rating issued by Fitch which was affirmed at BBB+ in February 2024. At the same time, the Group\u2019s principal operating subsidiary, Paragon Bank PLC, was also guaranteed a Long-term Issuer Default rating of BBB+ by Fitch, increasing the range of funding solutions available. Central bank facilities The Group has accessed term credit facilities under the central bank schemes described in note 38. No amounts fall due under these schemes before October 2025, but substantial repayments have already been made. The Group has prepositioned further assets with the Bank of England which can be used to release more funds for liquidity or other purposes. At 30 September 2024 the amount of drawings available in respect of prepositioned assets was \u00a34,445.9m (2023: \u00a31,715.4m). Additional liquidity The Group holds certain of its own listed, externally rated, asset backed securities which may be used as security to access term credit and other facilities, including those offered by the Bank of England. The principal value of these notes is analysed by credit grade and utilisation status below.
2024
2023
Utilised
Available
Total
Utilised
Available
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Rating
AAA
225.5
1,536.2
1,761.7
222.1
986.9
1,209.0
AA+ / AA / AA-
5.8
109.4
115.2
5.3
100.9
106.2
A+ / A / A-
3.7
70.0
73.7
3.1
59.9
63.0
BBB+ / BBB / BBB-
4.3
81.6
85.9
3.1
57.9
61.0
239.3
1,797.2
2,036.5
233.6
1,205.6
1,439.2
As these notes are held internally, they are not included in balance sheet liabilities. Mortgage assets backing these securities remain on the Group\u2019s balance sheet and are included in amounts pledged as collateral in note 18. Utilised notes includes those which the Group is obliged to hold under regulations governing securitisation issuance. The available AAA notes would give access to \u00a3751.9m (2023: \u00a3769.8m) if used to secure drawings on Bank of England facilities. The Group\u2019s holdings of investment securities (note 17) are also available to access term credit and other facilities in a similar way. During the year ended 30 September 2020, the Group entered into a back-to-back long / short sale and repurchase (\u2018repo\u2019) transaction with a UK bank which continued throughout the current year. This provides \u00a3150.0m of liquidity (2023: \u00a3150.0m), utilising \u00a326.5m of the loan notes shown above, but does not appear on the Group\u2019s balance sheet. The Group has also entered into short-term repo transactions from time-to-time, including during the current year, and maintains the capability to access the repo market for liquidity purposes. Transactions in place at 30 September 2024 (note 39) utilised \u00a3111.0m of the loan notes shown above (2023: \u00a358.5m). Contractual cash flows The total undiscounted amounts, inclusive of estimated interest, which would be payable in respect of the non-securitisation borrowings of the Group and the Company, should those balances remain outstanding until the contracted repayment date, or the earliest date on which repayment can be required, are set out below.
Corporate Retail Central bank Sale and Lease Total
bonds bonds facilities repurchase liabilities
transactions
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
a) The Group
30 September 2024
Payable in:
Less than one year
6.6
-
39.4
101.4
2.9
150.3
One to two years
6.6
-
752.9
-
2.1
761.6
Two to five years
19.7
-
5.3
-
3.0
28.0
Over five years
163.0
-
-
-
-
163.0
195.9
-
797.6
101.4
8.0
1,102.9
30 September 2023
Payable in:
Less than one year
6.6
119.3
147.8
50.8
2.6
327.1
One to two years
6.6
-
151.3
-
2.4
160.3
Two to five years
19.7
-
2,788.2
-
3.4
2,811.3
Over five years
169.6
-
-
-
0.5
170.1
202.5
119.3
3,087.3
50.8
8.9
3,468.8
Corporate Retail Lease Total
bonds bonds liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
b) The Company
30 September 2024
Payable in:
Less than one year
6.6
-
1.7
8.3
One to two years
6.6
-
1.7
8.3
Two to five years
19.7
-
5.0
24.7
Over five years
163.0
-
4.9
167.9
195.9
-
13.3
209.2
30 September 2023
Payable in:
Less than one year
6.6
119.3
1.7
127.6
One to two years
6.6
-
1.7
8.3
Two to five years
19.7
-
5.0
24.7
Over five years
169.6
-
7.0
176.6
202.5
119.3
15.4
337.2
Amounts payable in respect of the \u2018other accruals\u2019 and \u2018trade creditors\u2019 shown in note 40 fall due within one year. The cash flows described above will include those for interest on borrowings accrued at 30 September 2024 disclosed in note 40. The cash flows which are expected to arise from derivative contracts in place at the year end, estimating future floating rate payments and receipts on the basis of the yield curve at the balance sheet date are as follows:
2024
2023
Total cash Total cash
outflow / (inflow) outflow / (inflow)
\u00a3m
\u00a3m
On derivative liabilities
Payable in less than one year
21.8
52.8
Payable in one to two years
31.3
(5.9)
Payable in two to five years
52.0
8.7
Payable in over five years
7.5
0.3
112.6
55.9
On derivative assets
Payable in less than one year
(117.4)
(218.2)
Payable in one to two years
(106.5)
(175.4)
Payable in two to five years
(46.5)
(162.3)
Payable in over five years
(8.4)
-
(278.8)
(555.9)
(166.2)
(500.0)
", "dimensions": { "concept": "ifrs-full:DisclosureOfLiquidityRiskExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-478": { "value": "65. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group\u2019s exposure to market risk is mainly through interest rate risk, though there is some minor exposure to currency risk. These exposures arise solely through the Group\u2019s lending and deposit taking business - no speculative trading in financial instruments is undertaken. Interest rate risk Interest rate risk is the current or prospective risk to capital or earnings arising from adverse movements in interest rates. The Group\u2019s exposure to this risk is a natural consequence of its lending, deposit-taking and other borrowing activities, as some of its financial assets and liabilities bear interest at rates which float with various market rates, principally SONIA, some at variable rates, controlled by the Group, subject to market pressures, while others are fixed, either for a term or for their whole lives. Such risk is referred to as Interest Rate Risk in the Banking Book (\u2018IRRBB\u2019). The Group does not seek to generate income from taking interest rate risk and aims to minimise exposures that occur as a natural consequence of carrying out its normal business activities. The Group balance sheet also includes assets, liabilities and equity which, by their nature, do not attract interest. IRRBB is managed through board approved risk appetite limits and policies. The Group seeks to match the structure of assets and liabilities naturally where possible or by using appropriate financial instruments, such as interest rate swaps. In developing this strategy, the Group also has regard to the potential impact of fixed rate lending and deposit pipelines, and of the difference in value between total interest-earning assets and total interest-bearing liabilities, largely represented by the Group\u2019s equity, both of which can lead to additional exposure to interest rate movements. Day-to-day management of interest rate risk is the responsibility of the Group\u2019s Treasury function, with control and oversight provided by ALCO. The Group\u2019s risk management framework for IRRBB continues to evolve in line with updates in regulatory guidance on methods expected to be used by banks measuring, managing, monitoring and controlling such risks. IRRBB exposures Risk exposure in the Group\u2019s operations might occur through: \u2022 Duration or re-pricing risk. The risk created when interest rates on assets, liabilities and off balance sheet items reprice at different times causing them to move by different amounts \u2022 Basis risk. The risk arising where assets and liabilities re-price with reference to different reference interest rates, for example rates set by the Group and market rates, such as Bank of England base rate and SONIA. Relative changes in the difference between the reference rates over time may impact earnings \u2022 Optionality or prepayment risk. The risk that settlement of asset and liability balances at different times from those forecast due to economic conditions or customer behaviour may create a mismatch in future periods Due to the maturity transformation inherent in the Group\u2019s business model it is also exposed to the risk that the relationship between the rates affecting the shorter-term funding balance and the rates affecting the longer-term lending balance will have altered when the funding has to be refinanced. The Group measures these risks through a combination of economic value and earnings-based measures considering prepayment risk: \u2022 Economic Value (\u2018EV\u2019) \u2013 a range of parallel and non-parallel interest rate stresses are applied to assess the change in market value from assets, liabilities and off balance sheet items re-pricing at different times \u2022 Net Interest Income (\u2018NII\u2019) - impact on earnings from a range of interest rate stresses The Group\u2019s use of financial derivatives for hedging interest rate risk relating to its fixed rate lending, deposit taking, investing and borrowing activities is discussed further in note 26. Interest rate sensitivity To provide a broad indication of the Group\u2019s exposure to interest rate movements, the notional impact of a 1.0% change in UK interest rates on the equity of the Group at 30 September 2024, and the notional annualised impact of such a change on the operating profit of the Group, based on the year-end balance sheet have been calculated. As a simplification this calculation assumes that all relevant UK interest rates move by the same amount in parallel and that all repricing takes place at the balance sheet date. On this basis, a 1.0% increase in UK interest rates would increase profit before tax by \u00a33.5m (2023: increase by \u00a316.1m). The principal direct point in time impact on the Group\u2019s equity would result from the revaluation of derivative assets and liabilities which are not part of fair value hedges at the balance sheet date. A 1.0% increase in rate expectations would increase equity by \u00a314.1m (2023: increase by \u00a316.0m). For this illustration no ineffectiveness in hedging relationships is assumed. These calculations allow only for the direct effects of any change in UK interest rates. In practice, such a change might have wider economic consequences which would themselves potentially affect the Group\u2019s business and results. It should be noted that these sensitivities are illustrative only, and much simplified from those used to manage IRRBB in practice . The Company All the borrowings of the Company have fixed interest rates. The Company\u2019s investments in loans to subsidiary companies include a Tier-2 Bond issued by Paragon Bank PLC, with terms matching the Tier-2 Bond issued by the Company. Its intercompany balance with Paragon Bank (note 27) also includes \u00a3107.6m which is placed on deposit with the Bank of England (2023: \u00a3193.6m). Interest is received on this balance at the same rate as that paid by the Bank of England. Other assets and liabilities with group entities bear interest at rates based on SONIA. All other balances in the Company balance sheet are non-interest bearing. Currency risk Currency risk, also referred to as foreign exchange or forex risk, is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has little appetite for material amounts of exposure to currency risk and applies a hedging strategy for any material open positions through the use of spot or forward contracts or derivatives. All the Group\u2019s significant assets and liabilities at 30 September 2024 and 30 September 2023 are denominated in sterling. The SME lending business has a limited amount of lending denominated in US dollars, principally \u00a34.4m of aircraft mortgage balances (2023: \u00a37.6m). It may also contract to purchase assets for leasing in currency. These balances are hedged by the purchase of currency derivatives and / or appropriate currency balances. As a result of these arrangements the Group has no material exposure to foreign currency risk, and no sensitivity analysis is presented for currency risk. The Group\u2019s use of financial derivatives to manage currency risk is described further in note 26. None of the assets or liabilities of the Company are denominated in foreign currencies.", "dimensions": { "concept": "ifrs-full:DisclosureOfMarketRiskExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-498": { "value": "Interest rate sensitivity To provide a broad indication of the Group\u2019s exposure to interest rate movements, the notional impact of a 1.0% change in UK interest rates on the equity of the Group at 30 September 2024, and the notional annualised impact of such a change on the operating profit of the Group, based on the year-end balance sheet have been calculated. As a simplification this calculation assumes that all relevant UK interest rates move by the same amount in parallel and that all repricing takes place at the balance sheet date. On this basis, a 1.0% increase in UK interest rates would increase profit before tax by \u00a33.5m (2023: increase by \u00a316.1m). The principal direct point in time impact on the Group\u2019s equity would result from the revaluation of derivative assets and liabilities which are not part of fair value hedges at the balance sheet date. A 1.0% increase in rate expectations would increase equity by \u00a314.1m (2023: increase by \u00a316.0m). For this illustration no ineffectiveness in hedging relationships is assumed. These calculations allow only for the direct effects of any change in UK interest rates. In practice, such a change might have wider economic consequences which would themselves potentially affect the Group\u2019s business and results. It should be noted that these sensitivities are illustrative only, and much simplified from those used to manage IRRBB in practice ", "dimensions": { "concept": "ifrs-full:SensitivityAnalysisForEachTypeOfMarketRisk", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-385": { "value": "
66. Basis of preparation
The Group is required, by the Companies Act 2006 and the Listing Rules of the FCA, to prepare its financial statements for the year
ended 30 September 2024 in accordance with UK-adopted international accounting standards. In the financial years reported on
this also means, in the Group\u2019s circumstances, that the financial statements also accord with IFRS as approved by the International
Accounting Standards Board.
The particular accounting policies adopted have been set out in note 67 and the critical accounting judgements and estimates which
have been required in preparing these financial statements are described in notes 68 and 69 respectively.
The Group has historically chosen to present an additional comparative balance sheet.
Adoption of new and revised reporting standards
In the preparation of these financial statements, no accounting standards are being applied for the first time.
Change in accounting policy
During the year the directors reviewed the accounting treatment of the ESOP trusts described in note 47. Where previously the trusts
had been considered separate entities within the group consolidation it was considered that it was more appropriate to include them
as if the assets and liabilities of the trusts were assets and liabilities of the Company.
The principal impact of this is in the inclusion of the shares in the Company held by the ESOP trust with other treasury shares
(note 47) and transactions in those shares as transactions of the Company. Therefore, shares purchased by the trust are immediately
recognised in \u2018own shares\u2019 in the Company and deducted from its equity in the same way as they are in the consolidated accounts.
Previously loans made by the Company to the trust were recognised as assets of the Company and impairment on them charged
to profit.
This change has been applied retrospectively, with the restatement increasing the Company\u2019s profit after tax for the year ended
30 September 2023 by \u00a38.7m. The corresponding movement impacts reserves in that year. The impact on net assets and operating
cash flows is not material.
This change has no effect on the consolidated accounts of the Group.
Standards not yet adopted
IFRS 18
On 9 April 2024 the IASB issued IFRS 18 \u2013 \u2018Presentation and Disclosure in Financial Statements\u2019. This is expected to impact the
way in which information is disclosed in financial statements without impacting materially on the underlying accounting.
IFRS 18 is expected to apply to the Group and the Company with effect from its financial year ending 30 September 2028, if the
standard is endorsed for use in the UK. A detailed exercise to determine the impact of the new Standard on the Group\u2019s annual
reporting will be carried out before the implementation date. However, it is expected that the impact of the new standard on banking
companies will be less than that for companies in general.
Other than IFRS 18, described above, there are no new reporting standards and interpretations in issue but not effective which
address matters relevant to the Group\u2019s accounting and reporting.
", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfPreparationOfFinancialStatementsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-441": { "value": "The Group is required, by the Companies Act 2006 and the Listing Rules of the FCA, to prepare its financial statements for the year ended 30 September 2024 in accordance with UK-adopted international accounting standards. In the financial years reported on this also means, in the Group\u2019s circumstances, that the financial statements also accord with IFRS as approved by the International Accounting Standards Board. ", "dimensions": { "concept": "ifrs-full:StatementOfIFRSCompliance", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-479": { "value": "Adoption of new and revised reporting standards In the preparation of these financial statements, no accounting standards are being applied for the first time. ", "dimensions": { "concept": "ifrs-full:DescriptionOfInitialApplicationOfStandardsOrInterpretations", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-442": { "value": "Adoption of new and revised reporting standards In the preparation of these financial statements, no accounting standards are being applied for the first time. Change in accounting policy During the year the directors reviewed the accounting treatment of the ESOP trusts described in note 47. Where previously the trusts had been considered separate entities within the group consolidation it was considered that it was more appropriate to include them as if the assets and liabilities of the trusts were assets and liabilities of the Company. The principal impact of this is in the inclusion of the shares in the Company held by the ESOP trust with other treasury shares (note 47) and transactions in those shares as transactions of the Company. Therefore, shares purchased by the trust are immediately recognised in \u2018own shares\u2019 in the Company and deducted from its equity in the same way as they are in the consolidated accounts. Previously loans made by the Company to the trust were recognised as assets of the Company and impairment on them charged to profit. This change has been applied retrospectively, with the restatement increasing the Company\u2019s profit after tax for the year ended 30 September 2023 by \u00a38.7m. The corresponding movement impacts reserves in that year. The impact on net assets and operating cash flows is not material. This change has no effect on the consolidated accounts of the Group. Standards not yet adopted IFRS 18 On 9 April 2024 the IASB issued IFRS 18 \u2013 \u2018Presentation and Disclosure in Financial Statements\u2019. This is expected to impact the way in which information is disclosed in financial statements without impacting materially on the underlying accounting. IFRS 18 is expected to apply to the Group and the Company with effect from its financial year ending 30 September 2028, if the standard is endorsed for use in the UK. A detailed exercise to determine the impact of the new Standard on the Group\u2019s annual reporting will be carried out before the implementation date. However, it is expected that the impact of the new standard on banking companies will be less than that for companies in general. Other than IFRS 18, described above, there are no new reporting standards and interpretations in issue but not effective which address matters relevant to the Group\u2019s accounting and reporting.", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-480": { "value": "Standards not yet adopted IFRS 18 On 9 April 2024 the IASB issued IFRS 18 \u2013 \u2018Presentation and Disclosure in Financial Statements\u2019. This is expected to impact the way in which information is disclosed in financial statements without impacting materially on the underlying accounting. IFRS 18 is expected to apply to the Group and the Company with effect from its financial year ending 30 September 2028, if the standard is endorsed for use in the UK. A detailed exercise to determine the impact of the new Standard on the Group\u2019s annual reporting will be carried out before the implementation date. However, it is expected that the impact of the new standard on banking companies will be less than that for companies in general. Other than IFRS 18, described above, there are no new reporting standards and interpretations in issue but not effective which address matters relevant to the Group\u2019s accounting and reporting.", "dimensions": { "concept": "ifrs-full:DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-353": { "value": "
67. Accounting policies
The particular policies applied by the Group in preparing these financial statements in accordance with the IFRS regime as adopted in
the UK are described below.
(a) Accounting convention
The financial statements have been prepared under the historical cost convention, except as required in the valuation of certain
financial instruments which are carried at fair value.
(b) Basis of consolidation
The consolidated financial statements deal with the accounts of the Company and its subsidiaries made up to 30 September 2024.
Subsidiaries comprise all those entities over which the Group has control, as defined by IFRS 10 \u2013 \u2018Consolidated Financial Statements\u2019.
