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Exposures (audited)
Exposures to credit risk arise in our business segments from:
Retail and Business Banking
Consumer Finance
Corporate & Commercial Banking
Corporate Centre
In Mortgages:
\u2013 Residential mortgages for customers
with good credit quality (prime
lending).
\u2013 We provide these mostly for owner-
occupiers, with buy-to-let mortgages
for non-professional landlords.
In Everyday Banking:
\u2013 Unsecured lending to individuals, such
as loans, credit cards and overdrafts.
\u2013 Banking services to businesses with
turnover up to \u00a36.5m per annum and
simpler borrowing needs. We offer
loans, credit cards and overdrafts.
\u2013 Financing for cars, vans, motorbikes
and leisure vehicles through Santander
Consumer (UK) plc (SCUK).
\u2013 Through our joint ventures, Hyundai
Capital UK Ltd and Volvo Car Financial
Services UK Limited, we provide retail
point of sale customer finance and
wholesale finance facilities (stock
finance).
\u2013 Loans, bank accounts, treasury
services, invoice discounting, cash
transmission, trade finance and asset
finance.
\u2013 We provide these to SMEs and mid-
sized corporates with turnover up to
\u00a3500m per annum, Commercial Real
Estate and Social Housing associations.
\u2013 Asset and liability management of\u00a0our
balance sheet.
\u2013 Exposures include financial institutions
(derivatives and other treasury
products), structured products, and
sovereign and supranational assets
chosen for diversification and liquidity.
1. Risk strategy and planning (audited)
All relevant areas of the business work together to create our business plans. We aim to balance our strategy, goals, and financial and technical resources with our
Risk Appetite. To do this, we focus on economic and market conditions and forecasts, regulations, conduct matters, profitability, returns and market share.
2. Assessment and origination (audited)
Managing credit risk begins with lending responsibly. That means only lending to customers who are committed to paying us back and can afford to, even if their
circumstances change. We perform a thorough risk assessment to make sure a customer can meet their obligations before we approve a loan. We take
proportionate steps to assess whether a customer will be able to repay the money borrowed. We do this by a series of initial affordability and credit risk
assessments. We access each customer\u2019s credit profile and signs of how reliable they are at repaying credit. When a customer applies, we assess the data they
provide, plus data from credit reference agencies (for Retail and Business Banking and Consumer Finance) and performance on their other Santander UK accounts (if
they have any) against our Credit Policy.
Retail and Business Banking
In Mortgages, for secured loans, we assess affordability by reviewing the customer\u2019s income and spending, their other credit commitments, and what would
happen if interest rates went up. Many of our decisions are automated as we use data available to us. We tailor our process and application assessment based on
the product. More complex transactions often need greater manual assessment using our credit underwriters\u2019 skill and experience.
In Everyday Banking and Business Banking, many of our decisions are automated. We assess affordability by reviewing the customer\u2019s income and spending,
including other credit commitments and adjusting for future inflation and expected interest rates.
Credit risk mitigation
The types of credit risk mitigation, including collateral, across each of our portfolios are:
Portfolio
Description
Residential mortgages
Collateral is in the form of a first legal charge over the property. Before we grant a mortgage, the property is valued either by a surveyor or
using automated valuation methodologies where our confidence in the accuracy of this method is high.
Unsecured lending
There is no collateral or security tied to the loan that can be used to mitigate any potential loss if the customer does not pay us back.
Business banking services
Business banking lending is unsecured. When lending to incorporated businesses, we typically obtain personal guarantees from each
director, but we do not treat these as collateral. We consider the UK Government guarantee supporting losses on amounts lent under its
Coronavirus Loan Schemes as collateral with 100% for Bounce Back Loan Scheme (BBLS) and 80% for Coronavirus Business Interruption Loan
Scheme (CBILS).
Consumer Finance
In Consumer Finance, similar to Retail and Business Banking, many decisions are automated and we tailor the process to the product. Residual value risk is one of
our top risks.
Credit risk mitigation
The type of credit risk mitigation, including collateral, is:
Portfolio
Description
Consumer (auto) finance
Collateral is in the form of legal ownership of the vehicle for most loans, with the customer being the registered keeper. Only a very small
proportion of business is underwritten as a personal loan. In these cases, there is no collateral or security tied to the loan. We use a leading
vehicle valuation company to assess the LTV at the proposal stage to ensure the value of the vehicle is appropriate.
Corporate & Commercial Banking
We assign each customer a credit rating according to the internal rating threshold, using our internal rating scale (see \u2018Credit quality\u2019 in \u2018Santander UK group level \u2013
credit risk review\u2019 section). To do this, we look at the customer\u2019s financial history and trends in the economy, backed up by the expert judgement of a risk analyst.
We review our internal ratings on a dynamic basis and at least once a year for those clients that are rated. We also assess the underlying risk of the transaction,
taking account of any mitigating factors (see the tables below) and how it fits with our risk policies, limits and Risk Appetite.
Responsible lending, including climate change and the transition to a low carbon economy
As part of the Banco Santander group, we comply with the Equator Principles to factor social, ethical and environmental impacts into our risk analysis and decision
making for qualifying financial transactions. We are committed to supporting clients and economies in their transition to a low carbon economy, providing financial
products and/or services to business activities that are environmentally and socially responsible. Our Environmental, Social and Climate Change (ESCC) policy sets
out how we identify, assess, monitor and manage environmental and social risks and other climate change related activities in the Oil and Gas, Power Generation
and Mining and Metals sectors and those arising from businesses engaged in soft commodities. Our ESCC policy prohibits project-related financing for new coal-
fired power plants (CFPP) worldwide and we will only work with new clients with CFPPs to provide specific financing for renewable energy projects. In line with
Banco Santander's commitment, by 2030 we will eliminate all exposure to thermal coal mining and stop providing financial services to power generation clients
with more than 10% of revenue from thermal coal.
Credit risk mitigation
The types of credit risk mitigation, including collateral, across each of our portfolios are as follows. In addition, from time to time, at a portfolio level we execute
significant risk transfer transactions, which typically reduce RWAs.
Portfolio
Description
SME and mid corporate
Includes secured and unsecured lending. We can take mortgage debentures or a first charge on commercial property as collateral. Before
agreeing the loan, we get an independent professional valuation of the property. Loan agreements typically allow us to obtain revaluations
during the term of the loan. We can also take guarantees, but we do not treat them as collateral unless they are supported by a tangible
asset charged to us. We also lend against assets (like vehicles and equipment) and invoices for some customers. We value assets before we
lend. For invoices, we review the customers' ledgers regularly and lend against debtors who meet agreed criteria.
Commercial Real Estate
We take a first charge on commercial property as collateral. The loan is subject to criteria such as the property condition, age and location,
tenant quality, lease terms and length, and the sponsor\u2019s experience and creditworthiness. Before advancing the loan and where appropriate,
a bank representative visits the property. We also get an independent professional valuation which typically includes a site visit. Loan
agreements typically allow us to obtain revaluations during the term of the loan.
Social Housing
We take a first charge on portfolios of residential real estate owned and let by UK Housing Associations as collateral, in most cases. We
revalue this every three to five years (in line with industry practice), using the standard methods for property used for Social Housing.
Corporate Centre
Credit risk mitigation
The types of credit risk mitigation, including collateral, across each of our portfolios are as follows. In addition, from time to time, at a portfolio level we execute
significant risk transfer transactions, which typically reduce RWAs.
Portfolio
Description
Sovereign and Supranational
In line with market practice, there is no collateral against these assets.
Structured Products
These are our High Quality Liquid Assets (HQLA) in our Eligible Liquidity Pool. They are mainly Asset Backed Securities (ABS) and covered
bonds, which hold senior positions in the creditor hierarchy. Their credit rating reflects over-collateralisation in the structure and the assets
that underpin their cash flows.
Financial Institutions
We use standard legal agreements to reduce credit risk via netting and collateralisation on derivatives, repos and reverse repos, and stock
borrowing/lending. We also reduce risk by clearing trades through central counterparties (CCPs) where possible.
3. Monitoring (audited)
We measure and monitor changes in our credit risk profile on a regular and systematic basis against our budgets, limits and benchmarks.
Credit concentrations
A core part of our monitoring and management is a focus on credit concentrations, such as the proportion of our lending that goes to specific borrowers, groups or
industries. We set and monitor concentration limits in line with our Risk Appetite and review them on a regular basis.
\u2013 Geographical concentrations: We set exposure limits to countries and geographies, with reference to the country limits set by Banco Santander and our own Risk
Appetite. For more geographical information, see \u2018Country risk exposures\u2019.
\u2013 Industry concentrations: We also set exposure limits by industry sector. We set these limits based on the industry outlook, our strategic aims and desired level of\u00a0
concentration, and relevant limits set by Banco Santander. We analyse committed exposures in the \u2018Credit risk review\u2019 section that follows.
Retail and Business Banking
We use IT systems and data available to us to monitor accounts. The main parts are:
\u2013 Behavioural scoring: we use statistical models that help predict whether a customer will have problems repaying, based on how they use their accounts
\u2013 Credit reference agencies: we often use data from agencies on how the borrower is handling credit from other lenders in our behaviour scoring models
\u2013 Other Santander UK accounts: each month, we also look at how the customer uses their other accounts with us, so we can identify problems early.
Our day-to-day retail credit risk monitoring relies on a mix of product, customer and portfolio performance measures as described above. However, changes in the
wider UK economy also impact our Mortgages and Everyday Banking portfolios. As part of our day-to-day risk monitoring, we use a Retail Risk Playbook tolerance
framework that sets out the most relevant macroeconomic variables to retail portfolio performance. We monitor these variables against our forecasts. If the
economy deviates materially from our forecasts, such as due to the effects of the cost of living crisis or high inflation, we formally review our retail risk
management policy and strategy.
We also use the Retail Risk Playbook tolerance framework and management judgements to ensure that portfolio quality remains within our Risk Appetite by
measuring against trigger values for key risk profile and performance metrics.
For secured lending, our monitoring also takes account of changes in property prices. We estimate the property\u2019s value every three months. In most cases, we use
statistical models based on recent sales prices and valuations in that local area. Use of this model is subject to Model Risk Governance. Where a lack of data means
the model\u2019s valuation is not available, we use the original surveyor valuation with a House Price Index (HPI) adjustment as needed.
For unsecured personal lending like credit cards and overdrafts, monitoring might lead us to raise or lower credit limits. For business banking services, we review
revolving credit facilities each year to ensure the facilities remain appropriate for the customer's financial circumstances.
Consumer Finance
In Consumer Finance, similar to Retail and Business Banking, we use IT systems and data available to us to monitor accounts, and we use the Retail Risk Playbook
tolerance framework and management judgements to ensure that portfolio quality remains within Risk Appetite. We also check the Residual Value of our portfolio
each month, using triggers set to identify any material change in trends.
Corporate & Commercial Banking and Corporate Centr e
We regularly monitor and report our credit risk by portfolio, segment, industry, location and customer. We monitor detailed analyses of our credit exposures and
risk trends each month. We also report our larger exposures and risks to the BRC each month.
Our Watchlist
We also use a Watchlist for exposures subject to annual reviews to help identify potential problem debt early. Just because a customer is on our Watchlist does not
mean they have defaulted. It just means that their probability of default has increased, such as they have breached a covenant or lost a major contract.
We classify Watchlist cases as:
\u2013 Enhanced monitoring: for less urgent cases. We monitor these cases more often and where appropriate may consider more collateral.
\u2013 Pr oactive management: for more urgent or serious cases. We may take steps to restructure debt including extending the term, taking more collateral, agreeing a
lower credit limit, or seeking repayment of the loan through refinancing or other means.
We assess Watchlist cases for impairment as set out in the \u2018Significant Increase in Credit Risk (SICR)\u2019 section. When a customer is in enhanced monitoring, we do not
consider it has suffered a SICR for ECL purposes, so it remains in Stage 1 for our loss allowance calculations. When a customer is in proactive management, we
consider it has suffered a SICR, so we transfer it to Stage 2 and apply a lifetime ECL for our loss allowance calculations. We take into account any forbearance we
offer. This includes any extra security, guarantees or equity available and the potential to enhance value by asset management.
In Corporate & Commercial Banking, as part of our annual reviews, for loans nearing maturity, we look at the prospect of refinancing the loan on current market
terms and applicable credit policy. If this is unlikely, we put the case on our Watchlist. We manage exposures not subject to annual reviews, mainly high volume and
low value cases, using early warning indicators including credit reference agency data, supported by teams of expert analysts.
In Corporate Centre, we typically monitor the credit quality of our exposures daily. We use internal and third-party data to detect any potential credit deterioration.
4. Arrears management (audited)
Retail and Business Banking and Consumer Finance
We have several strategies to manage arrears that we can use as early as the day after a missed payment. We also reach out to up-to-date customers who may be
at risk of going into arrears for support purposes. We assess the financial difficulties a customer is having, so we can offer them the right support to manage their
agreement whilst in arrears. The strategy we use depends on the risk and the customer\u2019s circumstances.
Corporate & Commercial Banking and Corporate Centre
We identify problem debt by close monitoring, supported by our Watchlist process for exposures subject to annual review. We aim to identify warning signs early by
monitoring customers\u2019 financial and trading data, checking to see they do not breach covenants, and having regular dialogue with them. We tailor our strategy to
the type of customer, their circumstances and the level of risk. We try to help our customers find their own way out of financial difficulty and agree on a plan that
works for both of us. We engage our Restructuring & Recoveries team as needed on Watchlist cases and we may hand over more serious cases to them. For
exposures not subject to annual review, we have strategies to manage arrears that we can use as early as the day of the missed payment. If a case becomes more
urgent or needs specialist attention, and if it transfers to Stage 3, we transfer it to our Restructuring & Recoveries team.
For more, see the Forbearance section.
5. Debt recovery (audited)
Sometimes, even when we have taken all reasonable and responsible steps to manage arrears in our Financial Support area, they are not effective. If this happens,
we may choose to end our agreement with the customer and try to recover the outstanding balance (with recourse to any associated collateral), or as much of it as
we can.
Retail and Business Banking
In Mortgages and Everyday Banking, we may use a debt collection agency, sell the debt, or take the customer to court. For retail mortgages, we may repossess the
property as a last resort or to protect it from damage or third-party claims. We make sure our estimated losses from repossessed properties are realistic by getting
two independent valuations and the estimated selling costs, and using them in our loss allowances calculations. Where we repossess a property, we do not take
ownership. We use agents to realise the value and settle the debt. Any surplus funds are returned to the borrower or dealt with in line with insolvency rules.
Consumer Finance
In Consumer Finance, similar to Retail and Business Banking, we may use a debt collection agency or a specialist law firm to recover the balance outstanding. We
may also consider the sale of debt where all avenues have been explored.
Corporate & Commercial Banking and Corporate Centre
Where we look for an exit, we aim to do this, if we can, by agreeing with the borrower that they will sell some or all their assets on a voluntary basis or agreeing to
give them time to refinance their debt with another lender. Where we cannot reach an agreement, we consider recovery options. This can be through an insolvency
proceeding, enforcing over any collateral or selling debt on the secondary market. We may also consider other legal action to recover what we are owed. If there is
a shortfall, we write it off against our loss allowances. In very rare cases, we may act as mortgagee in possession of assets held as collateral against non-
performing commercial lending. In such cases, we carry the assets on our balance sheet and classify them in line with our accounting policies.
Loan modifications (audited)
We sometimes change the terms of a loan when a customer gets into financial difficulty (this is known as forbearance), or for other commercial reasons.
Forbearance (audited)
We can change the terms of a customer's loan, temporarily or permanently, to help them through temporary periods of difficulty so they can get back on to
sustainable terms. We assess what we offer to make sure the customer can afford it. Forbearance improves our customer relationships and we review our approach
regularly to make sure it is still effective. We try to offer forbearance before a customer defaults and we only foreclose or repossess as a last resort.
The main types of forbearance we offer are:
Action
Description
Term extension
We can extend the loan term, making each monthly payment smaller. We may offer this if the customer is up to date with payments but shows
signs of financial difficulties. We may also offer this if the loan is about to mature and refinancing is not possible on market terms.
Interest-only
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For corporate customers, interest-only concessions are considered on a case by case basis. Concessions are only granted if the nature of the
financial difficulties is assessed to be temporary. Counterparties are expected to recover in full and resume making full capital and interest
payments once they are in a stronger financial position.
Other payment
rescheduling, including
capitalisation
For retail customers, we may add the arrears to the mortgage balance (this is known as capitalisation) if they cannot afford to increase their
monthly payment to pay off their arrears in a reasonable time but have been making their monthly payments, usually for at least six months. We
can also capitalise property charges due to a landlord. We pay them for the customer to avoid the lease being forfeited. We may combine this
help with term extensions and, in the past, interest-only concessions. In certain cases, we may offer interest rate concessions.
For corporate customers, we may lower or stop their payments until they have time to recover. We may reschedule payments to better match
the customer\u2019s cash flow \u2013 for example if the business is seasonal - or provide a temporary increase in facilities to cover peak demand ahead of
their trading improving. We might do this by arrears capitalisation or drawing from an overdraft. We may also offer to provide new facilities,
interest rate concessions and interest roll-up. In rare cases, we agree to forgive or reduce part of the debt.
When we agree forbearance, we consider the account has suffered a significant increase in credit risk (SICR), as we explain later on, and we classify it as Stage 2 or
3. A non-performing forborne account is one that has forbearance carried out in Stage 3, and a performing forborne account is one that has forbearance carried out
in Stage 2. If an account is already in Stage 2, we keep it in Stage 2 unless the account is deemed unlikely to pay, involves forgiving fees and interest or debt, or is
being granted multiple forbearances. In these cases, we move it into Stage 3. If an account is already in Stage 3, we keep it in Stage 3. A loan moves out of
forbearance once the exit criteria below are met. We monitor the performance of all forborne loans.
We signed up to the HM Treasury Mortgage Charter published in June 2023, that aims to provide more support for customers who may be struggling to maintain
their mortgage repayments. We made more customer support solutions available from July 2023, allowing customers who are up-to-date with their payments to
make interest-only payments for six months or extend their mortgage term to reduce their monthly payments. Volumes of accounts seeking more support were
less than 1% of active mortgage account stock. Mortgage Charter support solutions are not automatically classed as forbearance, unless other forbearance criteria
are met.
Exit from forbearance criteria
Exit from
Conditions to be met
Cure
Stage 3 to Stage 2
For an account in Stage 3 to exit non-performing forbearance, all the following conditions must be met:
If the account was classed as Stage 3 due to being more than 90 days past due, then the account should be 90 days or less past due
The customer has no other material default debt with us more than 90 days past due
If the account was classed as Stage 3 due to being unlikely to pay, then the account should no longer be deemed unlikely to pay
Account has exited its forbearance trigger for 12 consecutive months
If all the conditions are met, the account is re-classed as Stage 2 forbearance until the Stage 2 forbearance exit conditions set out
below are also met
Stage 2 to Stage 1
For an account in Stage 2 to exit forbearance, all the following conditions must be met:
The account is no longer in arrears, and the customer has no other material debts with us which are more than 30 days in arrears
The account no longer triggers SICR
The account has been classed as Stage 2 for at least two years since the end of the latest forbearance strategy
If an account fails whilst in probation to cure, i.e. in the 12 months backstop in Stage 3 or the two years in Stage 2, the probation period is reset and the account is
moved back to Stage 3.
Key metrics(audited)
We use a number of key metrics to measure and control credit risk, as follows:
Metric
Description
Expected Credit Loss
(ECL)
ECL tells us what credit risk is expected to cost us either over the next 12 months or over the lifetime of the exposure where there is evidence of a
SICR since origination. We explain how we calculate ECL below.
Stages 1, 2 and 3
We assess each facility\u2019s credit risk profile to determine which stage to allocate them to, and we monitor where there is a SICR and transfers
between the Stages including monitoring of coverage ratios for each stage.
Stage 3 ratio
The Stage 3 ratio is the sum of Stage 3 drawn and Stage 3 undrawn assets divided by the sum of total drawn assets and Stage 3 undrawn assets.
The Stage 3 ratio is a key indicator used to monitor underlying asset performance.
Expected Loss (EL)
EL is based on the CRD IV regulatory capital rules and gives us another view of credit risk. It is the product of the probability of default, exposure
at default and loss given default, and we include direct and indirect costs. We base it on our risk models and our assessment of each customer\u2019s
credit quality. The rest of our Risk review, impairments, losses and loss allowances refer to calculations in accordance with IFRS, unless we
specifically say they relate to CRD IV. For our IFRS impairment accounting policy, see Note 1 to the Consolidated Financial Statements.
We also assess risks from other perspectives, such as geography, business area, product and process to identify areas to focus on. We also use stress testing to
establish vulnerabilities to economic deterioration. Our business segments tailor their approach to credit risk to their customers, as we explain later on.
Recognising ECL (audited)
The ECL approach estimates the credit losses arising from defaults in the next 12 months on qualifying exposures, or defaults over the lifetime of the exposure
where there is evidence of a Significant Increase in Credit Risk (SICR) since the origination date. The ECL approach considers forward-looking data, including a range
of possible outcomes, which should be unbiased and probability-weighted to reflect the risk of a loss being incurred even when it is unlikely.
Critical judgements and accounting estimates applied in calculating ECL (audited)
The application of the ECL impairment methodology for calculating credit impairment allowances is susceptible to change from period to period. The methodology
requires management to make judgmental assumptions in determining the estimates.
For more on our approach to making critical judgements and accounting estimates applied in calculating ECL see 'Critical judgements and accounting estimates'
Note 1 to the Consolidated Financial Statements.
Multiple economic scenarios and probability weights (audited)
For all our portfolios, we use five forward-looking economic scenarios. For 2023, they consisted of a central base case, one upside scenario and three downside
scenarios. We use five scenarios to reflect a wide range of possible outcomes for the UK economy.
Our forecasting approach
We derive our scenarios in part by using a set of parameters in GDP fan charts published by the Office for Budget Responsibility (OBR). These fan charts reflect the
probability distribution of a deviation from the OBR\u2019s central forecast to show the uncertainty about the outcome of a variable, in this case GDP.
Once we have established the GDP paths for each scenario, we run them through the Oxford Global Economic Model (OGEM) to derive the other macroeconomic
variables, such as unemployment and house prices. These variables are the product of the GDP growth paths we have forecast and the output of the OGEM for
these growth paths. We then review them to ensure consistency with the narrative of each scenario and so changes to the variables may be needed in some cases.
We then impose a Bank Rate profile for each scenario using expert judgement with the base case as the starting point and then adjusting this for each of the four
other scenarios based on the narratives. We produce a range of Bank Rate profiles to reflect a range of possible outcomes the Bank of England may follow
depending on how it sees the trade-off between growth and inflation evolving over the forecast period. For example, this might consist of higher rates initially in
response to inflationary concerns followed by lower rates as inflation falls towards target, and that this may be sharper in the event of a deep recession.
We update the baseline in our economic scenarios at least twice a year in line with our annual budgeting and three-year planning processes, or sooner if there is a
material change in current or expected economic conditions. We refresh all our economic scenarios quarterly to reflect the latest data and OBR fan charts if these
changed, which are then reviewed and approved by the Credit Risk Provisions Forum (CRPF). The CRPF also assesses the probability weights at least once a quarter.
We do not use consensus forecasts as inputs to our models, but we do compare the outputs of our models against consensus views for the base case, to make sure
that we understand any significant differences and address them where needed. At 31 December 2023, there were no significant differences between our base
case forecasts and the consensus views.
In 2023, we undertook a further peer benchmarking analysis of the economic scenarios, which for Q423 included the mean weighted analysis for a selection of
economic variables, including GDP, unemployment rate and HPI. This meant that we could compare our weighted scenarios against the average of our peers to
understand what differences there may be. The conclusion of this analysis demonstrated that our economic scenarios were in line with our peers although, on a
weighted basis, our house price inflation assumption reflected a more conservative view.
In 2023, we also considered any likely impact from climate risk on our forecasting approach and concluded that no adjustment to the multiple economic scenarios
for climate risk was required. This is because climate change effects are generally regarded to be relevant over a longer timeframe than our forecast period of five
years.
Our use of five scenarios is designed to reflect different possible outcomes to the base case, highlighting the upside and downside risks associated with the central
scenario. The downside risks for the UK economy include a sharp downturn in global growth, a return to upside inflation surprises which raises the cost of living, a
continuation of the very low productivity growth seen in the UK, a move to a more protectionist agenda for trade and further geopolitical events adding to
challenging economic conditions. The upside risks were more muted at the end of 2023 and include a stronger recovery in global growth, a faster fall in inflation,
coupled with further trade agreements with other countries.
Our forecasting period for GDP is five years and then we revert to the average trend growth over three years based on the OBR\u2019s long-run GDP forecast assumption.
The reversion to mean for all macroeconomic variables is expected to take three years after the initial five-year forecast period.
Key changes to our forecasting approach in 2023
In 2023, there were no specific changes to our forecasting approach. We incorporated the OBR's March 2023 fan chart parameters to generate the GDP paths
(excluding the base case).
Base case
We review the scenarios and associated weights every quarter to ensure they appropriately reflect the current economic circumstances and UK Government policy
which is subject to change.
In summary, the outlook for the UK economy in 2024 remains challenging due to a lack of growth, weak investment and with continuing risks to the 2% inflation
target, particularly if the situations in the Middle East and Ukraine trigger a renewed surge in oil and gas prices. Inflationary pressures could be further exacerbated
by a tight UK labour market maintaining pressure on wage growth at a time when firms are struggling to match appropriately skilled workers to available vacancies.
Base case key macroeconomic assumptions
\u2013 House price growth: The sharp rise in mortgage rates triggered a slowdown in house price growth in recent months. With survey indicators pointing to a slump in buyer
demand as confidence is hit by a squeeze on affordability from the sharp rise in mortgage rates, house prices are expected to continue declining in the near-term.
However, as the supply of housing is also weak this has helped to limit the overall fall in house prices compared to previous downturns despite the sharp rise in interest
rates. We forecast a c.2% year-on-year decline in house prices by the end of 2023, with a further fall of 1% by the end of 2024. Looser monetary policy from the second
half of 2024 enables house price growth to recover with growth back to average levels by the end of the forecast period.
\u2013 GDP: While the monthly GDP estimate for October 2023 showed the economy shrinking marginally with a 0.3% month-on-month fall, this aligns to the picture of a
stagnating UK economy.\u00a0 The PMI data for November 2023 is marginally above 50 and suggests growth to be modest in Q423. As such, the near-term outlook for growth
remains broadly flat - but as the effects of higher interest rates filter through the economy this year and the bulk of fixed rate mortgages are renewed, consumer spending
growth could fall back sharply and with business insolvencies expected to increase, there are still downside risks to our forecast of 0.4% growth in 2024.