In addition to legal subsidiaries, where the Company owns shares in the entity, directly or indirectly, in accordance with IFRS 10,
companies owned by charitable trusts into which loans originated by group companies were sold as part of its warehouse and
securitisation funding arrangements, where the Group enjoys the benefits of ownership and which, therefore, it is considered to
control, are treated as subsidiaries.
A full list of the Group\u2019s subsidiaries is set out in note 72, together with further information on the basis on which they are
considered to be controlled by the Company. The results of businesses acquired are dealt with in the consolidated accounts from
the date of acquisition.
(c) Going concern
The consolidated financial statements have been prepared on the going concern basis.
The directors have adopted this basis following a going concern assessment for the Group and the Company covering a period of at
least twelve months following the date of approval of these financial statements. Details of this assessment are set out in note 70.
(d) Acquisitions and goodwill
Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration
over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine
whether any impairment has occurred.
As permitted by IFRS 1, the Group has elected not to apply IFRS 3 \u2013 \u2018Business Combinations\u2019 to combinations taking place before its
transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged
or credited to the profit and loss account on any future disposal of the business to which it relates.
Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and
subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined.
(e) Cash and cash equivalents
Balances shown as cash and cash equivalents in the balance sheet comprise demand deposits and short-term deposits with banks
with initial maturities of not more than 90 days.
(f) Investment in securities
The Group\u2019s investments in securities are held as part of its liquidity buffer. They are therefore classified as \u2018held to collect\u2019 following
an example set out in IFRS 9. These securities are carried at amortised cost, with income recognised on an effective interest rate
(\u2018EIR\u2019) basis.
(g) Leases
For leases where the Group is the lessee a right of use asset is recognised in property, plant and equipment on the inception of the
lease based on the discounted value of the minimum lease payments at inception. A lease liability of the same amount is recognised
at inception, with the unwinding of the discount included in interest payable.
Leases where the Group is lessor are accounted for as operating or finance leases in accordance with IFRS 16 \u2013 \u2018Leases\u2019. A finance
lease is one which transfers substantially all of the risks and rewards of the ownership of the asset concerned. Any other lease is an
operating lease.
Finance lease receivables are accounted for as loans to customers, with impairment provisions determined in accordance with IFRS 9.
Rental income and costs on operating leases are charged or credited to the profit and loss account on a straight-line basis over the
lease term. The associated assets are included within property, plant and equipment. This policy applies both to assets leased to
external customers and to vehicles leased to employees under the Group\u2019s green car scheme.
(h) Loans to customers
Loans to customers includes assets accounted for as financial assets and finance leases. The Group assesses the classification and
measurement of a financial asset based on the contractual cash flow characteristics of the asset and its business model for managing
the asset. The Group has concluded that its business model for its customer loan assets is of the type defined as \u2018Held to collect\u2019 by
IFRS 9 and the contractual terms of the asset should give rise to cash flows that are solely payments of principal and interest (\u2018SPPI\u2019).
Such loans are therefore accounted for on the amortised cost basis.
Loans advanced are valued at inception at the initial advance amount, which is the fair value at that time, inclusive of procuration
fees paid to brokers or other business providers and less initial fees paid by the customer. Loans acquired from third parties are
initially valued at the purchase consideration paid or payable. Thereafter, all loans to customers are valued at this initial amount less
the cumulative amortisation calculated using the EIR method. The loan balances are then reduced where necessary by an
impairment provision.
The EIR method spreads the expected net income arising from a loan over its expected life. The EIR is that rate of interest which, at
inception, exactly discounts the future cash payments and receipts arising from the loan to the initial carrying amount.
Where financial assets are credit-impaired at initial recognition the EIR is calculated on the basis of expected future cash receipts
allowing for the effect of credit risk. In other cases, the expected contractual cash flows are used.
(i) Finance lease receivables
Finance lease receivables are included within \u2018Loans to Customers\u2019 at the total amount receivable less interest not yet accrued,
unamortised commissions and provision for impairment.
Income from finance lease contracts is governed by IFRS 16 \u2013 \u2018Leases\u2019 and accounted for on the actuarial basis.
(j) Impairment of loans to customers
The carrying values of all loans to customers, whether accounted for under IFRS 9 or IFRS 16, are reduced by an impairment provision based
on their ECL, determined in accordance with IFRS 9. These estimates are reviewed throughout the year and at each balance sheet date.
With the exception of POCI financial assets (which are discussed separately below), all assets are assessed to determine whether
there has been a significant increase in credit risk (\u2018SICR\u2019) since the point of first recognition (origination or acquisition). Assets are also
reviewed to identify any which are \u2018Credit Impaired\u2019. SICR and credit impairment are identified on the basis of pre-determined metrics
including qualitative and quantitative factors relevant to each portfolio, with a management review to ensure appropriate allocation.
Assets which have not experienced an SICR are referred to as \u2018Stage 1\u2019 accounts, assets which have experienced an SICR but are not
credit impaired are referred to as \u2018Stage 2\u2019 accounts, while credit impaired assets are referred to as \u2018Stage 3\u2019 accounts.
An impairment allowance is provided on an account by account basis:
\u2022 For Stage 1, at an amount equal to 12-month ECL, the total ECL that results from those default events that are possible within
12 months of the reporting date, weighted by the probability of those events occurring
\u2022 For Stage 2 and 3 accounts, at an amount equal to lifetime ECL, the total ECL that results from any future default events, weighted
by the probability of those events occurring
In establishing an ECL allowance, the Group assesses its PD, LGD and exposure at default for each reporting period, discounted to give
a net present value. The estimates used in these assessments must be unbiased and take into account reasonable and supportable
information including forward-looking economic inputs.
While the Group uses statistical models as the basis for its calculation of ECLs where appropriate, expert judgement will always be
used to assess the adequacy of any calculated amount and additional provision made if required.
Within its buy-to-let portfolio the Group utilises a receiver of rent process, whereby the receiver stands between the landlord and
tenant and will determine an appropriate strategy for dealing with any delinquency. This strategy may involve the immediate sale
of any underlying security or the short or long term letting of the property to cover arrears and principal shortfalls. Such cases are
automatically considered to have an SICR, but where a letting strategy is adopted by the receiver and a tenant is in place, arrears may
be reduced or cleared. Properties in receivership are eventually either returned to their landlord owners or sold.
For loan portfolios acquired at a discount, the discounts take account of future expected impairments, and credit impaired assets in
those portfolios are treated as POCI. For these assets, the Group recognises all changes in future cash flows arising from changes in
credit quality since initial recognition as a loss allowance with any changes recognised in profit or loss.
For financial accounting purposes, provisions for impairments of loans to customers are held in an impairment allowance account from
the point at which they are first recognised. These balances are released to offset against the gross value of the loan when it is written
off for accounting purposes. This occurs when standard enforcement processes have been completed, subject to any amount retained
in respect of expected salvage receipts. Any further gains from post-write off salvage activity are reported as impairment gains.
(k) Amounts owed by or to group companies
In the accounts of the Company, balances owed by or to other group companies are carried at the current amount outstanding less any
provision. Where balances owing between group companies fall within the definition of either financial assets or financial liabilities given
in IAS 32 \u2013 \u2018Financial Instruments: Presentation\u2019 they are classified as assets or liabilities at amortised cost, as defined by IFRS 9.
(l) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Assets held for letting under operating leases are
depreciated in equal annual instalments to their estimated residual value over the life of the related lease. Vehicles held for short term
hire are depreciated in equal annual instalments to their estimated residual value over their expected useful life. This depreciation is
deducted in arriving at net lease income and is shown in note 6.
The assets\u2019 residual values and useful lives are reviewed by management and adjusted, if appropriate, at each balance sheet date.
Depreciation on operating assets is provided on cost in equal annual instalments over the lives of the assets. Land is not depreciated.
The rates of depreciation are as follows:
Freehold premises
Short leasehold premises
Computer hardware
Furniture, fixtures and office equipment
Company motor vehicles
2% per annum
over the term of the lease
25% per annum
15% per annum
25% per annum
Depreciation on right of use assets recognised in accordance with IFRS 16 is provided on a straight line basis over the term of the lease.
(m) Intangible assets
Intangible assets comprise purchased computer software and other intangible assets acquired in business combinations.
Purchased computer software is capitalised where it has a sufficiently enduring nature and is stated at cost less accumulated
amortisation. Amortisation is provided in equal instalments at a rate of 25% per annum.
Other intangible assets acquired in business combinations include brands and business networks and are capitalised in accordance
with the requirements of IFRS 3 \u2013 \u2018Business Combinations\u2019. Such assets are stated at attributed cost less accumulated amortisation.
Amortisation is provided in equal instalments at a rate determined at the point of acquisition.
(n) Investments in subsidiaries
The Company\u2019s investments in subsidiary undertakings are valued at cost less provision for impairment. Impairment is determined
based on the net asset values of subsidiary entities after provision for inter company balances and investments at the subsidiary level.
(o) ESOP trusts
Where trusts have been set up to hold shares in the Company in conjunction with the Group\u2019s employee share ownership
arrangements, the assets, liabilities and transactions of those trusts are accounted for within the accounts of the Company.
(p) Own shares
Shares in Paragon Banking Group PLC held in treasury or by the trustee of the Group\u2019s employee share ownership plan are shown on
the balance sheet as a deduction in arriving at total equity. Own shares are stated at cost.
Any shortfall on disposal of such shares is offset against retained earnings. Any excess of disposal proceeds over cost is added to the
share premium account. Where an irrevocable instruction for the purchase of such shares has been given, it is treated as a reduction
in capital from the point at which the instruction becomes irrevocable.
(q) Retail deposits
Retail deposits are carried in the balance sheet on the amortised cost basis. The initial fair value recognised represents the cash
amount received from the customer.
Interest payable to the customer is expensed to the statement of profit or loss as interest payable over the deposit term on an EIR basis.
(r) Borrowings
Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised
includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are
expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis.
(s) Central bank facilities
Where central bank facilities are provided at a below market rate of interest, and therefore fall within the definition of government
assistance as defined by IAS 20 \u2013 \u2018Accounting for Government Grants and Disclosure of Government Assistance\u2019, the liability is initially
recognised at the value of its expected cash flows discounted at a market rate of interest for a comparable commercial borrowing.
Interest is recognised on this liability on an EIR basis, using the imputed market rate to determine the EIR.
The remaining amount of the advance is recognised as deferred government assistance and released to the profit and loss account
through interest payable over the periods during which the arrangement affects profit.
(t) Sale and repurchase agreements
Securities, including the Group\u2019s own retained asset-backed notes, can be sold subject to a commitment to repurchase them at a
subsequent date at a price calculated on a pre-determined basis (a repo). Where this price comprises a fixed amount plus a lenders
return, the funds received are treated as borrowings of the Group.
Where the securities concerned are retained notes no liability is recognised in asset-backed loan notes and where the securities are
recognised on the Group\u2019s balance sheet prior to the transaction, these are not derecognised.
The difference between the sale and purchase price is accrued over the life of the agreement using the EIR method.
(u) Derivative financial instruments
All derivative financial instruments are carried in the balance sheet at fair value, as assets where the value is positive or as liabilities
where the value is negative. Fair value is based on market prices, where a market exists. If there is no active market, fair value is
calculated using present value models which incorporate assumptions based on market conditions and are consistent with accepted
economic methodologies for pricing financial instruments. Changes in the fair value of derivatives are recognised in the statement of
profit or loss.
(v) Hedging
IFRS 9 paragraph 7.2.21 permits an entity to elect, as a matter of accounting policy, to continue to apply the hedge accounting
requirements of IAS 39 in place of those set out in Chapter 6 of IFRS 9. The Group has made this election, and the accounting policy
below has been determined in accordance with IAS 39.
For all hedges, the Group documents the relationship between the hedging instruments and the hedged items at inception, as well
as its risk management strategy and objectives for undertaking the transaction. The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the hedging arrangements put in place are considered to be \u2018highly effective\u2019
as defined by IAS 39. For a fair value hedge, as long as the hedging relationship is deemed \u2018highly effective\u2019 and meets the hedging
requirements of IAS 39, any gain or loss on the hedging instrument recognised in income can be offset against the fair value loss or
gain arising from the hedged item for the hedged risk. For macro hedges (hedges of interest rate risk for a portfolio of loan assets
or retail deposit liabilities) this fair value adjustment is disclosed in the balance sheet alongside the hedged item, for other hedges
the adjustment is made to the carrying value of the hedged asset or liability. Only the net ineffectiveness of the hedge is charged or
credited to income. Where a fair value hedge relationship is terminated, or deemed ineffective, the fair value adjustment is amortised
over the remaining term of the underlying item.
(w) Taxation
The charge for taxation represents the expected UK corporation tax (including the Bank Corporation Tax Surcharge where applicable)
and other income taxes arising from the Group\u2019s profit for the year. This consists of the current tax which will be shown in tax returns
for the year and tax deferred because of temporary differences. This in general, represents the tax impact of items recorded in the
current year but which will impact tax returns for periods other than the one in which they are included in the financial statements.
The Group will hold a provision for any uncertain tax positions at the balance sheet date based on a global assessment of the
expected amount that will ultimately be payable.
Tax relating to items taken directly to equity is also taken directly to equity.
(x) Deferred taxation
Deferred taxation is provided in full on temporary differences that result in an obligation at the balance sheet date to pay more tax,
or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law.
Deferred tax assets are recognised to the extent that it is regarded as probable that they will be recovered. As required by IAS 12 \u2013
\u2018Income Taxes\u2019, deferred tax assets and liabilities are not discounted to take account of the expected timing of realisation.
(y) Retirement benefit obligations
The expected cost of providing pensions within the funded defined benefit scheme, determined on the basis of annual valuations by
professionally qualified actuaries using the projected unit method, is charged to the statement of profit or loss. Actuarial gains and
losses are recognised in full in the period in which they occur and do not form part of the result for the period, being recognised in the
Statement of Comprehensive Income.
The retirement benefit obligation asset recognised in the balance sheet represents the excess of the fair value of the scheme assets
over the present value of the defined benefit obligation.
The expected finance income from the surplus, as estimated at the beginning of the period is recognised in the result for the period
within interest receivable. Any variances against the estimated amount in the year form part of the actuarial gain or loss.
The charge to the income statement for providing pensions under defined contribution pension schemes is equal to the contributions
payable to such schemes for the year.
(z) Revenue
The revenue of the Group comprises interest receivable and similar charges, operating lease income and other income. The
accounting policy for the recognition of each element of revenue is described separately within these accounting policies.
(aa) Other income
Other income, which is accounted for in accordance with IFRS 15, includes:
\u2022 Event-based administration fees charged to borrowers (other than the initial fees included in amortised cost), which are credited
when the related service is performed
\u2022 Fees charged to third parties for account administration services, which are credited as those services are performed
\u2022 Commissions receivable on the sale of insurances, as agent of the third-party insurer, which are taken to profit at the point at which
the Group becomes unconditionally entitled to the income
\u2022 Maintenance income charged as part of the Group\u2019s contract hire arrangements which is recognised as the services are provided.
Costs of these services are deducted in other income
\u2022 Broker fees receivable on the arrangement of loans funded by third parties, on an agency basis, which are taken to profit at the
point of completion of the related loan
(bb) Share based payments
In accordance with IFRS 2 \u2013 \u2018Share-based Payments\u2019, the fair value at the date of grant of awards to be made in respect of options and
shares granted under the terms of the Group\u2019s various share based employee incentive arrangements is charged to the statement of
profit or loss account over the period between the date of grant and the vesting date.
National Insurance on share based payments is accrued over the vesting period, based on the share price at the balance sheet date.
Where the allowable cost of share based awards for tax purposes is greater than the cost determined in accordance with IFRS 2, the
tax effect of the excess is taken to reserves.
(cc) Dividends
In accordance with IAS 10 \u2013 \u2018Events after the balance sheet date\u2019, dividends payable on ordinary shares are recognised in equity once
they are appropriately authorised and are no longer at the discretion of the Company. Dividends declared after the balance sheet
date, but before the authorisation of the financial statements remain within shareholders\u2019 funds.
However, such dividends are deducted from regulatory capital from the point at which they are announced, and capital disclosures are
prepared on this basis.
(dd) Foreign currency
Foreign currency transactions, assets and liabilities are accounted for in accordance with IAS 21 \u2013 \u2018The Effects of Changes in Foreign
Exchange Rates\u2019. The functional currency of the Company and all of the other entities in the Group is the pound sterling. Transactions
which are not denominated in sterling are translated into sterling at the spot rate of exchange on the date of transaction. Monetary
assets and liabilities which are not denominated in sterling are translated at the closing rate on the balance sheet date.
Gains and losses on retranslation are included in interest payable or interest receivable depending on whether the underlying
instrument is an asset or a liability.
(ee) Segmental reporting
The accounting policies of the segments are the same as those described above for the Group as a whole. Interest payable by
each segment includes directly attributable funding and the allocated cost of retail deposit funds utilised. Attributable hedging
transactions are also included in segment results. Costs attributed to each segment represent the direct costs incurred by
the segment operations.
", "dimensions": { "concept": "ifrs-full:DisclosureOfMaterialAccountingPolicyInformationExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-386": { "value": "(a) Accounting convention The financial statements have been prepared under the historical cost convention, except as required in the valuation of certain financial instruments which are carried at fair value. ", "dimensions": { "concept": "paragonbankinggroupplc:DescriptionOfAccountingPolicyForAccountingConvention", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-387": { "value": "(b) Basis of consolidation The consolidated financial statements deal with the accounts of the Company and its subsidiaries made up to 30 September 2024. Subsidiaries comprise all those entities over which the Group has control, as defined by IFRS 10 \u2013 \u2018Consolidated Financial Statements\u2019. In addition to legal subsidiaries, where the Company owns shares in the entity, directly or indirectly, in accordance with IFRS 10, companies owned by charitable trusts into which loans originated by group companies were sold as part of its warehouse and securitisation funding arrangements, where the Group enjoys the benefits of ownership and which, therefore, it is considered to control, are treated as subsidiaries. A full list of the Group\u2019s subsidiaries is set out in note 72, together with further information on the basis on which they are considered to be controlled by the Company. The results of businesses acquired are dealt with in the consolidated accounts from the date of acquisition. ", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfConsolidationExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-388": { "value": "(c) Going concern The consolidated financial statements have been prepared on the going concern basis. The directors have adopted this basis following a going concern assessment for the Group and the Company covering a period of at least twelve months following the date of approval of these financial statements. Details of this assessment are set out in note 70.