\u2013 Unemployment rate: Unemployment remained flat in October 2023 at 4.2% based on the ONS experimental data and combined with other surveys such as REC, suggest
that the labour market is slowly loosening. With companies under pressure from rising debt servicing costs and higher wages, it is likely that some will become insolvent
and others find that demand for their goods and services reduces as households restrict their spending. We do not envisage a large rise in unemployment compared to
previous recessions. The rate peaks at 4.8% by the end of 2024, in part impacted by the ongoing return of previously inactive workers to the labour force.
\u2013 Bank Rate: The Monetary Policy Committee (MPC) kept rates at 5.25% at the December 2023 meeting. Our base case assumes no further rate rises with the MPC
expected to start loosening monetary policy in Q224, with rates ending 2024 at 4.50%. Further cuts through the rest of the 5-year forecast period leaves bank rate at
3.00% by the end of 2028.
In the medium-term, the projections assume that current demographic and productivity trends will continue, causing a reduction in the UK\u2019s growth potential. For
instance, it is likely that the reduction in the UK workforce will continue and this will have a knock-on impact for the economy, particularly if there are shortages of
skilled workers in particular sectors. This is reflected in an average annual growth expectation of 1.6%, in line with the OBR\u2019s latest estimate of the UK\u2019s long run
average growth rate.
Key changes to our base case in 2023
For our base case, we no longer expect a short recession given that the economy has been more resilient than expected in 2023. However, risks around this
assumption remain as the full effects of higher interest rates have yet to be felt across the UK economy which keeps growth in 2024 significantly below average.
Our base case was updated to reflect the latest market data and to broadly align with the latest consensus estimates. The most notable change was to HPI with
expected house price falls now lower in 2023 and 2024.
Other scenarios
Based on this revised base case, we reviewed our suite of scenarios to ensure that they capture the wide range of potential outcomes for the UK economy. These
include (i) persistent above target inflation over the forecast period; (ii) a slower recovery that is more akin to the \u2018U\u2019 shape of past recessions; (iii) labour market
frictions due to skills mismatches and a shrinking workforce as some discouraged workers leave altogether (for example older UK-born workers retiring early and
longer term sickness levels remaining above pre-pandemic levels); and (iv) the global economy recovering more swiftly from higher inflation.
To reflect these potential outcomes, we continue to use the base case and four additional scenarios, which we consider sufficient to reflect all the above potential
outcomes. However, as the risks remain skewed to the downside, to reflect these outcomes sufficiently, we concluded that only one upside scenario would be
needed to reflect the upside risks to the base case. As with the base case, the scenarios are forecast over a five-year period and then mean revert over the next three
years to the OBR's latest estimate of the UK's long run average growth rate.
The other scenarios are:
One upside scenario
This scenario has a quicker recovery than the Baseline and is a bull case to the base forecasts. It assumes that inflation falls back more swiftly than in the base case,
helped by lower growth in wages and pass through of lower commodity prices. This allows the Bank of England to cut rates earlier, bringing them back towards
what might be considered the neutral rate. This results in higher consumer and business confidence enabling higher levels of spending with savings rates returning
to levels consistent with economic growth as real earnings growth returns. Unemployment peaks at a slightly lower level than the base case and drops more
quickly than the base, ending the 5-year forecast period at 3%. The Bank Rate profile is lower than the base case as inflation returns to target at a faster pace.
Three downside scenarios
The downside scenarios capture a range of risks, including continuing weaker investment, a larger negative impact from the EU trade deal and a continuing and
significant mismatch between job vacancies and skills, as well as a smaller labour force.
Downside 1 - This scenario is a bear case to the baseline. It assumes that the fall in economic growth is sharper and that there is a recession. In this scenario,
consumers keep savings rather than spend as consumer confidence remains extremely low while households are worried about the prospect of losing their jobs.
House prices fall further than in the base case as more households look to downsize in order to lower their mortgage repayments. With inflation remaining above
target, Bank Rate continues to increase as core inflation remains above the baseline view before cuts start as inflation falls back.
Stubborn inflation - This scenario considers the effect on the UK economy of a persistent inflationary environment. Here inflation remains above target for much of
the forecast period. This persistent inflation is created by a combination of factors, including higher energy costs exacerbated by the Ukraine/Russia crisis and
curtailment of oil supply by OPEC countries; continuous wage rises resulting in a spiral effect pushed by increasing numbers of strikes and falling productivity.
Despite the peak in inflation having already passed in Q422, inflation remains slightly above the 2% target over the 5-year forecast period. The 2.8% peak to trough
fall in GDP is similar to the early 1980s recession due to inflation remaining higher for longer, which in turn reduces households' real incomes and therefore
consumption. This is despite higher wage settlements due to increased strike action. Unemployment peaks at 6.2% in 2026 as although inflation eventually returns
to target, Bank Rate remains at higher levels compared to recent history and growth is still muted due to weak productivity as investment levels remain low.\u00a0 The
large increases in Bank Rate and falling real incomes result in house prices falling by c.26%.
Downside 2 - The scenario shows a marked fall in GDP, with rising unemployment and falling house prices reflecting the ongoing issues of a higher interest rate
environment and above target inflation, which feeds across the whole economy. It also reflects the ongoing strike action by various unions pushing for stronger pay
growth, alongside dealing with potential blackouts caused by an increase in energy shortage over the winter months in Q423 and into early 2024. It also assumes
that major risk events continue to occur exposing risks to countries\u2019 fiscal position and the means to respond to such events. For this scenario, an overlay to the
unemployment rate was also made to the model output from the OGEM. This was to account for the possibility of a recession of similar magnitude to that of
2008/09 where the unemployment rate peaked at 8.5%.
Key changes to our alternative scenarios in 2023
In 2023 we did not make any methodological changes to the scenarios.
Our macroeconomic assumptions and their evolution throughout the forecast period
Our macroeconomic assumptions and their evolution throughout the forecast period for each of the scenarios at 31 December 2023 were:
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted(4)
%
%
%
%
%
%
GDP(1)
2022 (actual)
4.3
4.3
4.3
4.3
4.3
4.3
2023
0.6
0.5
0.5
0.5
0.3
0.5
2024
1.0
0.4
(0.1)
(1.8)
(3.3)
(0.4)
2025
2.1
1.3
0.2
(0.9)
(1.4)
0.6
2026
2.4
1.5
0.5
0.4
0.6
1.1
2027
2.4
1.4
0.3
0.7
2.2
1.4
2028
2.4
1.4
0.3
0.8
2.6
1.4
5-year average increase/decrease
2.1
1.2
0.3
(0.2)
0.1
N/A
Peak/(trough) at(2)(3)
\u2014
\u2014
(0.2)
(2.8)
(5.1)
(1.1)
Bank Rate(1)
2022 (actual)
3.50
3.50
3.50
3.50
3.50
3.50
2023
5.25
5.25
5.25
5.25
5.25
5.25
2024
4.25
4.50
5.25
6.50
3.75
4.88
2025
3.25
3.50
4.00
5.00
2.00
3.68
2026
2.75
3.25
3.25
3.75
2.00
3.18
2027
2.75
3.00
3.00
3.00
2.50
2.93
2028
2.75
3.00
3.00
3.00
2.50
2.93
5-year end period
2.75
3.00
3.00
3.00
2.50
N/A
Peak/(trough) at
5.25
5.25
5.75
6.50
5.25
5.55
HPI(1)
2022 (actual)
5.0
5.0
5.0
5.0
5.0
5.0
2023
(1.7)
(2.2)
(4.7)
(6.3)
(7.8)
(3.8)
2024
2.0
(1.0)
(11.7)
(18.8)
(25.8)
(7.8)
2025
6.5
2.5
3.4
3.6
3.6
3.3
2026
5.1
3.0
2.1
1.6
1.6
2.7
2027
4.0
3.0
3.0
1.6
1.6
2.7
2028
3.6
3.0
3.1
1.8
1.8
2.7
5-year average increase/decrease
4.3
2.0
(0.8)
(3.3)
(5.4)
N/A
Peak/(trough) at(2)
(3.7)
(6.5)
(17.5)
(25.5)
(33.0)
(13.8)
Unemployment(1)
2022 (actual)
3.7
3.7
3.7
3.7
3.7
3.7
2023
4.3
4.3
4.3
4.3
4.4
4.3
2024
4.3
4.8
4.8
5.6
8.5
5.3
2025
3.7
4.4
4.9
5.9
8.0
5.1
2026
3.4
4.3
5.2
6.2
7.4
5.0
2027
3.0
4.3
5.4
6.1
6.8
4.9
2028
3.0
4.2
5.3
5.8
6.2
4.7
5-year end period
3.0
4.2
5.3
5.8
6.2
N/A
Peak/(trough) at
4.5
4.8
5.5
6.2
8.5
5.5
(1) GDP is the calendar year annual growth rate, HPI is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
(2) GDP peak taken from GDP level at Q2-23 and HPI peak taken from HPI level at Q3-22.
(3) Reported as Peak/(trough) from 2023 to align with other metrics.
(4) The weighted peak to trough and 5 year peak calculations are based on the annual profiles shown.
The table below sets out our macroeconomic assumptions and their evolution throughout the forecast period for each of the five scenarios at 31 December 2022:
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted(5)
%
%
%
%
%
%
GDP(1)
2021 (actual)
7.5
7.5
7.5
7.5
7.5
7.5
2022
4.4
4.4
4.3
4.2
3.7
4.3
2023
(1.0)
(1.3)
(1.9)
(2.7)
(6.4)
(2.2)
2024
0.8
0.5
(0.3)
(0.9)
(0.7)
\u2014
2025
2.0
1.6
0.5
0.2
1.7
1.2
2026
2.0
1.5
0.4
0.6
1.5
1.2
5-year average increase/decrease
1.2
0.8
(0.2)
(0.5)
(0.6)
0.3
Cumulative growth/(fall) to peak/(trough)(2)(4)
6.0
3.8
(0.8)
(2.2)
(3.1)
1.3
Bank Rate(1)
2021 (actual)
0.25
0.25
0.25
0.25
0.25
0.25
2022
3.50
3.50
3.50
3.50
3.50
3.50
2023
3.75
4.00
3.50
6.00
3.75
4.29
2024
3.00
3.25
2.75
5.50
3.00
3.59
2025
2.50
2.75
2.50
3.50
2.75
2.85
2026
2.25
2.50
2.25
3.00
2.50
2.55
5-year end period
2.25
2.50
2.25
3.00
2.50
2.55
Peak/(trough) at(3)
3.75
4.00
3.50
6.00
4.00
4.31
HPI(1)
2021 (actual)
8.7
8.7
8.7
8.7
8.7
8.7
2022
7.6
7.0
7.6
7.6
7.6
7.3
2023
(8.8)
(10.0)
(10.0)
(10.9)
(15.8)
(10.7)
2024
(4.3)
\u2014
(6.7)
(8.8)
(14.3)
(4.4)
2025
0.6
2.0
(3.1)
(4.9)
(4.1)
(0.8)
2026
4.1
3.0
(0.2)
(0.6)
4.7
2.0
5-year average increase/decrease
(0.7)
(0.6)
(3.8)
(4.7)
(4.8)
(2.3)
Peak/(trough) at(3)
(12.8)
(11.2)
(19.0)
(23.1)
(30.7)
(16.8)
Unemployment(1)
2021 (actual)
4.0
4.0
4.0
4.0
4.0
4.0
2022
3.7
3.8
3.7
3.7
4.4
3.8
2023
4.7
4.7
5.1
5.5
8.5
5.3
2024
4.5
5.1
5.4
5.9
8.0
5.6
2025
4.5
4.5
5.8
6.4
7.4
5.4
2026
4.4
4.3
6.1
6.6
6.8
5.3
5-year end period
4.2
4.3
6.1
6.4
6.2
5.2
Peak/(trough) at(3)
4.7
5.1
6.1
6.6
8.5
5.9
(1) GDP is the calendar year annual growth rate, HPI is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
(2) This is the cumulative growth for the 5-year period.
(3) For GDP and house price growth it is the peak to trough change within the 5-year period; for the unemployment rate it is the peak; and for Bank Rate it is the peak or trough.
(4) If we had calculated GDP on the peak/(trough) basis as adopted for 2023 our upside scenario would have been (1.5%); base case scenario (1.9%); downside 1 (2.7%); stubborn inflation (4.0%); downside 2 (8.8%).
(5) The weighted peak to trough and 5-year peak calculations are based on the annual profiles shown.
Scenario weights\u00a0
Each quarter, we undertake a full review of the scenario weights we apply. We consider the weighting of the economic scenarios as a whole, while ensuring that
the scenarios capture the non-linear distribution of losses across a reasonable range. To support our initial assessment of the weighting of a scenario, we undertake
a Monte Carlo analysis to ascertain the likelihood of a five-year average GDP forecast growth rate occurring based on the long run historically observed average.
Creating a standard distribution bell curve around this long run average allows us to estimate the probability of a given GDP scenario occurring based on past
experience and therefore assign a weight to that scenario.
The scenario weights we applied for 2023 and 2022 were:
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted
Scenario weights
%
%
%
%
%
%
2023
10
50
10
20
10
100
2022
5
50
15
20
10
100
2023 compared to 2022
We continue to use both the entire historical GDP data set available for the Monte Carlo analysis to smooth out the large GDP data swings seen in the pandemic as
well as the data set from 2009 onwards. The CAGRs are now returning to more 'normal' levels associated with our scenarios as the economy unwinds from the
2020 shock. For H223, the base case using the 2009 data set show that the base case sits around the 50th probability path and that the downside scenarios sit
between the 60th to 80th probability paths suggesting that a lower weight than the base case remains appropriate.
We also need to consider the UK economic and political environment when applying weights. Given the current cost of living crisis, we remain of the view that the
risks to UK growth are still biased to the downside and include: further geopolitical events creating more challenges for economies both in the UK and abroad; the
potential for further upside inflation surprises causing inflation to stay above target for longer, raising the cost of living and so reducing consumer demand;
continuing weak investment reflecting the uncertain nature of the economic environment; and a continuing and significant mismatch between vacancies and skills
along with a smaller labour force, which may bring disruption to any recovery in the latter years of the forecast.
In 2023, we increased the weight on the Upside scenario by 5% with a corresponding decrease in our Downside 1 to rebalance the overall weighted ECL. It was also
to reflect both the change in the fan chart parameters used to determine the Upside and Downside 1 scenarios and the fact that the economic growth outlook has
improved slightly since the end of 2022.
Definition of default (Credit impaired) (audited)
We define a financial instrument as in default (i.e. credit impaired) for the purpose of calculating ECL if it is more than three months past due, or if we have data that
suggests the customer is unlikely to pay. The data we have on customers varies across our business segments. It typically includes where:
Retail and Business Banking and Consumer Finance
\u2013 They have been reported bankrupt or insolvent and are in arrears
\u2013 Their loan term has ended, but they still owe us money more than three months later
\u2013 They have had forbearance while in default and have failed to perform under the new arrangement terms, or have had multiple forbearance. Performing forborne
accounts while not in default are reported in Stage 2
\u2013 We have suspended their fees and interest because they are in financial difficulties
\u2013 We have repossessed the property.
Corporate & Commercial Banking and Corporate Centre
\u2013 They have had a winding up notice issued, or something happens that is likely to trigger insolvency \u2013 such as another lender calls in a loan
\u2013 Something happens that makes them less likely to be able to pay us \u2013 such as they lose an important client or contract
\u2013 They have regularly missed or delayed payments, even though they have not gone over the three-month limit for default
\u2013 Their loan is unlikely to be refinanced or repaid in full on maturity
\u2013 Their loan has an excessive LTV that is unlikely to be resolved, such as by a change in planning policy, pay-downs, or increase in market value
\u2013 Loans restructured under financial difficulties, classified as forborne transactions, in last 12 months.
Where we use the advanced internal ratings-based basis for a portfolio in our capital calculations, there are differences with the default definitions for ECL
purposes. The main differences are as follows:
\u2013 Performing forborne accounts while not in default are in Stage 2 until they cure their forbearance status (measured as 12 consecutive months of successful
payments).
\u2013 Performing non-forborne accounts, which under our internal rating-based basis are subject to a 3-month cure period. For accounting purposes, we classify
them in Stage 2 until they cure all SICR triggers.
Significant Increase in Credit risk (SICR) (audited)
Loans which have suffered a SICR since origination are subject to a lifetime ECL assessment which extends to a maximum of the contractual term of the loan, or the
behavioural term for a revolving facility. Loans which have not experienced a SICR are provided for on a 12-month basis. We assess the credit risk profile of each
facility to determine which of three stages to allocate them to:
\u2013 Stage 1: when there has been no SICR since initial recognition. We apply a loss allowance equal to a 12-month ECL i.e. the proportion of lifetime expected losses
that relate to that default event expected in the next 12 months
\u2013 Stage 2: when there has been a SICR since initial recognition, but the exposure is not considered credit impaired. We apply a loss allowance equal to the lifetime
ECL i.e. the expected loss resulting from all possible defaults throughout the residual life of a facility
\u2013 Stage 3: when the exposure is considered credit impaired. We apply a loss allowance equal to the lifetime ECL. Objective evidence of credit impairment is
required. For more, see the section \u2018Definition of default (Credit impaired)\u2019 above.
We use quantitative, qualitative and backstop criteria to identify exposures that suffer a SICR. The Credit Risk Provisions Forum (CRPF) reviews and approves our SICR
thresholds periodically. The Board Audit Committee reviews and challenges their appropriateness each year, or more often if we change them.
Quantitative criteria
We use quantitative criteria to identify where an exposure has increased in credit risk. We base our criteria on whether any increase in the lifetime PD since
origination exceeds a threshold in relative and absolute terms. We base the value anticipated at origination on similar assumptions and data to the ones we use at
the reporting date, adjusted to reflect the account surviving to that date. The comparison uses either an annualised lifetime PD, where the lifetime PD is divided by
the forecast period, or the absolute change in lifetime PD since origination. These two sets of criteria are used to determine whether a significant increase of credit
risk has concurred since origination. The criteria for 2023 and 2022 were:
Retail and Business Banking
Consumer Finance(2)
Corporate &
Commercial Banking
Corporate Centre
Mortgages
Everyday Banking(1)
Personal loans
Credit cards
Overdrafts
30bps
30bps
340bps
260bps
300bps
30bps
Internal rating method
(1) For larger business banking customers, we apply the same criteria that we use for Corporate & Commercial Banking.
(2) Consumer Finance use the comparison of lifetime PDs to determine Stage allocation, unlike other products which first turn the lifetime PD into an average yearly PD (annualised) and then do the comparison.
Qualitative criteria
We also use qualitative criteria to identify where an exposure has increased in credit risk, independent of changes in PD. The criteria for 2023 and 2022 were:
Retail and Business Banking
Consumer Finance
Corporate &
Commercial Banking
Corporate Centre
Mortgages
Everyday Banking(1)
Personal loans
Credit cards
Overdrafts
\u2013 In forbearance
\u2013 Default in last 24m
\u2013 30 Days past due
(DPD) in last 12m
\u2013 Bankrupt
\u2013 \u00a3100+ arrears
\u2013 In Collections
\u2013 Default in last 12m
\u2013 \u00a350+ arrears
\u2013 In forbearance
\u2013 Default in last 12m
\u2013 In Collections
\u2013 \u00a3100+ arrears
\u2013 Behaviour score
indicators
\u2013 Fees suspended
\u2013 Default in last 12m
\u2013 Debit dormant >35
days
\u2013 Any excess in month
\u2013 In forbearance
\u2013 Deceased or
Insolvent
\u2013 Court \u2018Return of
goods\u2019 order or
Police watchlist
\u2013 Agreement
terminated
\u2013 Payment holiday
\u2013 Cash Collection
\u2013 In forbearance
\u2013 Default in last 12m
\u2013 Watchlist: proactive
management
\u2013 Default at proxy
origination
\u2013 Watchlist: proactive
management
(1)For larger business banking customers, we apply the same criteria that we use for Corporate & Commercial Banking.
We continue to apply the additional qualitative assessment that was introduced as part of a Judgemental Adjustment that commenced during 2022 in response to
the cost of living crisis. Exposures that were deemed more significantly impacted by cost of living pressures based on indebtedness and disposable income
thresholds were migrated to Stage 2. See 'Judgemental Adjustments (JAs)' below for more details.
Backstop criteria
As a backstop, we classify all exposures more than 30 or 90 DPD in at least Stage 2 or in Stage 3, respectively. This means that we do not rebut the backstop
presumptions in IFRS 9 (i.e. credit risk has significantly increased if contractual payments are more than 30 DPD) relating to either a SICR or default.
Improvement in credit risk or cure
We transfer Stage 3 exposures to Stage 2 or Stage 1 when we no longer consider them to be credit impaired. We transfer Stage 2 exposures to Stage 1 when they
no longer meet the stage 2 SICR criteria. Where we identified a SICR using quantitative criteria, we transfer the exposures to Stage 1 when they no longer meet the
original PD-based transfer criteria. Where we identified a SICR using qualitative criteria, the issues that led to the transfer must be cured before we transfer the
exposure to Stage 1. For a loan to exit forbearance, it must meet the conditions set out in the section \u2018Forbearance\u2019.
Judgemental Adjustments (JAs) (audited)
We use a range of methods to identify whether we need a JA. These include regular reviews of model monitoring tools, changes in the period, trend analysis,
comparisons against forecasts, and inputs from expert teams who manage key portfolio risks. We only recognise a JA if its expected impact is over \u00a31m and keep it
in place until we no longer need it. This is usually when we build it into our core credit model or the conditions that led to raising the JA no longer exist.
Our Risk Provisions & Forecasting team calculate JAs to ensure they are incremental to the core credit model and to ensure the calculation is performed in a
consistent and controlled manner. We apply standard end-user computing controls to JAs expected to be in place for more than six months. The CRPF reviews and
approves all JAs on a quarterly basis.
Retail and Business Banking
Everyday Banking
Consumer
Finance
CCB
Corporate
Centre
Total
Mortgages
Credit Cards
Other
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Modelled ECL
132
123
123
62
240
\u2014
680
Individually assessed
4
\u2014
\u2014
\u2014
124
\u2014
128
ECL before JAs
136
123
123
62
364
\u2014
808
JAs (excluding Affordability and Cost of Living JAs)
Long-term indeterminate arrears
16
\u2014
\u2014
\u2014
\u2014
\u2014
16
12+ months in arrears
14
\u2014
\u2014
\u2014
\u2014
\u2014
14
UPL loss floor
\u2014
\u2014
6
\u2014
\u2014
\u2014
6
Model underestimation
36
\u2014
\u2014
\u2014
\u2014
\u2014
36
Corporate single large exposure
\u2014
\u2014
\u2014
\u2014
23
\u2014
23
Other
12
1
3
4
(31)
\u2014
(11)
Total JAs (excluding Affordability and Cost of Living JAs)
78
1
9
4
(8)
\u2014
84
Affordability and Cost of Living JAs
Corporate lending to segments affected by supply chain
pressures
\u2014
\u2014
\u2014
\u2014
24
\u2014
24
Secured affordability
9
\u2014
\u2014
4
\u2014
\u2014
13
Unsecured affordability
\u2014
16
22
\u2014
\u2014
\u2014
38
Mortgage refinancing risk
19
\u2014
\u2014
\u2014
\u2014
\u2014
19
SME debt burden
\u2014
\u2014
6
\u2014
\u2014
\u2014
6
Total Affordability and Cost of Living JAs
28
16
28
4
24
\u2014
100
Total JAs
106
17
37
8
16
\u2014
184
Total ECL
242
140
160
70
380
\u2014
992
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Modelled ECL
133
112
93
65
194
\u2014
597
Individually assessed
\u2014
\u2014
\u2014
\u2014
112
\u2014
112
ECL before JAs
133
112
93
65
306
\u2014
709
JAs (excluding Affordability and Cost of Living JAs)
Long-term indeterminate arrears
13
\u2014
\u2014
\u2014
\u2014
\u2014
13
12+ months in arrears
22
\u2014
\u2014
\u2014
\u2014
\u2014
22
UPL loss floor
\u2014
\u2014
15
\u2014
\u2014
\u2014
15
Model underestimation
36
2
19
\u2014
\u2014
\u2014
57
Corporate single large exposure
\u2014
\u2014
\u2014
\u2014
23
\u2014
23
Other
20
1
10
2
3
\u2014
36
Total JAs (excluding Affordability and Cost of Living JAs)
91
3
44
2
26
\u2014
166
Affordability and Cost of Living JAs
Corporate lending to segments affected by supply chain
pressures
\u2014
\u2014
\u2014
\u2014
61
\u2014
61
Mortgage affordability
27
\u2014
\u2014
\u2014
\u2014
\u2014
27
Retail Unsecured Affordability
\u2014
15
20
\u2014
\u2014
\u2014
35
SME debt burden
\u2014
\u2014
7
\u2014
\u2014
\u2014
7
Total Affordability and Cost of Living JAs
27
15
27
\u2014
61
\u2014
130
Total JAs
118
18
71
2
87
\u2014
296
Total ECL
251
130
164
67
393
\u2014
1,005
JAs (excluding Affordability and Cost of Living JAs)
\u2013 Long-term indeterminate arrears: To mitigate the risk of model underestimation, we fully provide for accounts in arrears which have neither repaid (cured) nor
been written-off after a period of two years for unsecured portfolios or five years for secured portfolios. For our secured portfolios, we use expected security
valuations at the point of repossession to estimate the adjustment. At 31 December 2023, we only had to make an adjustment for mortgages. When calculating
this JA, we assume a two year delay in the time to repossessions which reflects experience and ensures the LTVs are impacted by our multiple scenario forecasts
for HPI. Over the medium term, as we continue to address long-term arrears in the portfolio, we expect the need for this JA will reduce. Had management
assumed no delay in repossessions, the JA would be \u00a312m.
\u2013 12+ months in arrears: To mitigate the risk of model underestimation, we fully provide for mortgage accounts more than 12 months past due after deducting a
historically observed self-cure rate. When calculating this JA, we assume a two year delay in the time to repossessions which reflects experience and ensures the
LTVs are impacted by our multiple scenario forecasts for HPI. Over the medium term, as we continue to address long-term arrears in the portfolio, we expect the
need for this JA will reduce. Had management assumed no delay in repossessions, the JA would be \u00a36m.
\u2013 UPL loss floor: We use this JA to address the perceived macroeconomic insensitivity in our Unsecured Personal Loans (UPL) models. This arises where historical
analysis of losses shows a larger correlation to the International Labour Organisation (ILO) unemployment forecast than the model gives. The JA then uplifts the
lifetime losses expected in each of the macroeconomic scenarios in the model to meet the expected losses the historical analysis predicts.