70. Going concern
Accounting standards require the directors to assess the Group\u2019s ability to continue to adopt the going concern basis of accounting.
In performing this assessment, the directors consider all available information about the future, the possible outcomes of events
and changes in conditions and the realistically possible responses to such events and conditions that would be available to them,
having regard to the \u2018Guidance on Risk Management, Internal Control and Related Financial and Business Reporting\u2019 published by the
Financial Reporting Council in September 2014.
Particular focus is given to the Group\u2019s financial forecasts to ensure the adequacy of resources, including liquidity and capital,
available for the Group to meet its business objectives on both a short-term and strategic basis. The guidance requires that this
assessment covers a period of at least twelve months from the date of approval of these financial statements.
Financial and capital forecasting
The Group has a formalised process of budgeting, reporting and review. The Group\u2019s planning procedures forecast its profitability,
capital position, including its regulatory capital position, funding requirement and cash flows. Detailed plans are produced for two year
periods with longer-term forecasts covering a five year period, including detailed income forecasts. These plans provide information
to the directors which is used to ensure the adequacy of resources available for the Group to meet its business objectives, both on a
short-term and strategic basis.
The forecast is updated every six months, and the directors have based their going concern assessment on the forecast for the period
beginning on 1 October 2024.
The Group makes extensive use of stress testing in compiling and reviewing its forecasts. This stress testing approach was reviewed
in detail during the year as part of the annual Internal Capital Adequacy Assessment Process (\u2018ICAAP\u2019) cycle, where testing considered
the impact of a number of severe but plausible scenarios. During the planning process, sensitivity analysis was carried out on a
number of key assumptions that underpin the forecast to evaluate the impact of the Group\u2019s principal risks.
The key stresses modelled in detail to evaluate the forecast were:
\u2022 An increase in buy-to-let volumes. This examined the impact of higher volumes at a reduced yield on profitability and illustrated the
extent to which capital resources and liquidity would be stretched due to the higher cash and capital requirements
\u2022 Higher funding costs. Higher cost on all new savings deposits, both front book and back book throughout the forecast horizon. This
scenario illustrates the impact of a significant, prolonged margin squeeze on profitability, and whether this would cause significant
impacts on any capital, liquidity or encumbrance ratios
\u2022 Higher buy-to-let redemption rates for buy-to-let mortgages reaching the end of their fixed rate period. This illustrates the potential
risk inherent in the five-year fixed rate business
\u2022 Reduced development finance volumes and yield. This replicates a significant increase in competition within the sector, reducing
yields and impacting market share, demonstrating how a lower mix of the Group\u2019s highest margin product impacts on contribution
to costs and other profitability ratios
\u2022 Increased economic stress on customers. As well as modelling the impact of each of the economic scenarios set out in note
24 across the forecast horizon, the severe economic scenario was also modelled over the five-year horizon. To ensure this
represented a worst-case scenario all other assumptions were held steady, although in reality adjustments to new business
appetite and other factors would be made
\u2022 Combined downside stress. The IFRS 9 downside economic scenario described in note 24 was modelled out for the plan horizon
along with a plausible set of other adverse factors to the business model, creating a prolonged tail-risk
These stresses did not take account of management actions which might mitigate the impact of the adverse assumptions used. They
were designed to demonstrate how such stresses would affect the Group\u2019s financing, capital and liquidity positions and highlight any
areas which might impact the Group\u2019s going concern status. Under all these scenarios, the Group was able to meet its obligations
over the forecast horizon and maintain a surplus over its regulatory requirements for both capital and liquidity through normal balance
sheet management activities.
As part of the ICAAP process the Group also assessed the potential operational risks it could face. This was done through the analysis
of the impact and cost of a series of severe but plausible scenarios. This analysis did not highlight any factors which cast doubt on the
Group\u2019s ability to continue as a going concern.
The Group begins the forecast period with a strong capital and liquidity position, enabling the management of any significant outflows
of deposits and / or reduced inflows from customer receipts. Overall the forecasts, even under reasonable further levels of stress
show the Group retaining sufficient equity, capital, cash and liquidity throughout the forecast period to satisfy its regulatory and
operational requirements.
Availability of funding and liquidity
The availability of funding and liquidity is a key consideration, including retail deposit, wholesale funding, central bank and other
contingent liquidity options.
The Group\u2019s retail deposits of \u00a316,298.0m (note 33), raised through Paragon Bank, are repayable within five years, with 87.0% of this
balance (\u00a314,180.4m) payable within twelve months of the balance sheet date. The liquidity exposure represented by these deposits
is closely monitored; a process supervised by the ALCO. The Group is required to hold liquid assets in Paragon Bank to mitigate
this liquidity risk. At 30 September 2024 Paragon Bank held \u00a32,635.3m of balance sheet assets for liquidity purposes, in the form of
central bank deposits and investment securities (note 64). A further \u00a3150.0m of liquidity was provided by the off balance sheet long /
short transaction described in note 64, bringing the total to \u00a32,785.3m.
Paragon Bank manages its liquidity in line with the Board\u2019s risk appetite and the requirements of the PRA, which are formally
documented in the Board\u2019s approved Individual Liquidity Adequacy Assessment Process (\u2018ILAAP\u2019), updated annually. The Bank
maintains a liquidity framework that includes a short to medium-term cash flow requirement analysis, a longer-term funding plan
and access to the Bank of England\u2019s liquidity insurance facilities, where pre-positioned assets would support further drawings of
\u00a34,445.9m (2023: \u00a31,715.4m). Holdings of the Group\u2019s own externally rated mortgage backed loan notes can also be used to access
the Bank of England\u2019s liquidity facilities or other funding arrangements. At 30 September 2024 the Group had \u00a31,797.2m (2023:
\u00a31,205.6m) of such notes available for use, of which \u00a31,536.2m (2023: \u00a3986.9m) were rated AAA. The available AAA notes would give
access to \u00a3751.9m (2023: \u00a3769.8m) if used to support drawings on Bank of England facilities.
The earliest maturity of any of the Group\u2019s wholesale debt is the central bank debt payable in 2025.
The Group\u2019s access to debt is enhanced by its corporate BBB+ rating, confirmed by Fitch Ratings in February 2024, and its status as
an issuer is evidenced by the BBB- investment grade rating of its \u00a3150.0m Tier-2 Bond.
Additionally, during the year Fitch Ratings assigned a BBB+ Long-term Issuer Default rating to Paragon Bank PLC, the Group\u2019s
principal operating subsidiary, the first time a company-level rating has been issued for this entity. This provides additional flexibility to
the Group\u2019s wholesale funding options.
The Group regularly accessed the capital markets for warehouse funding and corporate and retail bonds over recent years and
continues to be able to access these markets. It also has access to the short-term repo market which it accesses from time-to-time
for liquidity purposes.
The Group\u2019s cash analysis, which includes the impact of all scheduled debt and deposit repayments, continues to show a strong
position, even after allowing scope for significant discretionary payments and capital distributions.
As described in note 61 the Group\u2019s capital base is subject to consolidated supervision by the PRA. Its capital at 30 September
2024 was in excess of regulatory requirements and its forecasts indicate this will continue to be the case, even allowing for currently
proposed changes in the UK\u2019s capital requirements framework.
Going concern assessment
In order to assess the appropriateness of the going concern basis, the directors considered the Group\u2019s financial position, the cash flow
requirements laid out in its forecasts, its access to funding, the assumptions underlying the forecasts and potential risks affecting them.
As part of this exercise, the potential impacts on funding, capital and cash of the contingent liabilities described in note 43
were considered.
After performing this assessment, the directors concluded that there was no material uncertainty as to whether the Group and the
Company would be able to maintain adequate capital and liquidity for at least twelve months following the date of approval of these
financial statements and consequently that it was appropriate for them to continue to adopt the going concern basis in preparing the
financial statements of the Group and the Company.
", "dimensions": { "concept": "ifrs-full:DisclosureOfGoingConcernExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-513": { "value": "(d) Acquisitions and goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine whether any impairment has occurred. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 \u2013 \u2018Business Combinations\u2019 to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. (m) Intangible assets Intangible assets comprise purchased computer software and other intangible assets acquired in business combinations. Purchased computer software is capitalised where it has a sufficiently enduring nature and is stated at cost less accumulated amortisation. Amortisation is provided in equal instalments at a rate of 25% per annum. Other intangible assets acquired in business combinations include brands and business networks and are capitalised in accordance with the requirements of IFRS 3 \u2013 \u2018Business Combinations\u2019. Such assets are stated at attributed cost less accumulated amortisation. Amortisation is provided in equal instalments at a rate determined at the point of acquisition. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-508": { "value": "(d) Acquisitions and goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine whether any impairment has occurred. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 \u2013 \u2018Business Combinations\u2019 to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-481": { "value": "(d) Acquisitions and goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine whether any impairment has occurred. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 \u2013 \u2018Business Combinations\u2019 to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForGoodwillExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-443": { "value": "(d) Acquisitions and goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine whether any impairment has occurred. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 \u2013 \u2018Business Combinations\u2019 to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-389": { "value": "(d) Acquisitions and goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine whether any impairment has occurred. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 \u2013 \u2018Business Combinations\u2019 to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-499": { "value": "Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-390": { "value": "(e) Cash and cash equivalents Balances shown as cash and cash equivalents in the balance sheet comprise demand deposits and short-term deposits with banks with initial maturities of not more than 90 days. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyToDetermineComponentsOfCashAndCashEquivalents", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-482": { "value": "(f) Investment in securities The Group\u2019s investments in securities are held as part of its liquidity buffer. They are therefore classified as \u2018held to collect\u2019 following an example set out in IFRS 9. These securities are carried at amortised cost, with income recognised on an effective interest rate (\u2018EIR\u2019) basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForHeldtomaturityInvestmentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-444": { "value": "(f) Investment in securities The Group\u2019s investments in securities are held as part of its liquidity buffer. They are therefore classified as \u2018held to collect\u2019 following an example set out in IFRS 9. These securities are carried at amortised cost, with income recognised on an effective interest rate (\u2018EIR\u2019) basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-391": { "value": "(f) Investment in securities The Group\u2019s investments in securities are held as part of its liquidity buffer. They are therefore classified as \u2018held to collect\u2019 following an example set out in IFRS 9. These securities are carried at amortised cost, with income recognised on an effective interest rate (\u2018EIR\u2019) basis. ", "dimensions": { "concept": "paragonbankinggroupplc:DescriptionOfAccountingPolicyForInvestmentInSecurities", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-392": { "value": "(g) Leases For leases where the Group is the lessee a right of use asset is recognised in property, plant and equipment on the inception of the lease based on the discounted value of the minimum lease payments at inception. A lease liability of the same amount is recognised at inception, with the unwinding of the discount included in interest payable. Leases where the Group is lessor are accounted for as operating or finance leases in accordance with IFRS 16 \u2013 \u2018Leases\u2019. A finance lease is one which transfers substantially all of the risks and rewards of the ownership of the asset concerned. Any other lease is an operating lease. Finance lease receivables are accounted for as loans to customers, with impairment provisions determined in accordance with IFRS 9. Rental income and costs on operating leases are charged or credited to the profit and loss account on a straight-line basis over the lease term. The associated assets are included within property, plant and equipment. This policy applies both to assets leased to external customers and to vehicles leased to employees under the Group\u2019s green car scheme. (i) Finance lease receivables Finance lease receivables are included within \u2018Loans to Customers\u2019 at the total amount receivable less interest not yet accrued, unamortised commissions and provision for impairment. Income from finance lease contracts is governed by IFRS 16 \u2013 \u2018Leases\u2019 and accounted for on the actuarial basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForLeasesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-500": { "value": "(h) Loans to customers Loans to customers includes assets accounted for as financial assets and finance leases. The Group assesses the classification and measurement of a financial asset based on the contractual cash flow characteristics of the asset and its business model for managing the asset. The Group has concluded that its business model for its customer loan assets is of the type defined as \u2018Held to collect\u2019 by IFRS 9 and the contractual terms of the asset should give rise to cash flows that are solely payments of principal and interest (\u2018SPPI\u2019). Such loans are therefore accounted for on the amortised cost basis. Loans advanced are valued at inception at the initial advance amount, which is the fair value at that time, inclusive of procuration fees paid to brokers or other business providers and less initial fees paid by the customer. Loans acquired from third parties are initially valued at the purchase consideration paid or payable. Thereafter, all loans to customers are valued at this initial amount less the cumulative amortisation calculated using the EIR method. The loan balances are then reduced where necessary by an impairment provision. The EIR method spreads the expected net income arising from a loan over its expected life. The EIR is that rate of interest which, at inception, exactly discounts the future cash payments and receipts arising from the loan to the initial carrying amount. Where financial assets are credit-impaired at initial recognition the EIR is calculated on the basis of expected future cash receipts allowing for the effect of credit risk. In other cases, the expected contractual cash flows are used. (i) Finance lease receivables Finance lease receivables are included within \u2018Loans to Customers\u2019 at the total amount receivable less interest not yet accrued, unamortised commissions and provision for impairment. Income from finance lease contracts is governed by IFRS 16 \u2013 \u2018Leases\u2019 and accounted for on the actuarial basis. (r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinanceCostsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-509": { "value": "(h) Loans to customers Loans to customers includes assets accounted for as financial assets and finance leases. The Group assesses the classification and measurement of a financial asset based on the contractual cash flow characteristics of the asset and its business model for managing the asset. The Group has concluded that its business model for its customer loan assets is of the type defined as \u2018Held to collect\u2019 by IFRS 9 and the contractual terms of the asset should give rise to cash flows that are solely payments of principal and interest (\u2018SPPI\u2019). Such loans are therefore accounted for on the amortised cost basis. Loans advanced are valued at inception at the initial advance amount, which is the fair value at that time, inclusive of procuration fees paid to brokers or other business providers and less initial fees paid by the customer. Loans acquired from third parties are initially valued at the purchase consideration paid or payable. Thereafter, all loans to customers are valued at this initial amount less the cumulative amortisation calculated using the EIR method. The loan balances are then reduced where necessary by an impairment provision. The EIR method spreads the expected net income arising from a loan over its expected life. The EIR is that rate of interest which, at inception, exactly discounts the future cash payments and receipts arising from the loan to the initial carrying amount. Where financial assets are credit-impaired at initial recognition the EIR is calculated on the basis of expected future cash receipts allowing for the effect of credit risk. In other cases, the expected contractual cash flows are used. (i) Finance lease receivables Finance lease receivables are included within \u2018Loans to Customers\u2019 at the total amount receivable less interest not yet accrued, unamortised commissions and provision for impairment. Income from finance lease contracts is governed by IFRS 16 \u2013 \u2018Leases\u2019 and accounted for on the actuarial basis. (r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInterestIncomeAndExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-393": { "value": "(h) Loans to customers Loans to customers includes assets accounted for as financial assets and finance leases. The Group assesses the classification and measurement of a financial asset based on the contractual cash flow characteristics of the asset and its business model for managing the asset. The Group has concluded that its business model for its customer loan assets is of the type defined as \u2018Held to collect\u2019 by IFRS 9 and the contractual terms of the asset should give rise to cash flows that are solely payments of principal and interest (\u2018SPPI\u2019). Such loans are therefore accounted for on the amortised cost basis. Loans advanced are valued at inception at the initial advance amount, which is the fair value at that time, inclusive of procuration fees paid to brokers or other business providers and less initial fees paid by the customer. Loans acquired from third parties are initially valued at the purchase consideration paid or payable. Thereafter, all loans to customers are valued at this initial amount less the cumulative amortisation calculated using the EIR method. The loan balances are then reduced where necessary by an impairment provision. The EIR method spreads the expected net income arising from a loan over its expected life. The EIR is that rate of interest which, at inception, exactly discounts the future cash payments and receipts arising from the loan to the initial carrying amount. Where financial assets are credit-impaired at initial recognition the EIR is calculated on the basis of expected future cash receipts allowing for the effect of credit risk. In other cases, the expected contractual cash flows are used. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForLoansAndReceivablesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-483": { "value": "(h) Loans to customers Loans to customers includes assets accounted for as financial assets and finance leases. The Group assesses the classification and measurement of a financial asset based on the contractual cash flow characteristics of the asset and its business model for managing the asset. The Group has concluded that its business model for its customer loan assets is of the type defined as \u2018Held to collect\u2019 by IFRS 9 and the contractual terms of the asset should give rise to cash flows that are solely payments of principal and interest (\u2018SPPI\u2019). Such loans are therefore accounted for on the amortised cost basis. Loans advanced are valued at inception at the initial advance amount, which is the fair value at that time, inclusive of procuration fees paid to brokers or other business providers and less initial fees paid by the customer. Loans acquired from third parties are initially valued at the purchase consideration paid or payable. Thereafter, all loans to customers are valued at this initial amount less the cumulative amortisation calculated using the EIR method. The loan balances are then reduced where necessary by an impairment provision. The EIR method spreads the expected net income arising from a loan over its expected life. The EIR is that rate of interest which, at inception, exactly discounts the future cash payments and receipts arising from the loan to the initial carrying amount. Where financial assets are credit-impaired at initial recognition the EIR is calculated on the basis of expected future cash receipts allowing for the effect of credit risk. In other cases, the expected contractual cash flows are used. (i) Finance lease receivables Finance lease receivables are included within \u2018Loans to Customers\u2019 at the total amount receivable less interest not yet accrued, unamortised commissions and provision for impairment. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinanceIncomeAndCostsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-445": { "value": "(j) Impairment of loans to customers The carrying values of all loans to customers, whether accounted for under IFRS 9 or IFRS 16, are reduced by an impairment provision based on their ECL, determined in accordance with IFRS 9. These estimates are reviewed throughout the year and at each balance sheet date. With the exception of POCI financial assets (which are discussed separately below), all assets are assessed to determine whether there has been a significant increase in credit risk (\u2018SICR\u2019) since the point of first recognition (origination or acquisition). Assets are also reviewed to identify any which are \u2018Credit Impaired\u2019. SICR and credit impairment are identified on the basis of pre-determined metrics including qualitative and quantitative factors relevant to each portfolio, with a management review to ensure appropriate allocation. Assets which have not experienced an SICR are referred to as \u2018Stage 1\u2019 accounts, assets which have experienced an SICR but are not credit impaired are referred to as \u2018Stage 2\u2019 accounts, while credit impaired assets are referred to as \u2018Stage 3\u2019 accounts. An impairment allowance is provided on an account by account basis: \u2022 For Stage 1, at an amount equal to 12-month ECL, the total ECL that results from those default events that are possible within 12 months of the reporting date, weighted by the probability of those events occurring \u2022 For Stage 2 and 3 accounts, at an amount equal to lifetime ECL, the total ECL that results from any future default events, weighted by the probability of those events occurring In establishing an ECL allowance, the Group assesses its PD, LGD and exposure at default for each reporting period, discounted to give a net present value. The estimates used in these assessments must be unbiased and take into account reasonable and supportable information including forward-looking economic inputs. While the Group uses statistical models as the basis for its calculation of ECLs where appropriate, expert judgement will always be used to assess the adequacy of any calculated amount and additional provision made if required. Within its buy-to-let portfolio the Group utilises a receiver of rent process, whereby the receiver stands between the landlord and tenant and will determine an appropriate strategy for dealing with any delinquency. This strategy may involve the immediate sale of any underlying security or the short or long term letting of the property to cover arrears and principal shortfalls. Such cases are automatically considered to have an SICR, but where a letting strategy is adopted by the receiver and a tenant is in place, arrears may be reduced or cleared. Properties in receivership are eventually either returned to their landlord owners or sold. For loan portfolios acquired at a discount, the discounts take account of future expected impairments, and credit impaired assets in those portfolios are treated as POCI. For these assets, the Group recognises all changes in future cash flows arising from changes in credit quality since initial recognition as a loss allowance with any changes recognised in profit or loss. For financial accounting purposes, provisions for impairments of loans to customers are held in an impairment allowance account from the point at which they are first recognised. These balances are released to offset against the gross value of the loan when it is written off for accounting purposes. This occurs when standard enforcement processes have been completed, subject to any amount retained in respect of expected salvage receipts. Any further gains from post-write off salvage activity are reported as impairment gains. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-394": { "value": "(j) Impairment of loans to customers The carrying values of all loans to customers, whether accounted for under IFRS 9 or IFRS 16, are reduced by an impairment provision based on their ECL, determined in accordance with IFRS 9. These estimates are reviewed throughout the year and at each balance sheet date. With the exception of POCI financial assets (which are discussed separately below), all assets are assessed to determine whether there has been a significant increase in credit risk (\u2018SICR\u2019) since the point of first recognition (origination or acquisition). Assets are also reviewed to identify any which are \u2018Credit Impaired\u2019. SICR and credit impairment are identified on the basis of pre-determined metrics including qualitative and quantitative factors relevant to each portfolio, with a management review to ensure appropriate allocation. Assets which have not experienced an SICR are referred to as \u2018Stage 1\u2019 accounts, assets which have experienced an SICR but are not credit impaired are referred to as \u2018Stage 2\u2019 accounts, while credit impaired assets are referred to as \u2018Stage 3\u2019 accounts. An impairment allowance is provided on an account by account basis: \u2022 For Stage 1, at an amount equal to 12-month ECL, the total ECL that results from those default events that are possible within 12 months of the reporting date, weighted by the probability of those events occurring \u2022 For Stage 2 and 3 accounts, at an amount equal to lifetime ECL, the total ECL that results from any future default events, weighted by the probability of those events occurring In establishing an ECL allowance, the Group assesses its PD, LGD and exposure at default for each reporting period, discounted to give a net present value. The estimates used in these assessments must be unbiased and take into account reasonable and supportable information including forward-looking economic inputs. While the Group uses statistical models as the basis for its calculation of ECLs where appropriate, expert judgement will always be used to assess the adequacy of any calculated amount and additional provision made if required. Within its buy-to-let portfolio the Group utilises a receiver of rent process, whereby the receiver stands between the landlord and tenant and will determine an appropriate strategy for dealing with any delinquency. This strategy may involve the immediate sale of any underlying security or the short or long term letting of the property to cover arrears and principal shortfalls. Such cases are automatically considered to have an SICR, but where a letting strategy is adopted by the receiver and a tenant is in place, arrears may be reduced or cleared. Properties in receivership are eventually either returned to their landlord owners or sold. For loan portfolios acquired at a discount, the discounts take account of future expected impairments, and credit impaired assets in those portfolios are treated as POCI. For these assets, the Group recognises all changes in future cash flows arising from changes in credit quality since initial recognition as a loss allowance with any changes recognised in profit or loss. For financial accounting purposes, provisions for impairments of loans to customers are held in an impairment allowance account from the point at which they are first recognised. These balances are released to offset against the gross value of the loan when it is written off for accounting purposes. This occurs when standard enforcement processes have been completed, subject to any amount retained in respect of expected salvage receipts. Any further gains from post-write off salvage activity are reported as impairment gains. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-395": { "value": "(k) Amounts owed by or to group companies In the accounts of the Company, balances owed by or to other group companies are carried at the current amount outstanding less any provision. Where balances owing between group companies fall within the definition of either financial assets or financial liabilities given in IAS 32 \u2013 \u2018Financial Instruments: Presentation\u2019 they are classified as assets or liabilities at amortised cost, as defined by IFRS 9. ", "dimensions": { "concept": "paragonbankinggroupplc:DescriptionOfAccountingPolicyForAmountsOwedByOrToGroupCompanies", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-396": { "value": "(l) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation. Assets held for letting under operating leases are depreciated in equal annual instalments to their estimated residual value over the life of the related lease. Vehicles held for short term hire are depreciated in equal annual instalments to their estimated residual value over their expected useful life. This depreciation is deducted in arriving at net lease income and is shown in note 6. The assets\u2019 residual values and useful lives are reviewed by management and adjusted, if appropriate, at each balance sheet date. Depreciation on operating assets is provided on cost in equal annual instalments over the lives of the assets. Land is not depreciated. The rates of depreciation are as follows:
Freehold premises
Short leasehold premises
Computer hardware
Furniture, fixtures and office equipment
Company motor vehicles
2% per annum
over the term of the lease
25% per annum
15% per annum
25% per annum
Depreciation on right of use assets recognised in accordance with IFRS 16 is provided on a straight line basis over the term of the lease. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-446": { "value": "Depreciation on operating assets is provided on cost in equal annual instalments over the lives of the assets. Land is not depreciated. The rates of depreciation are as follows:
Freehold premises
Short leasehold premises
Computer hardware
Furniture, fixtures and office equipment
Company motor vehicles
2% per annum
over the term of the lease
25% per annum
15% per annum
25% per annum
Depreciation on right of use assets recognised in accordance with IFRS 16 is provided on a straight line basis over the term of the lease. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDepreciationExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-397": { "value": "(m) Intangible assets Intangible assets comprise purchased computer software and other intangible assets acquired in business combinations. Purchased computer software is capitalised where it has a sufficiently enduring nature and is stated at cost less accumulated amortisation. Amortisation is provided in equal instalments at a rate of 25% per annum. Other intangible assets acquired in business combinations include brands and business networks and are capitalised in accordance with the requirements of IFRS 3 \u2013 \u2018Business Combinations\u2019. Such assets are stated at attributed cost less accumulated amortisation. Amortisation is provided in equal instalments at a rate determined at the point of acquisition. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-398": { "value": "(n) Investments in subsidiaries The Company\u2019s investments in subsidiary undertakings are valued at cost less provision for impairment. Impairment is determined based on the net asset values of subsidiary entities after provision for inter company balances and investments at the subsidiary level. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSubsidiariesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-399": { "value": "(o) ESOP trusts Where trusts have been set up to hold shares in the Company in conjunction with the Group\u2019s employee share ownership arrangements, the assets, liabilities and transactions of those trusts are accounted for within the accounts of the Company. (bb) Share based payments In accordance with IFRS 2 \u2013 \u2018Share-based Payments\u2019, the fair value at the date of grant of awards to be made in respect of options and shares granted under the terms of the Group\u2019s various share based employee incentive arrangements is charged to the statement of profit or loss account over the period between the date of grant and the vesting date. National Insurance on share based payments is accrued over the vesting period, based on the share price at the balance sheet date. Where the allowable cost of share based awards for tax purposes is greater than the cost determined in accordance with IFRS 2, the tax effect of the excess is taken to reserves. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-400": { "value": "(p) Own shares Shares in Paragon Banking Group PLC held in treasury or by the trustee of the Group\u2019s employee share ownership plan are shown on the balance sheet as a deduction in arriving at total equity. Own shares are stated at cost. Any shortfall on disposal of such shares is offset against retained earnings. Any excess of disposal proceeds over cost is added to the share premium account. Where an irrevocable instruction for the purchase of such shares has been given, it is treated as a reduction in capital from the point at which the instruction becomes irrevocable. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForTreasurySharesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-401": { "value": "(q) Retail deposits Retail deposits are carried in the balance sheet on the amortised cost basis. The initial fair value recognised represents the cash amount received from the customer. Interest payable to the customer is expensed to the statement of profit or loss as interest payable over the deposit term on an EIR basis. ", "dimensions": { "concept": "paragonbankinggroupplc:DescriptionOfAccountingPolicyForRetailDeposits", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-514": { "value": "(r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingCostsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-484": { "value": "(r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-447": { "value": "(r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-402": { "value": "(r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-448": { "value": "(s) Central bank facilities Where central bank facilities are provided at a below market rate of interest, and therefore fall within the definition of government assistance as defined by IAS 20 \u2013 \u2018Accounting for Government Grants and Disclosure of Government Assistance\u2019, the liability is initially recognised at the value of its expected cash flows discounted at a market rate of interest for a comparable commercial borrowing. Interest is recognised on this liability on an EIR basis, using the imputed market rate to determine the EIR. The remaining amount of the advance is recognised as deferred government assistance and released to the profit and loss account through interest payable over the periods during which the arrangement affects profit. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForGovernmentGrants", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-403": { "value": "(s) Central bank facilities Where central bank facilities are provided at a below market rate of interest, and therefore fall within the definition of government assistance as defined by IAS 20 \u2013 \u2018Accounting for Government Grants and Disclosure of Government Assistance\u2019, the liability is initially recognised at the value of its expected cash flows discounted at a market rate of interest for a comparable commercial borrowing. Interest is recognised on this liability on an EIR basis, using the imputed market rate to determine the EIR. The remaining amount of the advance is recognised as deferred government assistance and released to the profit and loss account through interest payable over the periods during which the arrangement affects profit. ", "dimensions": { "concept": "paragonbankinggroupplc:DescriptionOfAccountingPolicyForCentralBankFacilities", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-404": { "value": "(t) Sale and repurchase agreements Securities, including the Group\u2019s own retained asset-backed notes, can be sold subject to a commitment to repurchase them at a subsequent date at a price calculated on a pre-determined basis (a repo). Where this price comprises a fixed amount plus a lenders return, the funds received are treated as borrowings of the Group. Where the securities concerned are retained notes no liability is recognised in asset-backed loan notes and where the securities are recognised on the Group\u2019s balance sheet prior to the transaction, these are not derecognised. The difference between the sale and purchase price is accrued over the life of the agreement using the EIR method. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-449": { "value": "(u) Derivative financial instruments All derivative financial instruments are carried in the balance sheet at fair value, as assets where the value is positive or as liabilities where the value is negative. Fair value is based on market prices, where a market exists. If there is no active market, fair value is calculated using present value models which incorporate assumptions based on market conditions and are consistent with accepted economic methodologies for pricing financial instruments. Changes in the fair value of derivatives are recognised in the statement of profit or loss. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-405": { "value": "(u) Derivative financial instruments All derivative financial instruments are carried in the balance sheet at fair value, as assets where the value is positive or as liabilities where the value is negative. Fair value is based on market prices, where a market exists. If there is no active market, fair value is calculated using present value models which incorporate assumptions based on market conditions and are consistent with accepted economic methodologies for pricing financial instruments. Changes in the fair value of derivatives are recognised in the statement of profit or loss. (v) Hedging IFRS 9 paragraph 7.2.21 permits an entity to elect, as a matter of accounting policy, to continue to apply the hedge accounting requirements of IAS 39 in place of those set out in Chapter 6 of IFRS 9. The Group has made this election, and the accounting policy below has been determined in accordance with IAS 39. For all hedges, the Group documents the relationship between the hedging instruments and the hedged items at inception, as well as its risk management strategy and objectives for undertaking the transaction. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the hedging arrangements put in place are considered to be \u2018highly effective\u2019 as defined by IAS 39. For a fair value hedge, as long as the hedging relationship is deemed \u2018highly effective\u2019 and meets the hedging requirements of IAS 39, any gain or loss on the hedging instrument recognised in income can be offset against the fair value loss or gain arising from the hedged item for the hedged risk. For macro hedges (hedges of interest rate risk for a portfolio of loan assets or retail deposit liabilities) this fair value adjustment is disclosed in the balance sheet alongside the hedged item, for other hedges the adjustment is made to the carrying value of the hedged asset or liability. Only the net ineffectiveness of the hedge is charged or credited to income. Where a fair value hedge relationship is terminated, or deemed ineffective, the fair value adjustment is amortised over the remaining term of the underlying item. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-450": { "value": "(v) Hedging IFRS 9 paragraph 7.2.21 permits an entity to elect, as a matter of accounting policy, to continue to apply the hedge accounting requirements of IAS 39 in place of those set out in Chapter 6 of IFRS 9. The Group has made this election, and the accounting policy below has been determined in accordance with IAS 39. For all hedges, the Group documents the relationship between the hedging instruments and the hedged items at inception, as well as its risk management strategy and objectives for undertaking the transaction. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the hedging arrangements put in place are considered to be \u2018highly effective\u2019 as defined by IAS 39. For a fair value hedge, as long as the hedging relationship is deemed \u2018highly effective\u2019 and meets the hedging requirements of IAS 39, any gain or loss on the hedging instrument recognised in income can be offset against the fair value loss or gain arising from the hedged item for the hedged risk. For macro hedges (hedges of interest rate risk for a portfolio of loan assets or retail deposit liabilities) this fair value adjustment is disclosed in the balance sheet alongside the hedged item, for other hedges the adjustment is made to the carrying value of the hedged asset or liability. Only the net ineffectiveness of the hedge is charged or credited to income. Where a fair value hedge relationship is terminated, or deemed ineffective, the fair value adjustment is amortised over the remaining term of the underlying item. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-406": { "value": "(w) Taxation The charge for taxation represents the expected UK corporation tax (including the Bank Corporation Tax Surcharge where applicable) and other income taxes arising from the Group\u2019s profit for the year. This consists of the current tax which will be shown in tax returns for the year and tax deferred because of temporary differences. This in general, represents the tax impact of items recorded in the current year but which will impact tax returns for periods other than the one in which they are included in the financial statements. The Group will hold a provision for any uncertain tax positions at the balance sheet date based on a global assessment of the expected amount that will ultimately be payable. Tax relating to items taken directly to equity is also taken directly to equity. (x) Deferred taxation Deferred taxation is provided in full on temporary differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Deferred tax assets are recognised to the extent that it is regarded as probable that they will be recovered. As required by IAS 12 \u2013 \u2018Income Taxes\u2019, deferred tax assets and liabilities are not discounted to take account of the expected timing of realisation. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIncomeTaxExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-451": { "value": "(x) Deferred taxation Deferred taxation is provided in full on temporary differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Deferred tax assets are recognised to the extent that it is regarded as probable that they will be recovered. As required by IAS 12 \u2013 \u2018Income Taxes\u2019, deferred tax assets and liabilities are not discounted to take account of the expected timing of realisation. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDeferredIncomeTaxExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-407": { "value": "(y) Retirement benefit obligations The expected cost of providing pensions within the funded defined benefit scheme, determined on the basis of annual valuations by professionally qualified actuaries using the projected unit method, is charged to the statement of profit or loss. Actuarial gains and losses are recognised in full in the period in which they occur and do not form part of the result for the period, being recognised in the Statement of Comprehensive Income. The retirement benefit obligation asset recognised in the balance sheet represents the excess of the fair value of the scheme assets over the present value of the defined benefit obligation. The expected finance income from the surplus, as estimated at the beginning of the period is recognised in the result for the period within interest receivable. Any variances against the estimated amount in the year form part of the actuarial gain or loss. The charge to the income statement for providing pensions under defined contribution pension schemes is equal to the contributions payable to such schemes for the year. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-408": { "value": "(z) Revenue The revenue of the Group comprises interest receivable and similar charges, operating lease income and other income. The accounting policy for the recognition of each element of revenue is described separately within these accounting policies. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-452": { "value": "(aa) Other income Other income, which is accounted for in accordance with IFRS 15, includes: \u2022 Event-based administration fees charged to borrowers (other than the initial fees included in amortised cost), which are credited when the related service is performed \u2022 Fees charged to third parties for account administration services, which are credited as those services are performed \u2022 Commissions receivable on the sale of insurances, as agent of the third-party insurer, which are taken to profit at the point at which the Group becomes unconditionally entitled to the income \u2022 Maintenance income charged as part of the Group\u2019s contract hire arrangements which is recognised as the services are provided. Costs of these services are deducted in other income \u2022 Broker fees receivable on the arrangement of loans funded by third parties, on an agency basis, which are taken to profit at the point of completion of the related loan ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFeeAndCommissionIncomeAndExpenseExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-409": { "value": "(aa) Other income Other income, which is accounted for in accordance with IFRS 15, includes: \u2022 Event-based administration fees charged to borrowers (other than the initial fees included in amortised cost), which are credited when the related service is performed \u2022 Fees charged to third parties for account administration services, which are credited as those services are performed \u2022 Commissions receivable on the sale of insurances, as agent of the third-party insurer, which are taken to profit at the point at which the Group becomes unconditionally entitled to the income \u2022 Maintenance income charged as part of the Group\u2019s contract hire arrangements which is recognised as the services are provided. Costs of these services are deducted in other income \u2022 Broker fees receivable on the arrangement of loans funded by third parties, on an agency basis, which are taken to profit at the point of completion of the related loan ", "dimensions": { "concept": "paragonbankinggroupplc:DescriptionOfAccountingPolicyForOtherIncome", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-410": { "value": "(cc) Dividends In accordance with IAS 10 \u2013 \u2018Events after the balance sheet date\u2019, dividends payable on ordinary shares are recognised in equity once they are appropriately authorised and are no longer at the discretion of the Company. Dividends declared after the balance sheet date, but before the authorisation of the financial statements remain within shareholders\u2019 funds. However, such dividends are deducted from regulatory capital from the point at which they are announced, and capital disclosures are prepared on this basis. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDividendsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-453": { "value": "(dd) Foreign currency Foreign currency transactions, assets and liabilities are accounted for in accordance with IAS 21 \u2013 \u2018The Effects of Changes in Foreign Exchange Rates\u2019. The functional currency of the Company and all of the other entities in the Group is the pound sterling. Transactions which are not denominated in sterling are translated into sterling at the spot rate of exchange on the date of transaction. Monetary assets and liabilities which are not denominated in sterling are translated at the closing rate on the balance sheet date. Gains and losses on retranslation are included in interest payable or interest receivable depending on whether the underlying instrument is an asset or a liability. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-411": { "value": "(dd) Foreign currency Foreign currency transactions, assets and liabilities are accounted for in accordance with IAS 21 \u2013 \u2018The Effects of Changes in Foreign Exchange Rates\u2019. The functional currency of the Company and all of the other entities in the Group is the pound sterling. Transactions which are not denominated in sterling are translated into sterling at the spot rate of exchange on the date of transaction. Monetary assets and liabilities which are not denominated in sterling are translated at the closing rate on the balance sheet date. Gains and losses on retranslation are included in interest payable or interest receivable depending on whether the underlying instrument is an asset or a liability. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForForeignCurrencyTranslationExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-412": { "value": "(ee) Segmental reporting The accounting policies of the segments are the same as those described above for the Group as a whole. Interest payable by each segment includes directly attributable funding and the allocated cost of retail deposit funds utilised. Attributable hedging transactions are also included in segment results. Costs attributed to each segment represent the direct costs incurred by the segment operations.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSegmentReportingExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-413": { "value": "
68. Critical accounting judgements
The most significant judgements which the directors have made in the application of the accounting policies set out in note 67 relate to:
(a) Significant Increase in Credit Risk (\u2018SICR\u2019)
Under IFRS 9, the directors are required to assess where a credit obligation has suffered a Significant Increase in Credit Risk (\u2018SICR\u2019).
The directors\u2019 assessment is based primarily on changes in the calculated PD, but also includes consideration of other qualitative
indicators and the adoption of the backstop assumption in the Standard that all cases which are more than 30 days overdue have an
SICR, for account types where days overdue is an appropriate measure.
As part of its consideration of the adequacy of its impairment provisioning, management have considered whether there are any
factors not reflected in its normal approach which indicate that a group, or groups of accounts should be considered as having an
SICR. No such accounts were identified.
If additional accounts were determined to have an SICR, these balances would attract additional impairment provision, as such cases
are provided on the basis of lifetime expected loss, rather the 12-month expected loss, and the overall provision charge would be
higher. Conversely, if cases are incorrectly identified as SICR, impairment provisions will be overstated. Furthermore, adjustments to
current PD estimates in the Group\u2019s models may also have the effect of identifying more or less accounts as having an SICR.
More information on the definition of SICR adopted is given in note 21.
(b) Definition of default
In applying the impairment provisions of IFRS 9, the directors have used models to derive the probabilities of default. In order to
derive and apply such models, it is required to define \u2018default\u2019 for this purpose. The Group\u2019s definition of default is aligned to its
internal operational procedures. IFRS 9 provides a rebuttable presumption of default when an account is 90 days overdue, and this
was used as the starting point for this exercise. Other factors include account management activities such as appointment of a
receiver, internal grading processes or enforcement procedures.
A combination of qualitative and quantitative measures was considered in developing the definition of default.
If a different definition of default had been adopted the expected loss amounts derived might differ from those shown in the accounts.
More information on the Group\u2019s definition of default adopted is given in note 21.
(c) Classification of financial assets
The classification of financial assets under IFRS 9 is based on two factors:
\u2022 The company\u2019s \u2018business model\u2019 \u2013 how it intends to generate cash and profit from the assets
\u2022 The nature of the contractual cash flows inherent in the assets
Financial assets are classified as held at amortised cost, at fair value through OCI, or at fair value through profit and loss.
For an asset to be held at amortised cost, the cash flows received from it must comprise solely payments of principal and interest
(\u2018SPPI\u2019). In effect, this restricts this classification to \u2018normal\u2019 lending activities, excluding arrangements where the lender may have a
contingent return or profit share from the activities funded. The Group has considered its products and concluded that, as standard
lending products, they fall within the SPPI criteria.
This is because all the Group\u2019s lending arrangements involve the advancing of amounts to customers, either as loans or finance lease
products and the receipt of repayments of principal and charges, where those charges are calculated based on the amount loaned.
There are no \u2018success fee\u2019 or other compensation arrangements not linked to the loan principal.
The use of amortised cost accounting is also restricted to assets which a company holds within a business model whose object is to
collect cash flows arising from them, rather than seek to profit by disposing of them (a \u2018Held to Collect\u2019 model). The Group\u2019s strategy
is to hold loan assets until they are repaid or written off. Loan disposals are rare, and the Group does not manage its assets in order to
generate profits on sale. On this basis, it has categorised its business model as Held to Collect.
Therefore, the Group has classified its customer loan assets as carried at amortised cost. There were no significant changes in the
nature of the Group\u2019s products, nor in the business models in which they are held, during the year.
69. Critical accounting estimates
Certain balances reported in the financial statements are based wholly or in part on estimates or assumptions made by the directors.
There is, therefore, a potential risk that they may be subject to change in future periods. The most important of these, those which
could, if revised significantly in the next financial year, have a material impact on the carrying amounts of assets or liabilities are:
(a) Impairment losses on loans to customers
Impairment losses for the majority of loans are calculated based on statistical models, applied to the present status, performance and
management strategy for the loans concerned, which are used to determine each loan\u2019s PD and LGD.
Internal information used will include number of months arrears, qualitative information, such as possession by a first charge holder
on a second charge mortgage or, where a buy-to-let case is under the control of a receiver of rent, the receiver\u2019s present and likely
future strategy for the property (which might include keeping current tenants in place, refurbish and relet, immediate sale, etc).
External information used includes customer specific data, such as credit bureau information as well as more general economic data.
Key internal assumptions in the models relate to estimates of future cash flows from customers\u2019 accounts, their timing and, for
secured accounts, the expected proceeds from the realisation of the property or other charged assets. These cash flows will include
payments received from the customer, and, for buy-to-let cases where a receiver of rent is appointed, rental receipts from tenants,
after allowing for void periods and running costs. These key assumptions are based on observed data from historical patterns and are
updated regularly based on new data as it becomes available.
In addition, the directors consider how appropriate past trends and patterns might be in the current economic situation and make any
adjustments they believe are necessary to reflect current and expected conditions.
In evaluating the potential impact of the economic situation at 30 September 2024 there is little recent history against which to
benchmark likely customer behaviour. Interest rates in the UK increased rapidly in the preceding year and have remained at elevated
levels throughout the period. The UK base rate remained at 5.25% throughout most of the period, a level it had not touched since
April 2008, since when significant regulatory intervention in the UK\u2019s lending markets has taken place. There have also been
significant changes in product structures in that period, including the growth of longer term fixed-rate mortgage lending in recent
years. All these factors make the historical record of behaviours in higher interest rate environments an uncertain guide to the likely
impact of current rate levels.
There is also some disagreement among economic forecasters as to the future direction of the UK economy, exacerbated by
uncertainties as to the impact of the policies of the new UK Government. At the same time, the level to which economic pressures on
customers have yet to manifest themselves in credit metrics is still unclear, with credit performance across the markets in which the
Group is active being better than some expected over the past two years. However, considerable uncertainty exists as to whether this
represents a more benign outcome, or merely a delay in credit issues emerging beyond what was anticipated. Together, these factors
make forecasting credit behaviour in current conditions challenging.
The accuracy of the impairment calculations would be affected by unexpected changes to the economic situation, variances between
the models used and the actual results, or assumptions which differ from the actual outcomes. In particular, if the impact of economic
factors such as employment levels on customers is worse than is implicit in the model, then the number of accounts requiring
provision might be greater than suggested by the model, while falls in house prices, over and above any assumed by the models might
increase the provision required in respect of accounts currently provided. Similarly, if the account management approach assumed in
the modelling cannot be adopted the provision required may be different.
In order to provide forward-looking economic inputs to the modelling of the ECL, the Group must derive a set of scenarios which are
internally coherent. The Group addresses these requirements using four distinct economic scenarios chosen to represent the range
of possible outcomes. These scenarios at 30 September 2024 have been derived in light of the current economic situation modelling
a variety of possible outcomes as described in note 24.
As noted above, there remains a significant range of different opinions amongst economists about the longer-term prospects for the
UK, and although these have converged, to some extent, over recent months, the medium-term uncertainty over the direction and
impact of UK economic policy under the new administration adds inherent complexity to any forecasting exercise.
The variables are used for two purposes in the IFRS 9 calculations:
\u2022 They are applied as inputs in the models which generate PD values, where those found by statistical analysis to have the most
predictive value are used
\u2022 They are used as part of the calculation where the variable has a direct impact on the expected loss calculation, such as the HPI
The economic variables will also inform assumptions about the Group\u2019s approach to account management given a particular scenario.
In addition to uncertainty represented by the economic scenarios, the Group recognises that economic situations can arise which
lie outside the range of potential positions considered as a basis for its IFRS 9 approach to impairment when the current models
were built. The current forecast scenarios, which include higher rates of interest and inflation than in the historically observed data,
represent situations where these models may not be able to fully allow for potential economic impacts on the loan portfolios. The
Group therefore assessed, for each class of asset, whether any adjustment to the normal approach was required to ensure sufficient
provision was created by the models. It also reviewed other available data, both from account performance and customer feedback to
form a view of the underlying reasons for observed customer behaviours and of their future intentions and prospects.
As a result of this exercise additional requirements for provision were identified, to compensate for potential model weakness and
to allow for economic pressures in the wider economy which cannot be identified by a modelled approach. By their nature such
adjustments are less systematic and therefore subject to a wider range of outturns. The nature and amounts of these judgemental
adjustments are set out in note 21.
The position after considering all these matters is set out in notes 21 to 23, together with further information on the Group\u2019s approach.
The economic scenarios described above and their impact on the overall provision are set out in note 24, while sensitivity analyses on
impairment provisioning are set out in note 25.
(b) Effective interest rates
In order to determine the EIR applicable to loans and borrowings an estimate must be made of the expected life of each asset
or liability and the cash flows relating thereto, including those relating to early redemption charges together with any initial fees
receivable from the customer or procurement fees payable to a mortgage broker or other introducer.
Where an account may have differing interest charging arrangements in different phases of its contractual life, such as the Group\u2019s
buy-to-let mortgage accounts which have a fixed interest rate for a set period and then revert to a variable rate set by the Group (the
\u2018reversionary rate\u2019), the behavioural life and the expected level of the reversionary rate will have a significant impact on the overall EIR.
For each portfolio a model is in place to ensure that income is appropriately spread.
For loan accounts such as those in the Group\u2019s mortgage portfolios where borrowers typically repay their balances before the
contractual repayment date, the estimated life of the account will be dependent on customer behaviour. The customer may choose
to sell their property and redeem the mortgage at any point, but may also choose to refinance their account, if a more attractive
alternative is available, based on the interest rate they are being charged at that point in time, or expect to be charged in the future.
The behavioural life of the loan may therefore be influenced by, levels of activity in the residential property market, or by the nature
and pricing of alternative funding sources, at each point in the loans life and these are likely to vary over time.
For loans which have a fixed-rate period, the length of that period will have a significant behavioural impact, with many customers
choosing to consider their positions at the point at which the fixed rate expires, influenced by the market conditions then prevailing.
The forecast future choices of customers currently on fixed-rate products at this point therefore has a significant impact on the EIR
modelling for these assets.
Where loans are more likely to run to contractual term, and interest rates are less likely to vary over that term, as is the case for the
majority of the Group\u2019s motor finance and asset-backed SME lending, the determination of an EIR model is less judgemental, and
reflects principally the spreading of known fees and commissions.
The Group models lives for each of its asset classes, based on its current expectation of future borrower behaviour, and uses these
profiles, together with its expectations of future reversionary interest rates, to determine the correct EIR to be applied to each
account. The underlying estimates are based on historical data, adjusted for expected changes, and reviewed regularly. The accuracy
of the EIR applied would therefore be compromised by any differences between actual repayment profiles and charging rates and
those predicted, which in turn would depend directly on customer behaviour and market conditions.
The Group therefore keeps its models under review and refines its modelling in the light of any emerging deviations from expected
behaviour. These are particularly likely where the current or expected economic environment differs from historic scenarios for
which relevant data observations are available. This is currently the case, with market mortgage rates at far higher levels than have
been seen in many years, but beginning to fall. In such cases management consider carefully the impacts which any new conditions
may have on customer behaviour and reversionary rates and reflect them in the model as appropriate, revisiting these assumptions
regularly as observable data becomes available, with a detailed exercise to analyse any emerging themes taking place every
six months as part of the half-year and year-end results processes.
The application of these estimates results in an overall decrease in the carrying value of the Group\u2019s loans to customers, including
POCI accounts, at 30 September 2024 of \u00a34.4m (2023: increase of \u00a320.5m).
To illustrate the potential variability of the estimate, the amortised cost values were recalculated by changing one factor in the
EIR calculation and keeping all others at their current levels.
\u2022 Currently the average behavioural life used in the buy-to-let modelling for non-legacy assets, which have an average fixed period of
48 months (2023: 49 months), was 80 months (2023: 83 months).
A reduction of the assumed average lives of all loans secured on residential property by three months would reduce balance
sheet assets by \u00a39.3m (2023: \u00a39.3m), while an increase of the assumed asset lives of such assets by three months would increase
balance sheet assets by \u00a39.1m (2023: \u00a39.2m). \u00a38.9m of the increase (2023: \u00a38.8m) and \u00a39.1m of the decrease (2023: \u00a38.8m) related
to non-legacy buy-to-let assets.
A reduction of the assumed average lives of all loans secured on residential property by six months would reduce balance sheet
assets by \u00a318.5m (2023: \u00a318.5m), while an increase of the assumed asset lives of such assets by six months would increase
balance sheet assets by \u00a317.5m (2023: \u00a318.4m). \u00a317.2m of the increase (2023: \u00a317.5m) and \u00a318.2m of the decrease (2023: \u00a317.5m)
related to non-legacy buy-to-let assets.
\u2022 The EIR calculation is based on management estimates of the reversionary rates which would be charged to customers after the
end of their fixed rate periods.
If it was assumed that the maximum reversionary rate which could be charged in future was 6.00%, then the value of the non-legacy
buy-to-let loan book would be decreased by \u00a312.3m (2023: decrease by \u00a33.0m).