\u2013 Model underestimation: During the pandemic, the government introduced various support schemes which resulted in built up savings and subdued arrears and
defaults. This JA reduces the risk of potential ECL underestimation caused by the artificially low modelled PDs. Had management applied the same PD uplift on
the upside scenario, the JA would be \u00a313m. Had management applied the same PD uplift on the Downside 3 scenario as the Base case, Upside and Downside 1
scenarios, the JA would be \u00a365m.
\u2013 Corporate single large exposure: This JA safeguards against individual large exposures defaulting. We currently use the JA to safeguard against two historically
observed single name large losses in CCB. We continue to assess this risk over the medium term based on actual experience and refine the estimate based on
changes in our portfolio credit quality and loan size mix. Had management assumed only one average loss was incurred, the JA would be \u00a312m. The JA would be
\u00a335m assuming three average losses were incurred. This JA is still needed given UK corporate insolvencies have risen to a 30-year high. In the current high-
interest rate environment, the risk of single name defaults which incur high losses is considered greater than before as government support schemes ceased.
\u2013 Other: This includes adjustments for CCB and mortgages. In CCB, we calibrate our corporate model PDs based on a historical model development observation
period. We hold a JA to recalibrate these PDs to reflect more recent experience. This JA will be embedded into the model in 2024 with no material net impact
expected. In mortgages, this JA includes a similar adjustment to recalibrate the PD and LGDs to exclude the period impacted by Covid-19.
Affordability and Cost of Living JAs
\u2013 Corporate lending to segments affected by supply chain pressures: This JA reflects the corporate lending risks to those sectors susceptible to high inflation
and energy prices, higher input costs, potential for lower consumer and business demand and exposure to supply chain pressures. We updated the assumptions
of this JA to reflect the available historical default emergence of the sectors in scope of the JA. This JA calculates ECL depending on customers' risk profiles in
stage 1 and transfers the customers into stage 2. In the case of those customers already in stage 2 the JA is calculated by stressing PD levels according to the risk
profile of those customers. The range for this JA can be between \u00a316m to \u00a358m depending on PD assumptions of high and severe sectors.
\u2013 Secured affordability: We use this JA to identify over-indebted customers who, in the current high-interest rate environment, are more susceptible to stress. The
JA uses available bureau information (Consumer Indebtedness Index (CII) > 40) and classifies over-indebted customers as Stage 2, which are subsequently
provided for on a lifetime basis. The JA reflects the most recent available performance information for customers in scope of the judgement. At 31 December
2023, these accounts made up a significant amount of the total mortgage Stage 2 population as \u00a32.9bn mortgages were moved from Stage 1 into Stage 2 as a
result. Had management lowered the CII threshold to 30, the JA would be \u00a321m. Had management increased the CII threshold to 50, the JA would be \u00a38m.
\u2013 Unsecured affordability: The JA accounts for repayment affordability risk amongst customers with low disposable income. We use a combination of
performance indicators and forward-looking estimated disposable income to identify the number of unsecured customers that may struggle to meet their
contractual obligations in the current macroeconomic environment. Their overall level of unsecured debt is also considered (for Credit Cards and Banking
products) to determine whether they can absorb additional financial stress. Had management not considered the total level of unsecured debt as an additional
filter to identify customers in scope of the JA, the JA would be \u00a347m. Had management considered the same level of Total Unsecured Debt (TUD) for UPL
exposures as for Cards and Banking, the JA would be \u00a331m.
\u2013 Mortgage refinancing risk: We introduced this JA in December 2023. It considers the risk of mortgage customers being unable to afford their new mortgage
instalment after re-mortgaging in the current high-interest rate environment. The JA assesses the likely mortgage payment against the stressed interest rate that
customers had been assessed against at the point of application. Customers that are likely to secure rates above their stress levels are considered at risk of not
being able to afford their new mortgage. Their respective PDs are uplifted to account for the elevated levels of defaults observed for the most recent cohorts of
refinanced mortgages. The JA transfers \u00a36.8bn of exposures into Stage 2. The JA was designed using some profiling characteristics of customers that took
advantage of the Mortgage Charter government scheme as some of these accounts are considered to be at higher risk of arrears. Had management replaced the
probability weighted interest rate view with a flat 5% forecast, the JA would be \u00a39m. Had management assumed a flat 6% forecast, the JA would be \u00a322m.
\u2013 SME debt burden: This JA takes account of the potential debt burden risk of unsecured lending to our SME customers who also took a BBL. This does not
incorporate the credit risk on BBLs as these are government guaranteed, but instead considers the possible impact on repayment of other lending with us.
2023 compared to 2022
JAs reduced from \u00a3296m to \u00a3184m. The proportion of JAs to total ECL decreased from 29% to 19%. This was mainly due to the models reacting to the economic
environment normalising post Covid-19, reducing the need for JAs. In 2023, we expanded the scope of the Mortgage Affordability JA to include Consumer Finance
(previously included in Other) and renamed it as the Secured Affordability JA. We also renamed the Retail Unsecured Affordability JA as the Unsecured Affordability
JA with no change in the scope. In addition, we introduced a Mortgage Refinancing risk JA to target customers susceptible to refinance risk in response to the cost of
living crisis and increased interest rates. In 2023, in response to increasing regulatory requirements under SS1/23, we introduced a JA framework to further enhance
the governance around judgements.
Climate change
In 2023 and 2022, we assessed the risks to asset valuations in the customer loan book from both transitional and physical risks associated with climate change. At
31 December 2023 and 2022, we did not consider it appropriate to recognise a climate risk related JA for the following reasons:
\u2013 The behavioural life of the loan book is less than five years. Any material transitional risks are generally regarded to be relevant over a longer timeframe than five
years and, as such, the risk predominantly relates to assets yet to be written;
\u2013 There have been no observed default events or SICRs due to climate change for any part of the loan book;
\u2013 The absolute exposure to fossil fuel industries is not material. On an individually assessed basis, clients in these industries are highly rated and their markets
remain highly liquid;
\u2013 The residual value of automotive vehicles might be impacted by diesel obsolescence and the transition to electric vehicles. The residual value risk is already set at
the more cautious end of the acceptable range to capture the inherent risk of diesel obsolescence and measurement uncertainty of electric vehicles;\u00a0
\u2013 ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of 5 years , during which timeframe
climate change risks may crystallise;
\u2013 The proportion of mortgage loans subject to flood and subsidence risk is not material. The terms of our mortgage lending also require homeowners to have an
active flood protection at any point of the contract.
Internal credit risk rating for corporate borrowers (audited)
We assign each corporate borrower an internal credit rating based on our internal rating scale. To do this, we look at the customer\u2019s financial history and trends in
the economy backed up by the expert judgement of a risk analyst. We review our internal ratings on a dynamic basis and at least once a year. The internal risk rating
is used to determine the Probability of Default for a client.
Individually assessed corporate Stage 3 exposures (audited)
We assess the ECL requirement for large single name corporate exposures on an individual basis when they meet our definition of default and are transferred into
Stage 3. This assessment takes into consideration the latest specific information about the counterparty to determine a probability weighted ECL based on a best,
worst and mid case outcome. For those loans that were in default (i.e. Stage 3), the ECL net of government guarantee was \u00a3124m at 31 December 2023 (2022:
\u00a3112m). Had management assumed the best or worst outcome in terms of loss estimates, the ECL could have been within a range of \u00a342m to \u00a3209m.
Sensitivity of ECL allowance (audited)
The ECL allowance is sensitive to the methods, assumptions and estimates underlying its calculation. For example, management could have applied different
probability weights to the economic scenarios. In addition, the ECL for residential mortgages is significantly affected by the HPI assumptions which determine the
valuation of collateral used in the calculations.
Had management used different assumptions on probability weights and HPI, a larger or smaller ECL charge would have resulted that may have had a material
impact on the ECL allowance and profit before tax.
Scenario sensitivity
The tables below show the ECL allowances that would have arisen had management applied a 100% weight to each economic scenario. The allowances were
calculated using a stage allocation appropriate to each scenario and differs from the probability-weighted stage allocation used to determine the ECL allowance
shown above. For exposures subject to individual assessment, the distribution of ECL which could reasonably be expected has also been considered, assuming no
change in the number of cases subject to individual assessment, and within the context of a potential best to worst case outcome.
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposure
294,877
294,877
294,877
294,877
294,877
294,877
Retail and Business Banking
201,977
201,977
201,977
201,977
201,977
201,977
Of which:
\u2013 Mortgages
181,188
181,188
181,188
181,188
181,188
181,188
Consumer Finance
5,228
5,228
5,228
5,228
5,228
5,228
CCB
27,277
27,277
27,277
27,277
27,277
27,277
Corporate Centre
60,395
60,395
60,395
60,395
60,395
60,395
ECL
833
896
991
1,176
1,410
992
Retail and Business Banking
419
465
536
689
889
542
Of which:
\u2013 Mortgages
141
174
234
363
562
242
Consumer Finance
68
69
70
72
72
70
CCB
346
362
385
415
449
380
Corporate Centre
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposure
306,284
306,284
306,284
306,284
306,284
306,284
Retail and Business Banking
213,557
213,557
213,557
213,557
213,557
213,557
Of which:
\u2013 Mortgages
192,346
192,346
192,346
192,346
192,346
192,346
Consumer Finance
5,740
5,740
5,740
5,740
5,740
5,740
CCB
28,277
28,277
28,277
28,277
28,277
28,277
Corporate Centre
58,710
58,710
58,710
58,710
58,710
58,710
ECL
930
932
993
1,149
1,383
1,005
Retail and Business Banking
489
497
529
647
830
544
Of which:
\u2013 Mortgages
214
218
244
324
501
251
Consumer Finance
65
66
65
68
69
67
CCB
376
369
399
434
484
394
Corporate Centre
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2023 compared to 2022
ECL was broadly flat in 2023. In Retail and Business Banking, Mortgages ECL decreased as house prices held up better than expected and Unsecured lending ECL
increased in line with arrears. These are yet to rise above pre Covid-19 levels. CCB ECL decreased due to a small number of default cases that were exited late in
2023. The value of JAs decreased in 2023 with models better reflecting the economic environment as the economic distortion caused by Covid-19 reduced.
HPI sensitivity
Given the relative size of our residential mortgage portfolio, management considers that changes in HPI assumptions used to calculate the ECL allowance for
residential mortgages would have the most significant impact on the ECL allowance. The table below shows the ECL impact on the profit before tax of applying an
immediate and permanent house price increase/decrease to our unweighted base case scenario, and assumes no changes to the stage allocation of exposures.
Increase/decrease in house prices
+20%
+10%
-10%
-20%
Increase/(decrease) in profit before tax
\u00a3m
\u00a3m
\u00a3m
\u00a3m
2023
70
38
(54)
(155)
2022
48
32
(61)
(176)
2023 compared to 2022
The sensitivity to decreases in house prices was similar to 2022, but the sensitivity to increases in house prices was higher than in 2022. This is a function of the
model and JA interaction under a more benign economic environment. The drop in the average property value in 2023 resulted in a bigger potential benefit of future
house price increases, which was the main driver for the higher sensitivity towards +10/+20% house price increases.
Both the modelled ECL and the JAs were stressed in the sensitivity analysis to assess the potential impact on ECL from housing market volatility.
Measuring ECL (audited)
For accounts not in default at the reporting date, we estimate a monthly ECL for each exposure and for each month over the forecast period. The lifetime ECL is the
sum of the monthly ECLs over the forecast period, while the 12-month ECL is limited to the first 12 months. We calculate each monthly ECL as the discounted value
for the relevant forecast month of the product of the following factors:
Factor
Description
Survival rate (SR)
The probability that the exposure has not closed or defaulted since the reporting date.
Probability of default
(PD)
The likelihood of a borrower defaulting in the following month, assuming it has not closed or defaulted since the reporting date. For each month in
the forecast period, we estimate the monthly PD from a range of factors. These include the current risk grade for the exposure, which becomes less
relevant further into the forecast period, as well as the expected evolution of the account risk with maturity and factors for changing economics. We
support this with historical data analysis.
Exposure at default
(EAD)
The amount we expect to be owed if a default event occurs. We determine EAD for each month of the forecast period by the expected payment
profile, which varies by product. For amortising products, we base it on the borrower\u2019s contractual repayments over the forecast period. We adjust
this for any expected overpayments on Stage 1 accounts that the borrower may make and for any arrears we expect if the account was to default.
For revolving products, or amortising products with an off-balance sheet element, we determine EAD using the balance at default and the
contractual exposure limit. We vary these assumptions by product and base them on analysis of recent default data.
Loss given default
(LGD)
Our expected loss if a default event were to occur. We express it as a percentage and calculate it based on factors that we have observed to affect
the likelihood and/or value of any subsequent write-offs, which vary according to whether the product is secured or unsecured. If the product is
secured, we take into account collateral values as well as the historical discounts to market/book values due to forced sales type.
We use the original effective interest rate as the discount rate. For accounts in default, we use the EAD as the reporting date balance. We also calculate an LGD to
reflect the default status of the account, considering the current DPD and loan-to-value. PD and SR are not required for accounts in default.
Forecast period
We base the forecast period for amortising facilities on the remaining contract term. For revolving facilities, we base it on the behavioural, rather than contractual,
characteristics of the facility type. In some cases, we shorten the period to simplify the calculation. If we do this, we apply a Judgemental Adjustment to reflect our
view of the full lifetime ECL.