If it was assumed that the maximum reversionary rate which could be charged in future was 8.00%, then the value of the non-legacy buy-to-let loan book would be increased by \u00a326.1m (2023: increase by \u00a33.9m). \u2022 Where fixed rate buy-to-let assets redeem before the end of their fixed rate period, an early redemption charge is made, and an estimate for the impact of these charges must be included in the EIR calculation. An increase of 50% in the number of five year fixed rate buy-to-let loan assets assumed to redeem before the end of the fixed rate period would increase balance sheet assets by \u00a39.9m (2023: \u00a39.6m). As any of these changes would, in reality, be accompanied by movements in other factors, actual outcomes may differ from these estimates. (c) Impairment of goodwill The carrying value of goodwill recognised on acquisitions is verified by use of an impairment test based on the projected cash flows for the CGU, based on management forecasts and other assumptions described in note 31, including a discount factor. The accuracy of this impairment calculation would therefore be compromised by any differences between these forecasts and the levels of business activity that the CGU is able to achieve in practice. As the Group forecasts are based on the Group\u2019s central economic scenario, any variance from this will potentially impact on the valuation. This test will also be affected by the accuracy of the discount factor used. The sensitivity of the impairment test to reasonably possible movements in these assumptions is discussed in note 31. (d) Retirement benefits The present value of the retirement benefit obligation is derived from an actuarial calculation which rests on a number of assumptions relating to inflation, long-term return on investments and mortality. These are listed in note 60. Where actual conditions differ from those assumed the ultimate value of the obligation would be different. Information on the sensitivity of the valuation to the various assumptions is given in note 60.", "dimensions": { "concept": "ifrs-full:DisclosureOfAccountingJudgementsAndEstimatesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-485": { "value": "68. Critical accounting judgements The most significant judgements which the directors have made in the application of the accounting policies set out in note 67 relate to: (a) Significant Increase in Credit Risk (\u2018SICR\u2019) Under IFRS 9, the directors are required to assess where a credit obligation has suffered a Significant Increase in Credit Risk (\u2018SICR\u2019). The directors\u2019 assessment is based primarily on changes in the calculated PD, but also includes consideration of other qualitative indicators and the adoption of the backstop assumption in the Standard that all cases which are more than 30 days overdue have an SICR, for account types where days overdue is an appropriate measure. As part of its consideration of the adequacy of its impairment provisioning, management have considered whether there are any factors not reflected in its normal approach which indicate that a group, or groups of accounts should be considered as having an SICR. No such accounts were identified. If additional accounts were determined to have an SICR, these balances would attract additional impairment provision, as such cases are provided on the basis of lifetime expected loss, rather the 12-month expected loss, and the overall provision charge would be higher. Conversely, if cases are incorrectly identified as SICR, impairment provisions will be overstated. Furthermore, adjustments to current PD estimates in the Group\u2019s models may also have the effect of identifying more or less accounts as having an SICR. More information on the definition of SICR adopted is given in note 21. (b) Definition of default In applying the impairment provisions of IFRS 9, the directors have used models to derive the probabilities of default. In order to derive and apply such models, it is required to define \u2018default\u2019 for this purpose. The Group\u2019s definition of default is aligned to its internal operational procedures. IFRS 9 provides a rebuttable presumption of default when an account is 90 days overdue, and this was used as the starting point for this exercise. Other factors include account management activities such as appointment of a receiver, internal grading processes or enforcement procedures. A combination of qualitative and quantitative measures was considered in developing the definition of default. If a different definition of default had been adopted the expected loss amounts derived might differ from those shown in the accounts. More information on the Group\u2019s definition of default adopted is given in note 21. (c) Classification of financial assets The classification of financial assets under IFRS 9 is based on two factors: \u2022 The company\u2019s \u2018business model\u2019 \u2013 how it intends to generate cash and profit from the assets \u2022 The nature of the contractual cash flows inherent in the assets Financial assets are classified as held at amortised cost, at fair value through OCI, or at fair value through profit and loss. For an asset to be held at amortised cost, the cash flows received from it must comprise solely payments of principal and interest (\u2018SPPI\u2019). In effect, this restricts this classification to \u2018normal\u2019 lending activities, excluding arrangements where the lender may have a contingent return or profit share from the activities funded. The Group has considered its products and concluded that, as standard lending products, they fall within the SPPI criteria. This is because all the Group\u2019s lending arrangements involve the advancing of amounts to customers, either as loans or finance lease products and the receipt of repayments of principal and charges, where those charges are calculated based on the amount loaned. There are no \u2018success fee\u2019 or other compensation arrangements not linked to the loan principal. The use of amortised cost accounting is also restricted to assets which a company holds within a business model whose object is to collect cash flows arising from them, rather than seek to profit by disposing of them (a \u2018Held to Collect\u2019 model). The Group\u2019s strategy is to hold loan assets until they are repaid or written off. Loan disposals are rare, and the Group does not manage its assets in order to generate profits on sale. On this basis, it has categorised its business model as Held to Collect. Therefore, the Group has classified its customer loan assets as carried at amortised cost. There were no significant changes in the nature of the Group\u2019s products, nor in the business models in which they are held, during the year. 69. Critical accounting estimates Certain balances reported in the financial statements are based wholly or in part on estimates or assumptions made by the directors. There is, therefore, a potential risk that they may be subject to change in future periods. The most important of these, those which could, if revised significantly in the next financial year, have a material impact on the carrying amounts of assets or liabilities are: (a) Impairment losses on loans to customers Impairment losses for the majority of loans are calculated based on statistical models, applied to the present status, performance and management strategy for the loans concerned, which are used to determine each loan\u2019s PD and LGD. Internal information used will include number of months arrears, qualitative information, such as possession by a first charge holder on a second charge mortgage or, where a buy-to-let case is under the control of a receiver of rent, the receiver\u2019s present and likely future strategy for the property (which might include keeping current tenants in place, refurbish and relet, immediate sale, etc). External information used includes customer specific data, such as credit bureau information as well as more general economic data. Key internal assumptions in the models relate to estimates of future cash flows from customers\u2019 accounts, their timing and, for secured accounts, the expected proceeds from the realisation of the property or other charged assets. These cash flows will include payments received from the customer, and, for buy-to-let cases where a receiver of rent is appointed, rental receipts from tenants, after allowing for void periods and running costs. These key assumptions are based on observed data from historical patterns and are updated regularly based on new data as it becomes available. In addition, the directors consider how appropriate past trends and patterns might be in the current economic situation and make any adjustments they believe are necessary to reflect current and expected conditions. In evaluating the potential impact of the economic situation at 30 September 2024 there is little recent history against which to benchmark likely customer behaviour. Interest rates in the UK increased rapidly in the preceding year and have remained at elevated levels throughout the period. The UK base rate remained at 5.25% throughout most of the period, a level it had not touched since April 2008, since when significant regulatory intervention in the UK\u2019s lending markets has taken place. There have also been significant changes in product structures in that period, including the growth of longer term fixed-rate mortgage lending in recent years. All these factors make the historical record of behaviours in higher interest rate environments an uncertain guide to the likely impact of current rate levels. There is also some disagreement among economic forecasters as to the future direction of the UK economy, exacerbated by uncertainties as to the impact of the policies of the new UK Government. At the same time, the level to which economic pressures on customers have yet to manifest themselves in credit metrics is still unclear, with credit performance across the markets in which the Group is active being better than some expected over the past two years. However, considerable uncertainty exists as to whether this represents a more benign outcome, or merely a delay in credit issues emerging beyond what was anticipated. Together, these factors make forecasting credit behaviour in current conditions challenging. The accuracy of the impairment calculations would be affected by unexpected changes to the economic situation, variances between the models used and the actual results, or assumptions which differ from the actual outcomes. In particular, if the impact of economic factors such as employment levels on customers is worse than is implicit in the model, then the number of accounts requiring provision might be greater than suggested by the model, while falls in house prices, over and above any assumed by the models might increase the provision required in respect of accounts currently provided. Similarly, if the account management approach assumed in the modelling cannot be adopted the provision required may be different. In order to provide forward-looking economic inputs to the modelling of the ECL, the Group must derive a set of scenarios which are internally coherent. The Group addresses these requirements using four distinct economic scenarios chosen to represent the range of possible outcomes. These scenarios at 30 September 2024 have been derived in light of the current economic situation modelling a variety of possible outcomes as described in note 24. As noted above, there remains a significant range of different opinions amongst economists about the longer-term prospects for the UK, and although these have converged, to some extent, over recent months, the medium-term uncertainty over the direction and impact of UK economic policy under the new administration adds inherent complexity to any forecasting exercise. The variables are used for two purposes in the IFRS 9 calculations: \u2022 They are applied as inputs in the models which generate PD values, where those found by statistical analysis to have the most predictive value are used \u2022 They are used as part of the calculation where the variable has a direct impact on the expected loss calculation, such as the HPI The economic variables will also inform assumptions about the Group\u2019s approach to account management given a particular scenario. In addition to uncertainty represented by the economic scenarios, the Group recognises that economic situations can arise which lie outside the range of potential positions considered as a basis for its IFRS 9 approach to impairment when the current models were built. The current forecast scenarios, which include higher rates of interest and inflation than in the historically observed data, represent situations where these models may not be able to fully allow for potential economic impacts on the loan portfolios. The Group therefore assessed, for each class of asset, whether any adjustment to the normal approach was required to ensure sufficient provision was created by the models. It also reviewed other available data, both from account performance and customer feedback to form a view of the underlying reasons for observed customer behaviours and of their future intentions and prospects. As a result of this exercise additional requirements for provision were identified, to compensate for potential model weakness and to allow for economic pressures in the wider economy which cannot be identified by a modelled approach. By their nature such adjustments are less systematic and therefore subject to a wider range of outturns. The nature and amounts of these judgemental adjustments are set out in note 21. The position after considering all these matters is set out in notes 21 to 23, together with further information on the Group\u2019s approach. The economic scenarios described above and their impact on the overall provision are set out in note 24, while sensitivity analyses on impairment provisioning are set out in note 25. (b) Effective interest rates In order to determine the EIR applicable to loans and borrowings an estimate must be made of the expected life of each asset or liability and the cash flows relating thereto, including those relating to early redemption charges together with any initial fees receivable from the customer or procurement fees payable to a mortgage broker or other introducer. Where an account may have differing interest charging arrangements in different phases of its contractual life, such as the Group\u2019s buy-to-let mortgage accounts which have a fixed interest rate for a set period and then revert to a variable rate set by the Group (the \u2018reversionary rate\u2019), the behavioural life and the expected level of the reversionary rate will have a significant impact on the overall EIR. For each portfolio a model is in place to ensure that income is appropriately spread. For loan accounts such as those in the Group\u2019s mortgage portfolios where borrowers typically repay their balances before the contractual repayment date, the estimated life of the account will be dependent on customer behaviour. The customer may choose to sell their property and redeem the mortgage at any point, but may also choose to refinance their account, if a more attractive alternative is available, based on the interest rate they are being charged at that point in time, or expect to be charged in the future. The behavioural life of the loan may therefore be influenced by, levels of activity in the residential property market, or by the nature and pricing of alternative funding sources, at each point in the loans life and these are likely to vary over time. For loans which have a fixed-rate period, the length of that period will have a significant behavioural impact, with many customers choosing to consider their positions at the point at which the fixed rate expires, influenced by the market conditions then prevailing. The forecast future choices of customers currently on fixed-rate products at this point therefore has a significant impact on the EIR modelling for these assets. Where loans are more likely to run to contractual term, and interest rates are less likely to vary over that term, as is the case for the majority of the Group\u2019s motor finance and asset-backed SME lending, the determination of an EIR model is less judgemental, and reflects principally the spreading of known fees and commissions. The Group models lives for each of its asset classes, based on its current expectation of future borrower behaviour, and uses these profiles, together with its expectations of future reversionary interest rates, to determine the correct EIR to be applied to each account. The underlying estimates are based on historical data, adjusted for expected changes, and reviewed regularly. The accuracy of the EIR applied would therefore be compromised by any differences between actual repayment profiles and charging rates and those predicted, which in turn would depend directly on customer behaviour and market conditions. The Group therefore keeps its models under review and refines its modelling in the light of any emerging deviations from expected behaviour. These are particularly likely where the current or expected economic environment differs from historic scenarios for which relevant data observations are available. This is currently the case, with market mortgage rates at far higher levels than have been seen in many years, but beginning to fall. In such cases management consider carefully the impacts which any new conditions may have on customer behaviour and reversionary rates and reflect them in the model as appropriate, revisiting these assumptions regularly as observable data becomes available, with a detailed exercise to analyse any emerging themes taking place every six months as part of the half-year and year-end results processes. The application of these estimates results in an overall decrease in the carrying value of the Group\u2019s loans to customers, including POCI accounts, at 30 September 2024 of \u00a34.4m (2023: increase of \u00a320.5m). To illustrate the potential variability of the estimate, the amortised cost values were recalculated by changing one factor in the EIR calculation and keeping all others at their current levels. \u2022 Currently the average behavioural life used in the buy-to-let modelling for non-legacy assets, which have an average fixed period of 48 months (2023: 49 months), was 80 months (2023: 83 months). A reduction of the assumed average lives of all loans secured on residential property by three months would reduce balance sheet assets by \u00a39.3m (2023: \u00a39.3m), while an increase of the assumed asset lives of such assets by three months would increase balance sheet assets by \u00a39.1m (2023: \u00a39.2m). \u00a38.9m of the increase (2023: \u00a38.8m) and \u00a39.1m of the decrease (2023: \u00a38.8m) related to non-legacy buy-to-let assets. A reduction of the assumed average lives of all loans secured on residential property by six months would reduce balance sheet assets by \u00a318.5m (2023: \u00a318.5m), while an increase of the assumed asset lives of such assets by six months would increase balance sheet assets by \u00a317.5m (2023: \u00a318.4m). \u00a317.2m of the increase (2023: \u00a317.5m) and \u00a318.2m of the decrease (2023: \u00a317.5m) related to non-legacy buy-to-let assets. \u2022 The EIR calculation is based on management estimates of the reversionary rates which would be charged to customers after the end of their fixed rate periods. If it was assumed that the maximum reversionary rate which could be charged in future was 6.00%, then the value of the non-legacy buy-to-let loan book would be decreased by \u00a312.3m (2023: decrease by \u00a33.0m). If it was assumed that the maximum reversionary rate which could be charged in future was 8.00%, then the value of the non-legacy buy-to-let loan book would be increased by \u00a326.1m (2023: increase by \u00a33.9m). \u2022 Where fixed rate buy-to-let assets redeem before the end of their fixed rate period, an early redemption charge is made, and an estimate for the impact of these charges must be included in the EIR calculation. An increase of 50% in the number of five year fixed rate buy-to-let loan assets assumed to redeem before the end of the fixed rate period would increase balance sheet assets by \u00a39.9m (2023: \u00a39.6m). As any of these changes would, in reality, be accompanied by movements in other factors, actual outcomes may differ from these estimates. (c) Impairment of goodwill The carrying value of goodwill recognised on acquisitions is verified by use of an impairment test based on the projected cash flows for the CGU, based on management forecasts and other assumptions described in note 31, including a discount factor. The accuracy of this impairment calculation would therefore be compromised by any differences between these forecasts and the levels of business activity that the CGU is able to achieve in practice. As the Group forecasts are based on the Group\u2019s central economic scenario, any variance from this will potentially impact on the valuation. This test will also be affected by the accuracy of the discount factor used. The sensitivity of the impairment test to reasonably possible movements in these assumptions is discussed in note 31. (d) Retirement benefits The present value of the retirement benefit obligation is derived from an actuarial calculation which rests on a number of assumptions relating to inflation, long-term return on investments and mortality. These are listed in note 60. Where actual conditions differ from those assumed the ultimate value of the obligation would be different. Information on the sensitivity of the valuation to the various assumptions is given in note 60.", "dimensions": { "concept": "ifrs-full:DisclosureOfAssetsAndLiabilitiesWithSignificantRiskOfMaterialAdjustmentExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-454": { "value": "68. Critical accounting judgements The most significant judgements which the directors have made in the application of the accounting policies set out in note 67 relate to: (a) Significant Increase in Credit Risk (\u2018SICR\u2019) Under IFRS 9, the directors are required to assess where a credit obligation has suffered a Significant Increase in Credit Risk (\u2018SICR\u2019). The directors\u2019 assessment is based primarily on changes in the calculated PD, but also includes consideration of other qualitative indicators and the adoption of the backstop assumption in the Standard that all cases which are more than 30 days overdue have an SICR, for account types where days overdue is an appropriate measure. As part of its consideration of the adequacy of its impairment provisioning, management have considered whether there are any factors not reflected in its normal approach which indicate that a group, or groups of accounts should be considered as having an SICR. No such accounts were identified. If additional accounts were determined to have an SICR, these balances would attract additional impairment provision, as such cases are provided on the basis of lifetime expected loss, rather the 12-month expected loss, and the overall provision charge would be higher. Conversely, if cases are incorrectly identified as SICR, impairment provisions will be overstated. Furthermore, adjustments to current PD estimates in the Group\u2019s models may also have the effect of identifying more or less accounts as having an SICR. More information on the definition of SICR adopted is given in note 21. (b) Definition of default In applying the impairment provisions of IFRS 9, the directors have used models to derive the probabilities of default. In order to derive and apply such models, it is required to define \u2018default\u2019 for this purpose. The Group\u2019s definition of default is aligned to its internal operational procedures. IFRS 9 provides a rebuttable presumption of default when an account is 90 days overdue, and this was used as the starting point for this exercise. Other factors include account management activities such as appointment of a receiver, internal grading processes or enforcement procedures. A combination of qualitative and quantitative measures was considered in developing the definition of default. If a different definition of default had been adopted the expected loss amounts derived might differ from those shown in the accounts. More information on the Group\u2019s definition of default adopted is given in note 21. (c) Classification of financial assets The classification of financial assets under IFRS 9 is based on two factors: \u2022 The company\u2019s \u2018business model\u2019 \u2013 how it intends to generate cash and profit from the assets \u2022 The nature of the contractual cash flows inherent in the assets Financial assets are classified as held at amortised cost, at fair value through OCI, or at fair value through profit and loss. For an asset to be held at amortised cost, the cash flows received from it must comprise solely payments of principal and interest (\u2018SPPI\u2019). In effect, this restricts this classification to \u2018normal\u2019 lending activities, excluding arrangements where the lender may have a contingent return or profit share from the activities funded. The Group has considered its products and concluded that, as standard lending products, they fall within the SPPI criteria. This is because all the Group\u2019s lending arrangements involve the advancing of amounts to customers, either as loans or finance lease products and the receipt of repayments of principal and charges, where those charges are calculated based on the amount loaned. There are no \u2018success fee\u2019 or other compensation arrangements not linked to the loan principal. The use of amortised cost accounting is also restricted to assets which a company holds within a business model whose object is to collect cash flows arising from them, rather than seek to profit by disposing of them (a \u2018Held to Collect\u2019 model). The Group\u2019s strategy is to hold loan assets until they are repaid or written off. Loan disposals are rare, and the Group does not manage its assets in order to generate profits on sale. On this basis, it has categorised its business model as Held to Collect. Therefore, the Group has classified its customer loan assets as carried at amortised cost. There were no significant