Forward-looking information
Our assessments of a SICR and the calculation of ECL incorporate forward-looking data. We perform historical analysis and identify the key economic variables that
impact credit risk and ECL for each portfolio. These can include house price growth, GDP, unemployment rate and BoE Bank Rate. Where applicable, we incorporate
these economic variables and their associated impacts into our models.
Economic forecasts have the most impact on ECL measurement for residential mortgages and, to a lesser extent, corporate loans. This is due to the long
behavioural lives and large size of these portfolios. Economic forecasts have less impact on ECL for other portfolios due to their shorter lives and smaller size.
Grouping of instruments for losses measured on a collective basis
We measure ECL at the individual financial instrument level. However, where we have used internal capital or similar models as the basis for our ECL models, this
typically results in a large number of relatively small homogenous groups. We typically group instruments where they share risk characteristics using statistical
models and assess them for impairment collectively. We use this approach for all our Retail and Business Banking and Consumer Finance portfolios, and SME
customers in Corporate & Commercial Banking.
We calculate separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed.
For all our portfolios (whether we assess them for impairment individually or collectively) we use five forward-looking economic scenarios.
Governance around ECL impairment allowances (audited)
Our Risk Methodology team developed our ECL models (except for the external models we use, such as OGEM which we described earlier in \u2018Our forecasting
approach\u2019), and our Independent Validations team reviews all material models. As model owners, our Risk Provisioning & Forecasting team run the models to
calculate our ECL each month. The models are sensitive to changes in credit conditions and reflect management judgements that give rise to measurement
uncertainty in our ECL as set out above. The following committees and forums review the provision drivers and ensure that the ECL remains appropriate:
\u2013 Model Risk Control Forum (MRCF) reviews and approves new models and model changes. It also reviews the use of OGEM as a reliable model on which to base
our other forecast macroeconomic variables. We use it across all stress testing and planning so it is subject to model risk criteria .
\u2013 ALCO reviews and approves the base case used in the economic scenarios we use to calculate forward-looking scenarios.
\u2013 CRPF reviews and approves the economic scenarios and probability weights we use to calculate forward-looking scenarios. It also reviews management
judgements and approves ECL impairment allowances.
\u2013 Board Audit Committee reviews and challenges the appropriateness of the estimates and judgements made by management.
For more on the governance around specific elements of the ECL impairment allowances, including the frequency of, and thresholds for, reviews, including by these
committees and forums, see the detailed sections above.
How we assess the performance of our ECL estimation process
We assess the reasonableness of our ECL provisions and the results of our Staging analysis using a range of methods. These include:
\u2013 Benchmarking: we compare our coverage levels with our peers
\u2013 Stand-back testing: we monitor the level of our coverage against actual write-offs
\u2013 Back-testing: we compare key drivers periodically as part of model monitoring practices
\u2013 Monitoring trends: we track ECL and Staged assets over time and against our internal budgets and forecasts, with triggers set accordingly.
SANTANDER UK GROUP LEVEL \u2013 CREDIT RISK REVIEW
Our maximum and net exposure to credit risk (audited)
The tables below show the main differences between our maximum and net exposure to credit risk. They show the effects of collateral, netting, and risk transfer to
mitigate our exposure. The tables only show the financial assets that credit risk affects and to which the impairment requirements in IFRS 9 are applied.
For balance sheet assets, the maximum exposure to credit risk is the carrying value after impairment loss allowances. Off-balance sheet exposures are mortgage
offers, guarantees, formal standby facilities, credit lines and other commitments. For off-balance sheet guarantees, the maximum exposure is the maximum
amount that we would have to pay if the guarantees were called on. For formal standby facilities, credit lines and other commitments that are irrevocable over the
life of the facility, the maximum exposure is the total amount of the commitment.
Maximum exposure
Balance sheet asset
Off-balance sheet
Collateral(1)
Gross
amounts
Loss
allowance
Net
amounts
Gross
amounts
Loss
allowance
Net
amounts
Cash
Non-cash
Netting(2)
Net
exposure
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Cash and balances at central banks
38.2
\u2014
38.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
38.2
Financial assets at amortised cost:
\u2013 Loans and advances to customers:(3)
\u2013 Retail Mortgages(4)
172.9
(0.2)
172.7
8.3
\u2014
8.3
\u2014
(175.4)
\u2014
5.6
\u2013 Corporate loans
18.3
(0.3)
18.0
8.9
\u2014
8.9
(0.1)
(15.3)
\u2014
11.5
\u2013 Finance leases
4.6
(0.1)
4.5
\u2014
\u2014
\u2014
\u2014
(4.5)
\u2014
\u2014
\u2013 Accrued interest and other adjustments
0.9
\u2014
0.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.9
\u2013 Other unsecured loans
7.1
(0.3)
6.8
13.8
(0.1)
13.7
\u2014
\u2014
\u2014
20.5
\u2013 Amounts due from fellow Banco Santander group
subsidiaries and JVs
4.5
\u2014
4.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
4.5
Total loans and advances to customers
208.3
(0.9)
207.4
31.0
(0.1)
30.9
(0.1)
(195.2)
\u2014
43.0
\u2013 Loans and advances to banks
1.1
\u2014
1.1
0.5
\u2014
0.5
\u2014
\u2014
\u2014
1.6
\u2013 Reverse repurchase agreements \u2013 non trading
12.5
\u2014
12.5
\u2014
\u2014
\u2014
\u2014
(12.4)
(0.1)
\u2014
\u2013 Other financial assets at amortised cost
0.2
\u2014
0.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.2
Total financial assets at amortised cost
222.1
(0.9)
221.2
31.5
(0.1)
31.4
(0.1)
(207.6)
(0.1)
44.8
Financial assets at fair value at FVOCI:
\u2013 Debt securities
8.5
\u2014
8.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
8.5
Total financial assets at FVOCI
8.5
\u2014
8.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
8.5
Total
268.8
(0.9)
267.9
31.5
(0.1)
31.4
(0.1)
(207.6)
(0.1)
91.5
2022
Cash and balances at central banks
44.2
\u2014
44.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44.2
Financial assets at amortised cost:
\u2013 Loans and advances to customers:(3)
\u2013 Retail Mortgages(4)
184.3
(0.2)
184.1
8.0
\u2014
8.0
\u2014
(187.4)
\u2014
4.7
\u2013 Corporate loans
19.1
(0.4)
18.7
9.3
\u2014
9.3
(0.1)
(16.5)
\u2014
11.4
\u2013 Finance leases
4.6
(0.1)
4.5
0.4
\u2014
0.4
\u2014
(4.8)
\u2014
0.1
\u2013 Accrued interest and other adjustments
0.7
\u2014
0.7
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.7
\u2013 Other unsecured loans
7.7
(0.2)
7.5
13.7
(0.1)
13.6
\u2014
\u2014
\u2014
21.1
\u2013 Amounts due from fellow Banco Santander group
subsidiaries and JVs
4.2
\u2014
4.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
4.2
Total loans and advances to customers
220.6
(0.9)
219.7
31.4
(0.1)
31.3
(0.1)
(208.7)
\u2014
42.2
\u2013 Loans and advances to banks
1.0
\u2014
1.0
0.4
\u2014
0.4
\u2014
\u2014
\u2014
1.4
\u2013 Reverse repurchase agreements \u2013 non trading
7.3
\u2014
7.3
\u2014
\u2014
\u2014
\u2014
(7.3)
\u2014
\u2014
\u2013 Other financial assets at amortised cost
0.2
\u2014
0.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.2
Total financial assets at amortised cost
229.1
(0.9)
228.2
31.8
(0.1)
31.7
(0.1)
(216.0)
\u2014
43.8
Financial assets at FVOCI:
\u2013 Debt securities
6.0
\u2014
6.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
6.0
Total financial assets at FVOCI
6.0
\u2014
6.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
6.0
Total
279.3
(0.9)
278.4
31.8
(0.1)
31.7
(0.1)
(216.0)
\u2014
94.0
(1) The forms of collateral we take to reduce credit risk include: residential and commercial property; other physical assets, including motor vehicles; liquid securities, including those transferred under reverse
repurchase agreements; cash, including cash used as collateral for derivative transactions; and receivables. Charges on residential property are most of the collateral we take.
(2) We can reduce credit risk exposures by applying netting. We do this mainly for derivative and repurchase transactions with financial institutions. For derivatives and securities finance transactions, we use standard
master netting agreements. For more on this, see \u2018Credit risk mitigation\u2019 in the \u2018Credit risk - Credit risk management\u2019 section.
(3) Balances include interest we have charged to the customer\u2019s account and accrued interest that we have not charged to the account yet.
(4) The collateral value shown against advances secured on residential property is limited to the balance of each associated individual loan. It does not include the impact of over\u2013collateralisation (where the collateral
has a higher value than the loan balance) and includes collateral we would receive on draw down of certain off\u2013balance sheet commitments.
The tables below show the main differences between our maximum and net exposure to credit risk on the financial assets that credit risk affects and to which the
impairment requirements in IFRS 9 are not applied.
Balance
sheet asset
gross
amount
Collateral(1)
Netting(2)
Net
exposure
Cash
Non-cash
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Financial assets at FVTPL:
\u2013 Derivative financial instruments
1.4
(0.8)
\u2014
(0.5)
0.1
\u2013 Other financial assets at FVTPL
0.3
\u2014
\u2014
\u2014
0.3
Total
1.7
(0.8)
\u2014
(0.5)
0.4
2022
Financial assets at FVTPL:
\u2013 Derivative financial instruments
2.4
\u2014
(1.7)
(0.5)
0.2
\u2013 Other financial assets at FVTPL
0.1
\u2014
\u2014
\u2014
0.1
Total
2.5
\u2014
(1.7)
(0.5)
0.3
(1) The forms of collateral we take to reduce credit risk include: liquid securities, including those transferred under reverse repurchase agreements; cash, including cash used as collateral for derivative transactions;
and receivables.
(2) We can reduce credit risk exposures by applying netting. We do this mainly for derivative and repurchase transactions with financial institutions. For derivatives and securities finance transactions, we use standard
master netting agreements. They allow us to set off our credit risk exposure to a counterparty against our obligations to the counterparty in relation to transactions under the master netting agreement in the event
of default. This gives us a lower net credit exposure. They may also reduce settlement exposure. For more on this, see \u2018Credit risk mitigation\u2019 in the \u2018Credit risk \u2013 Credit risk management\u2019 section.
Rating distribution (audited)
The tables below show the credit rating of our financial assets to which the impairment requirements in IFRS 9 apply. Financial assets with low risk concentrations
are not included and are all investment grade. JAs are incorporated in the balances. For more on the credit rating profiles of key portfolios, see the credit risk review
section for each business segment.
Santander UK risk grade
Loss
allowance
Total
9
8
7
6
5
4
3 to 1
Other(1)(2)
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Exposures - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers(2)
5.3
34.2
84.4
48.9
14.6
8.3
5.4
7.2
(0.9)
207.4
\u2013 Stage 1
5.3
33.1
80.4
43.6
10.3
2.8
0.3
6.9
(0.1)
182.6
\u2013 Stage 2
\u2014
1.1
4.0
5.3
4.3
5.4
2.4
0.1
(0.4)
22.2
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
2.7
0.2
(0.4)
2.6
Of which mortgages:
5.2
32.5
79.9
41.5
6.6
3.7
3.5
\u2014
(0.2)
172.7
\u2013 Stage 1
5.2
31.4
75.9
36.3
3.6
0.4
0.2
\u2014
\u2014
153.0
\u2013 Stage 2
\u2014
1.1
4.0
5.2
3.0
3.2
1.4
\u2014
(0.1)
17.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
1.9
\u2014
(0.1)
1.9
Total off\u2013balance sheet
\u2014
6.3
7.0
6.8
4.6
1.7
0.4
4.7
(0.1)
31.4
\u2013 Stage 1
\u2014
6.3
6.9
6.7
4.4
1.2
0.1
4.7
\u2014
30.3
\u2013 Stage 2
\u2014
\u2014
0.1
0.1
0.2
0.5
0.2
\u2014
(0.1)
1.0
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
Santander UK risk grade
Total
Coverage
Ratio
9
8
7
6
5
4
3 to 1
Other(1)(2)
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
%
ECL - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers(2)
\u2014
\u2014
\u2014
\u2014
0.2
0.2
0.5
\u2014
0.9
0.4
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
\u2014
0.1
0.1
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
0.1
0.2
0.1
\u2014
0.4
1.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.4
\u2014
0.4
13.3
Of which mortgages:
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
0.1
\u2014
0.2
0.1
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
0.6
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
5.0
Total off\u2013balance sheet
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
0.3
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
9.1
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Santander UK risk grade
Loss
allowance
9
8
7
6
5
4
3 to 1
Other(1)(2)
Total
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Exposures - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers\u207d\u00b2\u207e
9.5
35.9
85.6
52.1
15.2
9.2
5.4
7.7
(0.9)
219.7
\u2013 Stage 1
9.5
35.6
83.9
47.9
11.1
3.9
0.5
7.3
(0.1)
199.6
\u2013 Stage 2
\u2014
0.3
1.7
4.2
4.1
5.2
2.6
0.2
(0.5)
17.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
2.3
0.2
(0.3)
2.3
Of which mortgages:
9.5
33.4
82.3
45.0
7.2
3.8
3.1
\u2014
(0.2)
184.1
\u2013 Stage 1
9.5
33.1
80.7
41.1
4.1
0.5
0.1
\u2014
\u2014
169.1
\u2013 Stage 2
\u2014
0.3
1.6
3.9
3.1
3.2
1.3
\u2014
(0.1)
13.3
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
1.7
\u2014
(0.1)
1.7
Total off\u2013balance sheet
0.1
7.2
6.9
6.5
4.9
2.1
0.4
3.7
(0.1)
31.7
\u2013 Stage 1
0.1
7.2
6.8
6.4
4.7
1.7
0.2
3.7
\u2014
30.8
\u2013 Stage 2
\u2014
\u2014
0.1
0.1
0.2
0.4
0.1
\u2014
(0.1)
0.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
Santander UK risk grade
Coverage
Ratio
9
8
7
6
5
4
3 to 1
Other(1)(2)
Total
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
%
ECL - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers\u207d\u00b2\u207e
\u2014
\u2014
\u2014
\u2014
0.2
0.2
0.5
\u2014
0.9
0.4
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
\u2014
0.1
0.1
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
0.1
0.2
0.2
\u2014
0.5
2.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.3
\u2014
0.3
13.0
Of which mortgages:
\u2014
\u2014
\u2014
\u2014
0.1
0.1
\u2014
\u2014
0.2
0.1
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
\u2014
0.1
0.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
5.9
Total off\u2013balance sheet
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
0.3
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
12.5
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
(1) Includes Joint Ventures and Business Banking (including BBLs balances). We use scorecards for these items, rather than rating models. Off-balance sheet exposures also include residential mortgage offers in the
pipeline.
(2) Includes interest we have charged to the customer\u2019s account and accrued interest we have not charged to the account yet.
Arrears over 90 days past due
31 December 2023
31 December 2022
%
%
Mortgages
0.80
0.62
Credit Cards
0.51
0.49
UPL
0.73
0.61
Overdrafts
2.43
2.24
Business Banking
4.15
3.47
Consumer Finance
0.43
0.44
2023 compared to 2022
With a slower housing market and higher mortgage rates, applications fell in 2023. Our decision to optimise the balance sheet given higher funding costs
contributed to a reduction in mortgage lending.
In 2023, early and late arrears remained at low levels despite a slight increase across the portfolio.
For more on the credit performance of our key portfolios by business segment, see the credit risk review section for each business segment.
Credit quality (audited)
Total on-balance sheet exposures at 31 December 2023 comprised \u00a3203.1 bn of customer loans, loans and advances to banks of \u00a31.1bn, \u00a312.6bn of sovereign
assets measured at amortised cost, \u00a38.5bn of assets measured at FVOCI, and \u00a338.2bn of cash and balances at central banks.
Stage 1
Stage 2
Stage 3
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposures
On-balance sheet
Retail and Business Banking
158,782
18,866
2,239
179,887
Consumer Finance
4,870
330
28
5,228
CCB
13,822
3,418
699
17,939
Corporate Centre
60,395
\u2014
\u2014
60,395
Total on-balance sheet
237,869
22,614
2,966
263,449
Off-balance sheet
Retail and Business Banking(1)
21,597
434
59
22,090
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
8,745
547
46
9,338
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet(2)
30,342
981
105
31,428
Total exposures
268,211
23,595
3,071
294,877
ECL
On-balance sheet
Retail and Business Banking
57
273
169
499
Consumer Finance
21
30
19
70
CCB
64
118
163
345
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
142
421
351
914
Off-balance sheet
Retail and Business Banking
16
26
1
43
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
12
14
9
35
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet
28
40
10
78
Total ECL
170
461
361
992
Coverage ratio(3)
%
%
%
%
On-balance sheet
Retail and Business Banking
\u2014
1.4
7.5
0.3
Consumer Finance
0.4
9.0
68.5
1.3
CCB
0.5
3.5
23.4
1.9
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
0.1
1.9
11.8
0.3
Off-balance sheet
Retail and Business Banking
0.1
6.0
2.8
0.2
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
0.1
2.5
20.2
0.4
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet
0.1
4.1
10.4
0.2
Total coverage
0.1
2.0
11.8
0.3
(1) Off-balance sheet exposures include\u00a33.3bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 31.
(3) ECL as a percentage of the related exposure.
Total on-balance sheet exposures at 31 December 2022 comprised \u00a3215.7bn of customer loans, loans and advances to banks of \u00a31.0bn, \u00a37.5bn of sovereign assets
measured at amortised cost, \u00a36.0bn of assets measured at FVOCI, and \u00a344.2bn of cash and balances at central banks.
Gross write-offs
Stage 1
Stage 2
Stage 3
Total
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposures
On-balance sheet
Retail and Business Banking
175,365
14,399
2,072
191,836
Consumer Finance
5,005
350
29
5,384
CCB
14,507
3,476
535
18,518
Corporate Centre
58,710
\u2014
\u2014
58,710
Total on-balance sheet
253,587
18,225
2,636
274,448
Off-balance sheet
Retail and Business Banking(1)
21,175
490
56
21,721
Consumer Finance
356
\u2014
\u2014
356
CCB
9,310
412
37
9,759
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet(2)
30,841
902
93
31,836
Total exposures
284,428
19,127
2,729
306,284
ECL and Gross Write-offs
On-balance sheet
Retail and Business Banking
113
56
295
151
502
Consumer Finance
19
19
27
21
67
CCB
24
69
155
138
362
Corporate Centre
\u2014
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
156
144
477
310
931
Off-balance sheet
Retail and Business Banking
\u2014
12
28
2
42
Consumer Finance
\u2014
\u2014
\u2014
\u2014
\u2014
CCB
\u2014
14
11
7
32
Total off-balance sheet
\u2014
26
39
9
74
Total ECL
156
170
516
319
1,005
Coverage ratio(3)
%
%
%
%
On-balance sheet
Retail and Business Banking
\u2014
2.0
7.3
0.3
Consumer Finance
0.4
7.7
72.4
1.2
CCB
0.5
4.5
25.8
2.0
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
0.1
2.6
11.8
0.3
Off-balance sheet
Retail and Business Banking
0.1
5.7
3.6
0.2
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
0.2
2.7
18.9
0.3
Total off-balance sheet
0.1
4.3
9.7
0.2
Total coverage
0.1
2.7
11.7
0.3
(1) Off-balance sheet exposures include \u00a32.8bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 31.\u00a0
(3) ECL as a percentage of the related exposure.
2023 compared to 2022
The ECL provision at 31 December 2023 decreased by \u00a313m to \u00a3992m (2022: \u00a31,005m) largely due to updated economic assumptions.
Gross write-off utilisation of \u00a3232m in CCB and unsecured retail (2022: \u00a3157m).
Key movements in exposures and ECL in the year by Stage were:
\u2013 The reduction in Stage 1 exposures was mainly driven by reduced Mortgage new business due to slowing of the housing market, and customers reducing debt in
response to increasing rates. The Stage 1 ECL was broadly flat as reduced Mortgage Stage 1 exposures had little impact on ECL due to their secured nature.
\u2013 Stage 2 exposures increased reflecting current economic conditions, but levels of arrears are yet to increase above the long-term average. Stage 2 ECL reduced
primarily due to the reduced requirement for mortgages, driven by house prices performing better than expected, and in CCB where expected loss rates
improved.
\u2013 Stage 3 exposures rose due to the economic environment with increases across all portfolios. ECL increased, driven by CCB and Mortgages.
Stage 2 analysis (audited)
The following table analyses our Stage 2 exposures and ECL by the reason the exposure is classified as Stage 2.
2023
PD
deterioration
Forbearance
Other
30 DPD
Secured
affordability
Unsecured
affordability
Mortgage
Refinancing
High risk
corporate
Total
Retail and Business
Banking - Mortgages
Exposure \u00a3m
5,877
516
265
560
2,889
\u2014
7,769
\u2014
17,876
ECL \u00a3m
65
2
3
11
9
\u2014
19
\u2014
109
Consumer Finance
Exposure \u00a3m
115
\u2014
126
25
64
\u2014
\u2014
\u2014
330
ECL \u00a3m
10
\u2014
5
11
4
\u2014
\u2014
\u2014
30
CCB
Exposure \u00a3m
1,809
85
533
93
\u2014
\u2014
\u2014
898
3,418
ECL \u00a3m
75
2
17
2
\u2014
\u2014
\u2014
22
118
Corporate Centre
Exposure \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
ECL \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Total Drawn
Exposure \u00a3m
8,345
601
960
856
2,953
232
7,769
898
22,614
ECL \u00a3m
249
4
33
46
13
35
19
22
421
Undrawn
ECL \u00a3m
28
\u2014
4
3
\u2014
3
\u2014
2
40
Total Reported
Exposure \u00a3m
9,160
601
1,152
893
2,889
233
7,769
898
23,595
ECL \u00a3m
277
4
37
49
13
38
19
24
461
2022
Retail and Business
Banking - Mortgages
Exposure \u00a3m
7,310
449
241
463
4,961
\u2014
n/a
\u2014
13,424
ECL \u00a3m
86
2
5
10
27
\u2014
n/a
\u2014
130
Consumer Finance
Exposure \u00a3m
159
\u2014
164
27
\u2014
\u2014
n/a
\u2014
350
ECL \u00a3m
11
\u2014
6
10
\u2014
\u2014
n/a
\u2014
27
CCB
Exposure \u00a3m
1,548
64
684
214
\u2014
\u2014
n/a
966
3,476
ECL \u00a3m
81
4
1
10
\u2014
\u2014
n/a
59
155
Corporate Centre
Exposure \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
n/a
\u2014
\u2014
ECL \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
n/a
\u2014
\u2014
Total Drawn
Exposure \u00a3m
9,560
513
1,137
890
4,961
198
n/a
966
18,225
ECL \u00a3m
284
6
22
48
27
31
n/a
59
477
Undrawn
ECL \u00a3m
19
\u2014
8
6
\u2014
4
n/a
2
39
Total Reported
Exposure \u00a3m
10,323
625
1,116
937
4,961
199
n/a
966
19,127
ECL \u00a3m
303
6
30
54
27
35
n/a
61
516
Where balances satisfy more than one of the criteria above for determining a SICR, we have assigned the corresponding gross carrying amount and ECL in order of
the categories presented.
Reconciliation of exposures, loss allowance and net carrying amounts (audited)
The table below shows the relationships between disclosures in this Credit risk review section which refer to drawn exposures and the associated ECL , and the total
assets as presented in the Consolidated Balance Sheet. The Credit risk review disclosures exclude Joint ventures, as they carry low credit risk and therefore have an
immaterial ECL, and Other items, mainly accrued interest that we have not yet charged to the customer's account, and cash collateral.
On-balance sheet
Off-balance sheet
Exposures
Loss
allowance
Net carrying
amount
Exposures
Loss
allowance
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Retail and Business Banking(1)(2)
179,887
499
179,388
22,090
43
Consumer Finance
5,228
70
5,158
\u2014
\u2014
Corporate & Commercial Banking
17,939
345
17,594
9,338
35
Corporate Centre
60,395
\u2014
60,395
\u2014
\u2014
Total exposures presented in Credit Quality tables
263,449
914
262,535
31,428
78
Joint ventures
4,544
Other items
751
Adjusted net carrying amount
267,830
Assets classified at FVTPL
1,694
Non-financial assets(3)
5,924
Total assets per the Consolidated Balance Sheet
275,448
2022
Retail and Business Banking(1)(2)
191,836
502
191,334
21,721
42
Consumer Finance
5,384
67
5,317
356
\u2014
Corporate & Commercial Banking
18,518
362
18,156
9,759
32
Corporate Centre
58,710
\u2014
58,710
\u2014
\u2014
Total exposures presented in Credit Quality tables
274,448
931
273,517
31,836
74
Joint ventures
4,164
Other items
745
Adjusted net carrying amount
278,426
Assets classified at FVTPL
2,536
Non-financial assets(3)
4,251
Total assets per the Consolidated Balance Sheet
285,213
(1) Off-balance sheet exposures include offers in the pipeline and undrawn flexible mortgages products.
(2) Off-balance sheet exposures include credit cards.
(3) Non-financial assets include \u00a3632m (2022: \u00a32,657m) of Macro hedge of interest rate risk.
Movement in total exposures and the corresponding ECL (audited)
The following table shows changes in total on and off-balance sheet exposures, subject to ECL assessment, and the corresponding ECL, in the period. The table
presents total gross carrying amounts and ECLs at a Santander UK group level. We present segmental views in the sections below.