changes in the nature of the Group\u2019s products, nor in the business models in which they are held, during the year. 69. Critical accounting estimates Certain balances reported in the financial statements are based wholly or in part on estimates or assumptions made by the directors. There is, therefore, a potential risk that they may be subject to change in future periods. The most important of these, those which could, if revised significantly in the next financial year, have a material impact on the carrying amounts of assets or liabilities are: (a) Impairment losses on loans to customers Impairment losses for the majority of loans are calculated based on statistical models, applied to the present status, performance and management strategy for the loans concerned, which are used to determine each loan\u2019s PD and LGD. Internal information used will include number of months arrears, qualitative information, such as possession by a first charge holder on a second charge mortgage or, where a buy-to-let case is under the control of a receiver of rent, the receiver\u2019s present and likely future strategy for the property (which might include keeping current tenants in place, refurbish and relet, immediate sale, etc). External information used includes customer specific data, such as credit bureau information as well as more general economic data. Key internal assumptions in the models relate to estimates of future cash flows from customers\u2019 accounts, their timing and, for secured accounts, the expected proceeds from the realisation of the property or other charged assets. These cash flows will include payments received from the customer, and, for buy-to-let cases where a receiver of rent is appointed, rental receipts from tenants, after allowing for void periods and running costs. These key assumptions are based on observed data from historical patterns and are updated regularly based on new data as it becomes available. In addition, the directors consider how appropriate past trends and patterns might be in the current economic situation and make any adjustments they believe are necessary to reflect current and expected conditions. In evaluating the potential impact of the economic situation at 30 September 2024 there is little recent history against which to benchmark likely customer behaviour. Interest rates in the UK increased rapidly in the preceding year and have remained at elevated levels throughout the period. The UK base rate remained at 5.25% throughout most of the period, a level it had not touched since April 2008, since when significant regulatory intervention in the UK\u2019s lending markets has taken place. There have also been significant changes in product structures in that period, including the growth of longer term fixed-rate mortgage lending in recent years. All these factors make the historical record of behaviours in higher interest rate environments an uncertain guide to the likely impact of current rate levels. There is also some disagreement among economic forecasters as to the future direction of the UK economy, exacerbated by uncertainties as to the impact of the policies of the new UK Government. At the same time, the level to which economic pressures on customers have yet to manifest themselves in credit metrics is still unclear, with credit performance across the markets in which the Group is active being better than some expected over the past two years. However, considerable uncertainty exists as to whether this represents a more benign outcome, or merely a delay in credit issues emerging beyond what was anticipated. Together, these factors make forecasting credit behaviour in current conditions challenging. The accuracy of the impairment calculations would be affected by unexpected changes to the economic situation, variances between the models used and the actual results, or assumptions which differ from the actual outcomes. In particular, if the impact of economic factors such as employment levels on customers is worse than is implicit in the model, then the number of accounts requiring provision might be greater than suggested by the model, while falls in house prices, over and above any assumed by the models might increase the provision required in respect of accounts currently provided. Similarly, if the account management approach assumed in the modelling cannot be adopted the provision required may be different. In order to provide forward-looking economic inputs to the modelling of the ECL, the Group must derive a set of scenarios which are internally coherent. The Group addresses these requirements using four distinct economic scenarios chosen to represent the range of possible outcomes. These scenarios at 30 September 2024 have been derived in light of the current economic situation modelling a variety of possible outcomes as described in note 24. As noted above, there remains a significant range of different opinions amongst economists about the longer-term prospects for the UK, and although these have converged, to some extent, over recent months, the medium-term uncertainty over the direction and impact of UK economic policy under the new administration adds inherent complexity to any forecasting exercise. The variables are used for two purposes in the IFRS 9 calculations: \u2022 They are applied as inputs in the models which generate PD values, where those found by statistical analysis to have the most predictive value are used \u2022 They are used as part of the calculation where the variable has a direct impact on the expected loss calculation, such as the HPI The economic variables will also inform assumptions about the Group\u2019s approach to account management given a particular scenario. In addition to uncertainty represented by the economic scenarios, the Group recognises that economic situations can arise which lie outside the range of potential positions considered as a basis for its IFRS 9 approach to impairment when the current models were built. The current forecast scenarios, which include higher rates of interest and inflation than in the historically observed data, represent situations where these models may not be able to fully allow for potential economic impacts on the loan portfolios. The Group therefore assessed, for each class of asset, whether any adjustment to the normal approach was required to ensure sufficient provision was created by the models. It also reviewed other available data, both from account performance and customer feedback to form a view of the underlying reasons for observed customer behaviours and of their future intentions and prospects. As a result of this exercise additional requirements for provision were identified, to compensate for potential model weakness and to allow for economic pressures in the wider economy which cannot be identified by a modelled approach. By their nature such adjustments are less systematic and therefore subject to a wider range of outturns. The nature and amounts of these judgemental adjustments are set out in note 21. The position after considering all these matters is set out in notes 21 to 23, together with further information on the Group\u2019s approach. The economic scenarios described above and their impact on the overall provision are set out in note 24, while sensitivity analyses on impairment provisioning are set out in note 25. (b) Effective interest rates In order to determine the EIR applicable to loans and borrowings an estimate must be made of the expected life of each asset or liability and the cash flows relating thereto, including those relating to early redemption charges together with any initial fees receivable from the customer or procurement fees payable to a mortgage broker or other introducer. Where an account may have differing interest charging arrangements in different phases of its contractual life, such as the Group\u2019s buy-to-let mortgage accounts which have a fixed interest rate for a set period and then revert to a variable rate set by the Group (the \u2018reversionary rate\u2019), the behavioural life and the expected level of the reversionary rate will have a significant impact on the overall EIR. For each portfolio a model is in place to ensure that income is appropriately spread. For loan accounts such as those in the Group\u2019s mortgage portfolios where borrowers typically repay their balances before the contractual repayment date, the estimated life of the account will be dependent on customer behaviour. The customer may choose to sell their property and redeem the mortgage at any point, but may also choose to refinance their account, if a more attractive alternative is available, based on the interest rate they are being charged at that point in time, or expect to be charged in the future. The behavioural life of the loan may therefore be influenced by, levels of activity in the residential property market, or by the nature and pricing of alternative funding sources, at each point in the loans life and these are likely to vary over time. For loans which have a fixed-rate period, the length of that period will have a significant behavioural impact, with many customers choosing to consider their positions at the point at which the fixed rate expires, influenced by the market conditions then prevailing. The forecast future choices of customers currently on fixed-rate products at this point therefore has a significant impact on the EIR modelling for these assets. Where loans are more likely to run to contractual term, and interest rates are less likely to vary over that term, as is the case for the majority of the Group\u2019s motor finance and asset-backed SME lending, the determination of an EIR model is less judgemental, and reflects principally the spreading of known fees and commissions. The Group models lives for each of its asset classes, based on its current expectation of future borrower behaviour, and uses these profiles, together with its expectations of future reversionary interest rates, to determine the correct EIR to be applied to each account. The underlying estimates are based on historical data, adjusted for expected changes, and reviewed regularly. The accuracy of the EIR applied would therefore be compromised by any differences between actual repayment profiles and charging rates and those predicted, which in turn would depend directly on customer behaviour and market conditions. The Group therefore keeps its models under review and refines its modelling in the light of any emerging deviations from expected behaviour. These are particularly likely where the current or expected economic environment differs from historic scenarios for which relevant data observations are available. This is currently the case, with market mortgage rates at far higher levels than have been seen in many years, but beginning to fall. In such cases management consider carefully the impacts which any new conditions may have on customer behaviour and reversionary rates and reflect them in the model as appropriate, revisiting these assumptions regularly as observable data becomes available, with a detailed exercise to analyse any emerging themes taking place every six months as part of the half-year and year-end results processes. The application of these estimates results in an overall decrease in the carrying value of the Group\u2019s loans to customers, including POCI accounts, at 30 September 2024 of \u00a34.4m (2023: increase of \u00a320.5m). To illustrate the potential variability of the estimate, the amortised cost values were recalculated by changing one factor in the EIR calculation and keeping all others at their current levels. \u2022 Currently the average behavioural life used in the buy-to-let modelling for non-legacy assets, which have an average fixed period of 48 months (2023: 49 months), was 80 months (2023: 83 months). A reduction of the assumed average lives of all loans secured on residential property by three months would reduce balance sheet assets by \u00a39.3m (2023: \u00a39.3m), while an increase of the assumed asset lives of such assets by three months would increase balance sheet assets by \u00a39.1m (2023: \u00a39.2m). \u00a38.9m of the increase (2023: \u00a38.8m) and \u00a39.1m of the decrease (2023: \u00a38.8m) related to non-legacy buy-to-let assets. A reduction of the assumed average lives of all loans secured on residential property by six months would reduce balance sheet assets by \u00a318.5m (2023: \u00a318.5m), while an increase of the assumed asset lives of such assets by six months would increase balance sheet assets by \u00a317.5m (2023: \u00a318.4m). \u00a317.2m of the increase (2023: \u00a317.5m) and \u00a318.2m of the decrease (2023: \u00a317.5m) related to non-legacy buy-to-let assets. \u2022 The EIR calculation is based on management estimates of the reversionary rates which would be charged to customers after the end of their fixed rate periods. If it was assumed that the maximum reversionary rate which could be charged in future was 6.00%, then the value of the non-legacy buy-to-let loan book would be decreased by \u00a312.3m (2023: decrease by \u00a33.0m). If it was assumed that the maximum reversionary rate which could be charged in future was 8.00%, then the value of the non-legacy buy-to-let loan book would be increased by \u00a326.1m (2023: increase by \u00a33.9m). \u2022 Where fixed rate buy-to-let assets redeem before the end of their fixed rate period, an early redemption charge is made, and an estimate for the impact of these charges must be included in the EIR calculation. An increase of 50% in the number of five year fixed rate buy-to-let loan assets assumed to redeem before the end of the fixed rate period would increase balance sheet assets by \u00a39.9m (2023: \u00a39.6m). As any of these changes would, in reality, be accompanied by movements in other factors, actual outcomes may differ from these estimates. (c) Impairment of goodwill The carrying value of goodwill recognised on acquisitions is verified by use of an impairment test based on the projected cash flows for the CGU, based on management forecasts and other assumptions described in note 31, including a discount factor. The accuracy of this impairment calculation would therefore be compromised by any differences between these forecasts and the levels of business activity that the CGU is able to achieve in practice. As the Group forecasts are based on the Group\u2019s central economic scenario, any variance from this will potentially impact on the valuation. This test will also be affected by the accuracy of the discount factor used. The sensitivity of the impairment test to reasonably possible movements in these assumptions is discussed in note 31. (d) Retirement benefits The present value of the retirement benefit obligation is derived from an actuarial calculation which rests on a number of assumptions relating to inflation, long-term return on investments and mortality. These are listed in note 60. Where actual conditions differ from those assumed the ultimate value of the obligation would be different. Information on the sensitivity of the valuation to the various assumptions is given in note 60.", "dimensions": { "concept": "ifrs-full:ExplanationOfAssumptionAboutFutureWithSignificantRiskOfResultingInMaterialAdjustments", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-455": { "value": "
71. Financial assets and financial liabilities
The Group\u2019s financial assets and financial liabilities are valued on one of two bases, defined by IFRS 9:
\u2022 Financial assets and liabilities carried at fair value through profit and loss (\u2018FVTPL\u2019)
\u2022 Financial assets and liabilities carried at amortised cost
IFRS 7 \u2013 \u2018Financial Instruments: Disclosures\u2019 requires that where assets are measured at fair value these measurements should be
classified using the fair value hierarchy set out in IFRS 13 \u2013 \u2018Fair Value Measurement\u2019. This hierarchy reflects the inputs used and
defines three levels:
\u2022 Level 1 measurements are unadjusted market prices
\u2022 Level 2 measurements are derived from directly or indirectly observable data, such as market prices or rates
\u2022 Level 3 measurements rely on significant inputs which are not derived from observable data
As quoted prices are not available for level 2 and 3 measurements, the valuation is derived from cash flow models based, where
possible, on independently sourced parameters. The accuracy of the calculation would therefore be affected by unexpected market
movements or other variances in the operation of the models, or the assumptions used.
The Group had no financial assets or liabilities at 30 September 2024 or 30 September 2023 carried at fair value and valued using
level 3 measurements.
The Group has not reclassified any of its measurements during the year.
The methods by which fair value is established for each class of financial assets and liabilities are set out below.
(a) Assets and liabilities carried at fair value
The following table summarises the Group\u2019s financial assets and liabilities which are carried at fair value.
Note
2024
2023
\u00a3m
\u00a3m
Financial assets
Derivative financial assets
26
391.8
615.4
Financial liabilities
Derivative financial liabilities
26
99.7
39.9
All of these financial assets and financial liabilities are required to be carried at fair value by IFRS 9.
The Company has no financial assets or liabilities carried at fair value.
Derivative financial assets and liabilities
Derivative financial instruments are stated at their fair values in the accounts. The Group uses a number of techniques to determine
the fair values of its derivative assets and liabilities, for which observable prices in active markets are not available. These are principally
present value calculations based on estimated future cash flows arising from the instruments, discounted using a market interest rate,
adjusted for risk as appropriate. The principal inputs to these valuation models are SONIA sterling benchmark interest rates.
In order to determine the fair values, the management applies valuation adjustments to observed data where that data would not
fully reflect the attributes of the instrument being valued, such as particular contractual features or the identity of the counterparty.
The management reviews the models used on an ongoing basis to ensure that the valuations produced are reasonable and reflect all
relevant factors. These valuations are based on market information, and they are therefore classified as level 2 measurements. Details
of these assets are given in note 26.
(b) Assets and liabilities carried at amortised cost
The fair values for financial assets and financial liabilities held at amortised cost, determined in accordance with the methodologies
set out below are summarised below.
Note
2024
2024
2023
2023
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Group
Financial assets
Cash
16
2,525.4
2,525.4
2,994.3
2,994.3
Investment securities
17
427.4
422.0
-
-
Loans to customers
18
15,705.5
15,772.5
14,874.3
14,524.0
Sundry financial assets
27
15.8
15.8
46.0
46.0
18,674.1
18,735.7
17,914.6
17,564.3
Financial liabilities
Short-term bank borrowings
0.4
0.4
0.2
0.2
Asset backed loan notes
-
-
28.0
28.0
Retail deposits
33
16,298.0
16,334.2
13,265.3
13,177.3
Corporate and retail bonds
149.9
145.5
258.2
234.8
Sale and repurchase agreements
39
100.0
100.0
50.0
50.0
Other financial liabilities
40
398.1
398.1
608.8
608.8
16,946.4
16,978.2
14,210.5
14,099.1
Note
2024
2024
2023
2023
(restated) (restated)
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Company
Financial assets
Cash
16
18.3
18.3
28.1
28.1
Intra-group cash deposits
27
107.6
107.6
193.6
193.6
Amounts owed to group companies
27
20.9
20.9
35.0
35.0
Sundry financial assets
27
0.1
0.1
0.1
0.1
146.9
146.9
256.8
256.8
Financial liabilities
Corporate and retail bonds
149.6
145.5
261.8
234.8
Amounts owed by group companies
40
23.6
23.6
24.0
24.0
Other financial liabilities
40
25.4
25.4
0.7
0.7
198.6
194.5
286.5
259.5
The fair values of retail deposits and corporate and retail bonds shown above will include amounts for the related accrued interest.
Cash, sale and repurchase agreements, bank borrowings and securitisation borrowings
The fair values of cash and cash equivalents, sale and repurchase agreements, bank borrowings and asset-backed loan notes, which
are carried at amortised cost are considered to be not materially different from their book values. In arriving at that conclusion market
inputs have been considered but because all the assets and the sale and repurchase agreements mature within three months of the
year end and the interest rates charged on financial liabilities reset to market rates on a quarterly basis, little difference arises. This
also applies to the parent company\u2019s loans to its subsidiaries.
While the Group\u2019s asset-backed loan notes are listed, the quoted prices for an individual note may not be indicative of the
fair value of the issue as a whole, due to the specialised nature of the market in such instruments and the limited number of
investors participating in it.
As these valuation exercises are not wholly market-based, they are considered to be level 2 measurements.
Investment securities
The Group\u2019s investment securities are of types for which a liquid market exists, and for which quoted prices are available. It is
therefore appropriate to consider that the market price of these assets constitutes a fair value. As this valuation is based on a market
price it is considered to be a level 1 measurement.
Loans to customers
To assess the likely fair value of the Group\u2019s loan assets in the absence of a liquid market, the directors have considered the estimated
cash flows expected to arise from the Group\u2019s investments in its loans to customers based on a mixture of market-based inputs, such
as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of observable and non-observable
inputs these are considered to be level 3 measurements.
Corporate debt
The Group\u2019s retail and corporate bonds are listed on the London Stock Exchange and there is presently a reasonably liquid market
in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a fair value. As this
valuation is based on a market price, it is considered to be a level 1 measurement.
Retail deposits
To assess the likely fair value of the Group\u2019s retail deposit liabilities, the directors have considered the estimated cash flows expected
to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs such as withdrawal rates.
Given the mixture of observable and non-observable inputs, these are considered to be level 3 measurements.
Sundry assets and liabilities
Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be materially
different to their carrying values.
These assets and liabilities are of relatively low value and may be settled at their carrying value at the balance sheet date or
shortly thereafter.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-501": { "value": "71. Financial assets and financial liabilities The Group\u2019s financial assets and financial liabilities are valued on one of two bases, defined by IFRS 9: \u2022 Financial assets and liabilities carried at fair value through profit and loss (\u2018FVTPL\u2019) \u2022 Financial assets and liabilities carried at amortised cost IFRS 7 \u2013 \u2018Financial Instruments: Disclosures\u2019 requires that where assets are measured at fair value these measurements should be classified using the fair value hierarchy set out in IFRS 13 \u2013 \u2018Fair Value Measurement\u2019. This hierarchy reflects the inputs used and defines three levels: \u2022 Level 1 measurements are unadjusted market prices \u2022 Level 2 measurements are derived from directly or indirectly observable data, such as market prices or rates \u2022 Level 3 measurements rely on significant inputs which are not derived from observable data As quoted prices are not available for level 2 and 3 measurements, the valuation is derived from cash flow models based, where possible, on independently sourced parameters. The accuracy of the calculation would therefore be affected by unexpected market movements or other variances in the operation of the models, or the assumptions used. The Group had no financial assets or liabilities at 30 September 2024 or 30 September 2023 carried at fair value and valued using level 3 measurements. The Group has not reclassified any of its measurements during the year. The methods by which fair value is established for each class of financial assets and liabilities are set out below. (a) Assets and liabilities carried at fair value The following table summarises the Group\u2019s financial assets and liabilities which are carried at fair value.
Note
2024
2023
\u00a3m
\u00a3m
Financial assets
Derivative financial assets
26
391.8
615.4
Financial liabilities
Derivative financial liabilities
26
99.7
39.9
All of these financial assets and financial liabilities are required to be carried at fair value by IFRS 9. The Company has no financial assets or liabilities carried at fair value. Derivative financial assets and liabilities Derivative financial instruments are stated at their fair values in the accounts. The Group uses a number of techniques to determine the fair values of its derivative assets and liabilities, for which observable prices in active markets are not available. These are principally present value calculations based on estimated future cash flows arising from the instruments, discounted using a market interest rate, adjusted for risk as appropriate. The principal inputs to these valuation models are SONIA sterling benchmark interest rates. In order to determine the fair values, the management applies valuation adjustments to observed data where that data would not fully reflect the attributes of the instrument being valued, such as particular contractual features or the identity of the counterparty. The management reviews the models used on an ongoing basis to ensure that the valuations produced are reasonable and reflect all relevant factors. These valuations are based on market information, and they are therefore classified as level 2 measurements. Details of these assets are given in note 26. (b) Assets and liabilities carried at amortised cost The fair values for financial assets and financial liabilities held at amortised cost, determined in accordance with the methodologies set out below are summarised below.
Note
2024
2024
2023
2023
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Group
Financial assets
Cash
16
2,525.4
2,525.4
2,994.3
2,994.3
Investment securities
17
427.4
422.0
-
-
Loans to customers
18
15,705.5
15,772.5
14,874.3
14,524.0
Sundry financial assets
27
15.8
15.8
46.0
46.0
18,674.1
18,735.7
17,914.6
17,564.3
Financial liabilities
Short-term bank borrowings
0.4
0.4
0.2
0.2
Asset backed loan notes
-
-
28.0
28.0
Retail deposits
33
16,298.0
16,334.2
13,265.3
13,177.3
Corporate and retail bonds
149.9
145.5
258.2
234.8
Sale and repurchase agreements
39
100.0
100.0
50.0
50.0
Other financial liabilities
40
398.1
398.1
608.8
608.8
16,946.4
16,978.2
14,210.5
14,099.1
Note
2024
2024
2023
2023
(restated) (restated)
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Company
Financial assets
Cash
16
18.3
18.3
28.1
28.1
Intra-group cash deposits
27
107.6
107.6
193.6
193.6
Amounts owed to group companies
27
20.9
20.9
35.0
35.0
Sundry financial assets
27
0.1
0.1
0.1
0.1
146.9
146.9
256.8
256.8
Financial liabilities
Corporate and retail bonds
149.6
145.5
261.8
234.8
Amounts owed by group companies
40
23.6
23.6
24.0
24.0
Other financial liabilities
40
25.4
25.4
0.7
0.7
198.6
194.5
286.5
259.5
The fair values of retail deposits and corporate and retail bonds shown above will include amounts for the related accrued interest. Cash, sale and repurchase agreements, bank borrowings and securitisation borrowings The fair values of cash and cash equivalents, sale and repurchase agreements, bank borrowings and asset-backed loan notes, which are carried at amortised cost are considered to be not materially different from their book values. In arriving at that conclusion market inputs have been considered but because all the assets and the sale and repurchase agreements mature within three months of the year end and the interest rates charged on financial liabilities reset to market rates on a quarterly basis, little difference arises. This also applies to the parent company\u2019s loans to its subsidiaries. While the Group\u2019s asset-backed loan notes are listed, the quoted prices for an individual note may not be indicative of the fair value of the issue as a whole, due to the specialised nature of the market in such instruments and the limited number of investors participating in it. As these valuation exercises are not wholly market-based, they are considered to be level 2 measurements. Investment securities The Group\u2019s investment securities are of types for which a liquid market exists, and for which quoted prices are available. It is therefore appropriate to consider that the market price of these assets constitutes a fair value. As this valuation is based on a market price it is considered to be a level 1 measurement. Loans to customers To assess the likely fair value of the Group\u2019s loan assets in the absence of a liquid market, the directors have considered the estimated cash flows expected to arise from the Group\u2019s investments in its loans to customers based on a mixture of market-based inputs, such as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of observable and non-observable inputs these are considered to be level 3 measurements. Corporate debt The Group\u2019s retail and corporate bonds are listed on the London Stock Exchange and there is presently a reasonably liquid market in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a fair value. As this valuation is based on a market price, it is considered to be a level 1 measurement. Retail deposits To assess the likely fair value of the Group\u2019s retail deposit liabilities, the directors have considered the estimated cash flows expected to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs such as withdrawal rates. Given the mixture of observable and non-observable inputs, these are considered to be level 3 measurements. Sundry assets and liabilities Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be materially different to their carrying values. These assets and liabilities are of relatively low value and may be settled at their carrying value at the balance sheet date or shortly thereafter.", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-486": { "value": "71. Financial assets and financial liabilities The Group\u2019s financial assets and financial liabilities are valued on one of two bases, defined by IFRS 9: \u2022 Financial assets and liabilities carried at fair value through profit and loss (\u2018FVTPL\u2019) \u2022 Financial assets and liabilities carried at amortised cost IFRS 7 \u2013 \u2018Financial Instruments: Disclosures\u2019 requires that where assets are measured at fair value these measurements should be classified using the fair value hierarchy set out in IFRS 13 \u2013 \u2018Fair Value Measurement\u2019. This hierarchy reflects the inputs used and defines three levels: \u2022 Level 1 measurements are unadjusted market prices \u2022 Level 2 measurements are derived from directly or indirectly observable data, such as market prices or rates \u2022 Level 3 measurements rely on significant inputs which are not derived from observable data As quoted prices are not available for level 2 and 3 measurements, the valuation is derived from cash flow models based, where possible, on independently sourced parameters. The accuracy of the calculation would therefore be affected by unexpected market movements or other variances in the operation of the models, or the assumptions used. The Group had no financial assets or liabilities at 30 September 2024 or 30 September 2023 carried at fair value and valued using level 3 measurements. The Group has not reclassified any of its measurements during the year. The methods by which fair value is established for each class of financial assets and liabilities are set out below. (a) Assets and liabilities carried at fair value The following table summarises the Group\u2019s financial assets and liabilities which are carried at fair value.
Note
2024
2023
\u00a3m
\u00a3m
Financial assets
Derivative financial assets
26
391.8
615.4
Financial liabilities
Derivative financial liabilities
26
99.7
39.9
All of these financial assets and financial liabilities are required to be carried at fair value by IFRS 9. The Company has no financial assets or liabilities carried at fair value. Derivative financial assets and liabilities Derivative financial instruments are stated at their fair values in the accounts. The Group uses a number of techniques to determine the fair values of its derivative assets and liabilities, for which observable prices in active markets are not available. These are principally present value calculations based on estimated future cash flows arising from the instruments, discounted using a market interest rate, adjusted for risk as appropriate. The principal inputs to these valuation models are SONIA sterling benchmark interest rates. In order to determine the fair values, the management applies valuation adjustments to observed data where that data would not fully reflect the attributes of the instrument being valued, such as particular contractual features or the identity of the counterparty. The management reviews the models used on an ongoing basis to ensure that the valuations produced are reasonable and reflect all relevant factors. These valuations are based on market information, and they are therefore classified as level 2 measurements. Details of these assets are given in note 26. (b) Assets and liabilities carried at amortised cost The fair values for financial assets and financial liabilities held at amortised cost, determined in accordance with the methodologies set out below are summarised below.
Note
2024
2024
2023
2023
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Group
Financial assets
Cash
16
2,525.4
2,525.4
2,994.3
2,994.3
Investment securities
17
427.4
422.0
-
-
Loans to customers
18
15,705.5
15,772.5
14,874.3
14,524.0
Sundry financial assets
27
15.8
15.8
46.0
46.0
18,674.1
18,735.7
17,914.6
17,564.3
Financial liabilities
Short-term bank borrowings
0.4
0.4
0.2
0.2
Asset backed loan notes
-
-
28.0
28.0
Retail deposits
33
16,298.0
16,334.2
13,265.3
13,177.3
Corporate and retail bonds
149.9
145.5
258.2
234.8
Sale and repurchase agreements
39
100.0
100.0
50.0
50.0
Other financial liabilities
40
398.1
398.1
608.8
608.8
16,946.4
16,978.2
14,210.5
14,099.1
Note
2024
2024
2023
2023
(restated) (restated)
Carrying amount
Fair value
Carrying amount
Fair value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
The Company
Financial assets
Cash
16
18.3
18.3
28.1
28.1
Intra-group cash deposits
27
107.6
107.6
193.6
193.6
Amounts owed to group companies
27
20.9
20.9
35.0
35.0
Sundry financial assets
27
0.1
0.1
0.1
0.1
146.9
146.9
256.8
256.8
Financial liabilities
Corporate and retail bonds
149.6
145.5
261.8
234.8
Amounts owed by group companies
40
23.6
23.6
24.0
24.0
Other financial liabilities
40
25.4
25.4
0.7
0.7
198.6
194.5
286.5
259.5
The fair values of retail deposits and corporate and retail bonds shown above will include amounts for the related accrued interest. Cash, sale and repurchase agreements, bank borrowings and securitisation borrowings The fair values of cash and cash equivalents, sale and repurchase agreements, bank borrowings and asset-backed loan notes, which are carried at amortised cost are considered to be not materially different from their book values. In arriving at that conclusion market inputs have been considered but because all the assets and the sale and repurchase agreements mature within three months of the year end and the interest rates charged on financial liabilities reset to market rates on a quarterly basis, little difference arises. This also applies to the parent company\u2019s loans to its subsidiaries. While the Group\u2019s asset-backed loan notes are listed, the quoted prices for an individual note may not be indicative of the fair value of the issue as a whole, due to the specialised nature of the market in such instruments and the limited number of investors participating in it. As these valuation exercises are not wholly market-based, they are considered to be level 2 measurements. Investment securities The Group\u2019s investment securities are of types for which a liquid market exists, and for which quoted prices are available. It is therefore appropriate to consider that the market price of these assets constitutes a fair value. As this valuation is based on a market price it is considered to be a level 1 measurement. Loans to customers To assess the likely fair value of the Group\u2019s loan assets in the absence of a liquid market, the directors have considered the estimated cash flows expected to arise from the Group\u2019s investments in its loans to customers based on a mixture of market-based inputs, such as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of observable and non-observable inputs these are considered to be level 3 measurements. Corporate debt The Group\u2019s retail and corporate bonds are listed on the London Stock Exchange and there is presently a reasonably liquid market in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a fair value. As this valuation is based on a market price, it is considered to be a level 1 measurement. Retail deposits To assess the likely fair value of the Group\u2019s retail deposit liabilities, the directors have considered the estimated cash flows expected to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs such as withdrawal rates. Given the mixture of observable and non-observable inputs, these are considered to be level 3 measurements. Sundry assets and liabilities Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be materially different to their carrying values. These assets and liabilities are of relatively low value and may be settled at their carrying value at the balance sheet date or shortly thereafter.", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-414": { "value": "Investment securities The Group\u2019s investment securities are of types for which a liquid market exists, and for which quoted prices are available. It is therefore appropriate to consider that the market price of these assets constitutes a fair value. As this valuation is based on a market price it is considered to be a level 1 measurement. Loans to customers To assess the likely fair value of the Group\u2019s loan assets in the absence of a liquid market, the directors have considered the estimated cash flows expected to arise from the Group\u2019s investments in its loans to customers based on a mixture of market-based inputs, such as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of observable and non-observable inputs these are considered to be level 3 measurements. Corporate debt The Group\u2019s retail and corporate bonds are listed on the London Stock Exchange and there is presently a reasonably liquid market in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a fair value. As this valuation is based on a market price, it is considered to be a level 1 measurement. Retail deposits To assess the likely fair value of the Group\u2019s retail deposit liabilities, the directors have considered the estimated cash flows expected to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs such as withdrawal rates. Given the mixture of observable and non-observable inputs, these are considered to be level 3 measurements. Sundry assets and liabilities Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be materially different to their carrying values. These assets and liabilities are of relatively low value and may be settled at their carrying value at the balance sheet date or shortly thereafter.", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } }, "fact-456": { "value": "72. Details of subsidiary undertakings Subsidiary undertakings of the Group at 30 September 2024, where the share capital is held within the Group are shown below. The holdings shown are those held within the Group. The shareholdings of the Company in the direct subsidiaries listed below are the same as those held by the Group, except that for the shareholdings marked * the Company holds only 74% of the share capital. In these cases, the remainder is held by other group companies. The issued share capital of all subsidiaries consists of ordinary share capital.
Company
Holding
Principal activity
Direct subsidiaries of Paragon Banking Group PLC
Paragon Bank PLC
100%
Deposit taking, residential mortgages and loan and vehicle finance
Paragon Car Finance Limited
100%
Vehicle Finance
Idem Capital Holdings Limited
100%
Intermediate holding company
Redbrick Survey and Valuation Limited
100%
Surveyors and property consulting
Paragon Mortgages (No. 12) PLC
100% *
Residential mortgages
Colonial Finance (UK) Limited
100%
Non-trading
Earlswood Finance Limited
100%
Non-trading
Herbert (1) PLC
100%
Non-trading
Herbert (2) PLC
100%
Non-trading
Herbert (4) PLC
100%
Non-trading
Herbert (5) PLC
100%
Non-trading
Herbert (6) PLC
100%
Non-trading
Herbert (7) PLC
100%
Non-trading
Herbert (8) PLC
100%
Non-trading
Herbert (9) PLC
100%
Non-trading
Herbert (10) PLC
100%
Non-trading
Moorgate Asset Administration Limited
100%
Non-trading
Paragon Car Finance (1) Limited
100%
Non-trading
Paragon Dealer Finance Limited
100%
Non-trading
Paragon Loan Finance (No. 3) Limited
100%
Non-trading
Paragon Mortgages (No. 5) PLC
100%
Non-trading
Paragon Pension Investments GP Limited
100%
Non-trading
Paragon Pension Plan Trustees Limited
100%
Non-trading
Paragon Personal Finance (1) Limited
100%
Non-trading
Paragon Third Funding Limited
100%
Non-trading
Paragon Vehicle Contracts Limited
100%
Non-trading
The Business Mortgage Company Limited
100%
Non-trading
Universal Credit Limited
100%
Non-trading
Yorkshire Freeholds Limited
100%
Non-trading
Yorkshire Leaseholds Limited
100%
Non-trading
Company
Holding
Principal activity
Direct and indirect subsidiaries of Paragon Bank PLC
Paragon Finance PLC
100%
Residential mortgages and asset administration
Mortgage Trust Limited
100%
Residential mortgages
Paragon Mortgages Limited
100%
Residential mortgages
Paragon Mortgages (2010) Limited
100%
Residential mortgages
Mortgage Trust Services PLC
100%
Residential mortgages and asset administration
Paragon Asset Finance Limited
100%
Holding company and portfolio administration
Paragon Business Finance PLC
100%
Asset finance
Paragon Development Finance Limited
100%
Development Finance
Paragon Development Finance Services Limited
100%
Development Finance
Paragon Technology Finance Limited
100%
Asset finance
PBAF Acquisitions Limited
100%
Residential mortgages and loan finance
Premier Asset Finance Limited
100%
Asset finance broker
Specialist Fleet Services Limited
100%
Asset finance and contract hire
Collett Transport Services Limited
100%
Non-trading
Homer Management Limited
100%
Non-trading
Lease Portfolio Management Limited
100%
Non-trading
Paragon Commercial Finance Limited
100%
Non-trading
Paragon Options PLC
100%
Non-trading
Paragon Second Funding Limited
100%
Non-trading
Other indirect subsidiary undertakings
Moorgate Loan Servicing Limited
100%
Asset administration
Idem Capital Securities Limited
100%
Asset investment
Paragon Personal Finance Limited
100%
Consumer loan finance
Buy to Let Direct Limited
100%
Non-trading
TBMC Group Limited
100%
Non-trading
The Business Mortgage Company Services Limited
100%
Non-trading
The financial year end of all the Group\u2019s subsidiary companies is 30 September. They are all registered in England and Wales and operate in the UK except Paragon Pension Investments GP Limited, which is registered in Scotland and operates in the UK. As part of the Group\u2019s financing arrangements certain mortgage and consumer loans originated by Paragon Mortgages (2010) Limited and Mortgage Trust Limited have been sold to special purpose entity companies, referred to as orphan SPEs, which had raised non-recourse finance to fund these purchases. The shares of these companies are ultimately beneficially owned through independent trusts, but they are considered to be controlled by the Group, as defined by IFRS 10, due to the Group\u2019s exposures to the variable returns from the assets of each entity and its ability to direct their activities, within the constraints imposed by the lending documents. Hence, they are considered to be subsidiaries of the Group. The principal companies party to these arrangements at 30 September 2024 comprise:
Company
Principal activity
Paragon Mortgages (No. 26) Holdings Limited
Holding company
Paragon Mortgages (No. 26) PLC
Residential mortgages
Paragon Mortgages (No. 27) Holdings Limited
Holding company
Paragon Mortgages (No. 27) PLC
Residential mortgages
Paragon Mortgages (No. 28) Holdings Limited
Holding company
Paragon Mortgages (No. 28) PLC
Residential mortgages
Paragon Mortgages (No. 29) Holdings Limited
Holding company
Paragon Mortgages (No. 29) PLC
Residential mortgages
Arianty Holdings Limited
Non-trading
Arianty No. 1 PLC
Non-trading
Paragon Fifth Funding Limited
Non-trading
Paragon Seventh Funding Limited
Non-trading
Paragon Sixth Funding Limited
Non-trading
Paragon Mortgages (No. 25) Holdings Limited
Non-trading
Paragon Mortgages (No. 25) PLC
Non-trading
Paragon Covered Bonds Finance Limited
Non-Trading
Paragon Covered Bonds (Holdings) Limited
Non-Trading
All these companies are registered and operate in the UK. Paragon Covered Bonds LLP is a limited liability partnership registered in England and Wales, in which control is vested in certain other Group entities. It is therefore considered to be a subsidiary of the Group. This entity operates in the UK. Earlswood Finance (No. 3) Limited, a company limited by guarantee, is registered in England and Wales and operates in the UK. It is included in the consolidation as it is ultimately controlled by the parent company. The Paragon Pension Partnership LP is a limited partnership established under Scots law, in which control is vested in members which are group companies. It is therefore considered to be a subsidiary entity. The outside member is the Group\u2019s Pension Plan and the Plan\u2019s rights to income from the partnership are set out in the partnership agreement. Therefore, no minority interest arises. The partnership is registered in Scotland and operates in the UK. The registered office of each of the entities listed in this note is the same as that of the Company (note 1), except that the registered office of the Scottish entities is Citypoint, 65 Haymarket Terrace, Edinburgh, EH12 5HD. All the entities listed above are included in the consolidated accounts of the Group. Companies in liquidation The following legal subsidiaries of the Group were in liquidation at 30 September 2024. They do not form part of the consolidation as they are considered to be controlled by the liquidator.
Company
Holding
Principal activity
Direct subsidiaries of Paragon Banking Group PLC
Moorgate Servicing Limited \u2020
100%
Non-trading
Paragon Mortgages (No. 11) PLC \u2020
100% *
Non-trading
Paragon Mortgages (No. 13) PLC \u2020
100% *
Non-trading
Paragon Mortgages (No. 14) PLC \u2020
100% *
Non-trading
Paragon Mortgages (No. 15) PLC \u2020
100% *
Non-trading
Plymouth Funding Limited \u2020
100%
Non-trading
Direct and indirect subsidiaries of Paragon Bank PLC
City Business Finance Limited \u2020
100%
Non-trading
Fineline Holdings Limited
100%
Non-trading
Fineline Media Finance Limited
100%
Non-trading
PBAF (No.1) Limited \u2020
100%
Non-trading
State Securities Holdings Limited \u2020
100%
Non-trading
State Security Limited \u2020
100%
Non-trading
The shareholdings of the Company in each of the direct subsidiaries shown above is the same as that of the Group, except for companies marked * where the shareholding of the Company is 74%. The issued share capital of each of the companies listed above consists of ordinary shares only. \u2020 These companies were dissolved in November 2024, after the year end.", "dimensions": { "concept": "ifrs-full:DisclosureOfCompositionOfGroupExplanatory", "language": "en", "entity": "scheme:213800S1TDKIB1IUTS72", "period": "2023-10-01T00:00:00/2024-10-01T00:00:00" } } } }