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
284,428
170
19,127
516
2,729
319
306,284
1,005
Transfers from Stage 1 to Stage 2(3)
(12,945)
(9)
12,945
9
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
5,913
111
(5,913)
(111)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(598)
(6)
(920)
(38)
1,518
44
\u2014
\u2014
Transfers from Stage 3(3)
28
1
304
15
(332)
(16)
\u2014
\u2014
Transfers of financial instruments
(7,602)
97
6,416
(125)
1,186
28
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(111)
\u2014
145
\u2014
130
\u2014
164
Change in economic scenarios(2)
\u2014
29
\u2014
(33)
\u2014
9
\u2014
5
New lending and assets purchased(5)
25,409
28
562
45
59
20
26,030
93
Redemptions, repayments and assets sold(7)
(33,805)
(35)
(3,017)
(53)
(886)
(46)
(37,708)
(134)
Changes in risk parameters and other movements(6)
(219)
(8)
507
(34)
395
133
683
91
Assets written off(7)
\u2014
\u2014
\u2014
\u2014
(412)
(232)
(412)
(232)
At 31 December 2023
268,211
170
23,595
461
3,071
361
294,877
992
Net movement in the period
(16,217)
\u2014
4,468
(55)
342
42
(11,407)
(13)
ECL (release)/charge to the Income Statement
\u2014
(55)
274
219
Less: Discount unwind
\u2014
\u2014
(21)
(21)
Less: Recoveries net of collection costs
\u2014
\u2014
7
7
Total ECL (release)/charge to the Income Statement
\u2014
(55)
260
205
At 1 January 2022
292,366
132
17,964
330
3,017
403
313,347
865
Transfers from Stage 1 to Stage 2(3)
(9,100)
(25)
9,100
25
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
7,207
133
(7,207)
(133)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(621)
(4)
(624)
(32)
1,245
36
\u2014
\u2014
Transfers from Stage 3(3)
10
1
758
150
(768)
(151)
\u2014
\u2014
Transfers of financial instruments
(2,504)
105
2,027
10
477
(115)
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(110)
\u2014
98
\u2014
110
\u2014
98
Change in economic scenarios(2)
\u2014
37
\u2014
123
\u2014
3
\u2014
163
New lending and assets purchased(5)
48,194
42
1,119
76
64
24
49,377
142
Redemptions, repayments and assets sold(7)
(54,546)
(35)
(2,065)
(60)
(950)
(35)
(57,561)
(130)
Changes in risk parameters and other movements(6)
918
(1)
82
(61)
375
86
1,375
24
Assets written off(7)
\u2014
\u2014
\u2014
\u2014
(254)
(157)
(254)
(157)
At 31 December 2022
284,428
170
19,127
516
2,729
319
306,284
1,005
Net movement in the period
(7,938)
38
1,163
186
(288)
(84)
(7,063)
140
ECL charge/(release) to the Income Statement
38
186
73
297
Less: Discount unwind
\u2014
\u2014
(13)
(13)
Less: Recoveries net of collection costs
\u2014
\u2014
36
36
Total ECL charge/(release) to the Income Statement
38
186
96
320
(1) Exposures that have attracted an ECL, and as reported in the Credit Quality table above.
(2) Changes to assumptions in the period. Isolates the impact on ECL from changes to the economic variables for each scenario, the scenarios themselves, and the probability weights from all other movements. Also
includes the impact of quarterly revaluation of collateral. The impact of changes in economics on exposure Stage allocations are shown in Transfers of financial instruments.
(3) Total impact of facilities that moved Stage(s) in the period. This means, for example, that where risk parameter changes (model inputs) or model changes (methodology) result in a facility moving Stage, the full
impact is reflected here (rather than in Other). Stage flow analysis only applies to facilities that existed at both the start and end of the period. Transfers between Stages are based on opening balances and ECL at
the start of the period.
(4) Relates to the revaluation of ECL following the transfer of an exposure from one Stage to another.
(5) Exposures and ECL of facilities that did not exist at the start of the period but did at the end. Amounts in Stage 2 and 3 represent assets which deteriorated in the period after origination in Stage 1.
(6) Residual movements on existing facilities that did not change Stage in the period, and which were not acquired in the period. Includes the net increase or decrease in the period of the mortgage pipeline, cash at
central banks, the impact of changes in risk parameters in the period, unwind of discount rates and increases in ECL requirements of accounts which ultimately were written off in the period.
(7) Exposures and ECL for facilities that existed at the start of the period but not at the end.
COUNTRY RISK EXPOSURES (audited)
We manage our country risk exposure under our global limits framework. We set our Risk\u00a0Appetite for each country, considering factors that may affect its risk
profile. These can include political events, macroeconomics and the nature of the risk. We actively manage exposures if we need to.
The tables below show our total exposures, which are the total of balance sheet and off\u2013balance sheet values. We calculate balance sheet values in line with IFRS
(i.e. after netting allowed under IAS 32) except for credit provisions which we add back. Off\u2013balance sheet values are undrawn facilities and letters of credit. We
classify location by country of risk \u2013 the country where each client has its main business or assets. That is unless there is a full risk transfer guarantee in place. If so,
we use the guarantor\u2019s country of domicile. If a client has operations in many countries, we use their country of incorporation. The table below excludes balances
with other Banco Santander group members. We show them separately in the section that immediately follows.
2023
2022
Financial
institutions
Financial
institutions
Governments
Banks(1)
Other
Retail
Corporate
Total(2)
Governments
Banks(1)
Other
Retail
Corporate
Total(2)
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Eurozone
Ireland
\u2014
\u2014
3.1
\u2014
0.1
3.2
\u2014
\u2014
2.3
\u2014
0.1
2.4
Spain
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
France
0.1
1.7
0.8
\u2014
\u2014
2.6
0.1
0.8
0.5
\u2014
\u2014
1.4
Germany
\u2014
0.2
0.3
\u2014
\u2014
0.5
\u2014
0.3
\u2014
\u2014
0.1
0.4
Luxembourg
\u2014
\u2014
0.5
\u2014
0.1
0.6
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Other(3)
0.3
0.7
\u2014
\u2014
\u2014
1.0
0.3
0.5
\u2014
\u2014
\u2014
0.8
0.4
2.6
4.7
\u2014
0.2
7.9
0.4
1.6
2.8
\u2014
0.2
5.0
Other countries
UK
38.5
1.7
6.5
206.0
25.0
277.7
44.1
1.8
5.8
217.3
26.9
295.9
US
\u2014
0.7
\u2014
\u2014
\u2014
0.7
0.1
0.9
0.1
\u2014
\u2014
1.1
Japan
2.0
0.9
\u2014
\u2014
\u2014
2.9
1.1
0.3
\u2014
\u2014
\u2014
1.4
Switzerland
2.1
\u2014
\u2014
\u2014
\u2014
2.1
1.2
\u2014
\u2014
\u2014
\u2014
1.2
Other
0.1
1.2
0.2
0.1
0.7
2.3
0.1
0.7
0.2
\u2014
0.5
1.5
42.7
4.5
6.7
206.1
25.7
285.7
46.6
3.7
6.1
217.3
27.4
301.1
Total
43.1
7.1
11.4
206.1
25.9
293.6
47.0
5.3
8.9
217.3
27.6
306.1
(1) Excludes balances with central banks.
(2) Excludes cash at hand, interests in other entities, intangible assets, property, plant and equipment, tax assets, retirement benefit assets and other assets.
(3)\u00a0 \u00a0 \u00a0 Includes The Netherlands \u00a30.3bn (2022: \u00a30.1bn), Belgium \u00a30.5bn (2022: \u00a30.6bn), and Finland \u00a30.1bn (2022: \u00a30.1bn).
Balances with other Banco Santander group members (audited)
We deal with other Banco Santander group members in the ordinary course of business. We do this where we have a particular business advantage or expertise and
where they can offer us commercial opportunities. These transactions also arise where we support the activities of, or with, larger multinational corporate clients
and financial institutions which may deal with other Banco Santander group members. We conduct these activities on the same terms as for similar transactions
with third parties, and in a way that manages the\u00a0credit risk within limits acceptable to the Board and the PRA.
At 31 December 2023 and 31 December 2022, we had gross balances with other Banco Santander group members as follows:
2023
2022
Financial institutions
Financial institutions
Banks
Other
Corporate
Total
Banks
Other
Corporate
Total
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Assets
Spain
0.8
\u2014
\u2014
0.8
1.4
\u2014
\u2014
1.4
UK
\u2014
4.6
\u2014
4.6
\u2014
4.2
\u2014
4.2
0.8
4.6
\u2014
5.4
1.4
4.2
\u2014
5.6
Liabilities
Spain
1.1
0.1
\u2014
1.2
1.7
0.1
\u2014
1.8
UK
\u2014
14.3
\u2014
14.3
\u2014
15.6
\u2014
15.6
1.1
14.4
\u2014
15.5
1.7
15.7
\u2014
17.4
Borrower profile (audited)
Stock
New business
2023
2022
2023
2022
\u00a3m
%
\u00a3m
%
\u00a3m
%
\u00a3m
%
Home movers(1)
71,931
42
76,357
41
5,009
41
12,221
36
Remortgagers(2)
48,475
28
53,190
29
3,901
32
10,644
31
First-time buyers
36,868
21
37,971
21
3,015
25
8,129
24
Buy-to-let
15,585
9
16,799
9
239
2
3,133
9
172,859
100
184,317
100
12,164
100
34,127
100
(1) 'Home movers\u2019 include both existing customers moving house and taking out a new mortgage with us, and customers who switch their mortgage to us when they move house.
(2) 'Remortgagers\u2019 are new customers who are taking a new mortgage with us.
As well as the new business in the table above, there were \u00a331.2bn (2022: \u00a324.9bn) of remortgages where we moved our customers with maturing mortgages
onto new ones. We also provided \u00a30.7bn (2022: \u00a31.2bn) of further advances and flexible mortgage drawdowns. 77% (2022: 81%) of customers with a maturing
mortgage were retained, which applied to mortgages four months post maturity, based on a 12-month average of retention rates to September 2023 and
December 2022 respectively.
2023 compared to 2022
In 2023, mortgage asset stock decreased across all sectors, with the stock borrower profile unchanged. Our new business also decreased, particularly in the Buy-to-
Let sector reflecting market conditions where landlords' appetite to expand their portfolios reduced. In 2023, we helped first-time buyers buy their new home with
\u00a33.0bn of gross lending (2022: \u00a38.1bn).
Interest rate profile (audited)
The interest rate profile of our maturing mortgage asset stock was:
2023
2022
\u00a3m
%
\u00a3m
%
Fixed rate
153,207
89
163,622
89
Of which maturing:
\u2013 < 12 months
37,630
22
38,233
21
\u2013 Later than 1 year but no later than 3 years
65,502
38
38,213
21
\u2013 Later than 3 years but no later than 4 years
34,725
20
24,310
13
\u2013 Later than 4 years but no later than 5 years
10,977
6
24,888
14
\u2013 Later than 5 years
4,373
3
37,978
21
Variable rate
13,761
8
12,430
7
Standard Variable Rate (SVR)
3,915
2
5,645
3
Follow on Rate (FoR)
1,976
1
2,620
1
172,859
100
184,317
100
2023 compared to 2022
In 2023 , we continued to see customers refinance from reversion to fixed rate products influenced by rapid increases in interest rates, with a slight increase in
demand for variable rate products tracking the Bank of England base rate. We also saw more customers choosing shorter-term fixed rate products in 2023.
Geographical distribution (audited)
The geographical distribution of our mortgage asset stock and new business was:
Stock
New business
2023
2022
2023
2022
Region
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
London
44.0
47.0
2.9
8.3
Midlands and East Anglia
24.2
25.6
1.8
5.3
North
22.9
24.4
1.7
4.7
Northern Ireland
2.6
2.9
0.1
0.3
Scotland
6.4
6.8
0.6
1.2
South East excluding London
54.8
58.4
3.8
10.6
South West, Wales and other
18.0
19.2
1.3
3.7
172.9
184.3
12.2
34.1
2023 compared to 2022
The portfolio's geographical distribution continued to represent a broad footprint across the UK, with a concentration around London and the South East. The loan-
to-income multiple of mortgage lending in the year, based on average earnings of new business at inception, was 2.98 (2022: 3.35).
Mortgage loan size (audited)
The split of our mortgage asset by size was:
Mortgage loan size
2023
2022
>\u00a31.0m
2%
2%
\u00a30.5m to \u00a31.0m
10%
10%
\u00a30.25m to \u00a30.5m
31%
31%
<\u00a30.25m
57%
57%
Average loan size (stock) (1)
\u00a3187k
\u00a3183k
Average loan size (new business)
\u00a3228k
\u00a3237k
(1) Average initial advance of existing stock.
Loan-to-value analysis (audited)
This table shows the LTV distribution for the gross carrying amount and the related ECL of our total mortgage portfolio and Stage 3 mortgages, and new business.
We also show the collateral value and average LTV. We use our estimate of the property value at the balance sheet date and include fees that have been added to
the loan. For flexible products, we only include the drawn amount, not undrawn limits.
2023
2022
Stock
Stage 3
New
Stock
Stage 3
New
Total
ECL
Total
ECL
Business
Total
ECL
Total
ECL
Business
LTV
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Up to 50%
78,673
31
1,106
12
2,616
87,379
37
1,111
14
4,890
>50-60%
32,837
24
347
10
1,604
35,664
29
283
11
4,014
>60-70%
30,874
40
246
16
1,977
33,868
50
197
16
6,104
>70-80%
18,721
48
138
19
2,736
17,824
45
110
15
10,094
>80-90%
8,893
35
67
15
2,318
7,339
29
42
9
6,002
>90-100%
2,416
20
39
11
900
1,873
17
32
9
2,999
>100%
445
44
65
25
13
370
45
52
21
24
172,859
242
2,008
108
12,164
184,317
252
1,827
95
34,127
Collateral value (1)
172,803
1,997
12,164
184,269
1,818
34,126
%
%
%
%
%
%
Average LTV - Balance weighted(2)
51
49
66
50
47
69
(1) Collateral value is limited to the balance of each loan and excludes the impact of any over-collateralisation. Includes collateral against loans in negative equity of \u00a3389m (2022: \u00a3323m).
(2) Balance weighted LTV = (Loan 1 balance x (Loan 1 Balance/Loan 1 latest property valuation) + (Loan 2 balance x (loan 2 balance/Loan 2 latest property valuation) +\u00a0 ...) /(Loan 1 balance + Loan 2 balance+...).
The balance weighted average LTV of new business in the period in London was 65% (2022: 66%). \u00a345bn of new business and internal transfers were re-priced in
2023 and a further \u00a339bn will reach the end of the incentive period by the end of 2024. Arrears from recent internal transfers remain low, with less than 1% of
customers entering arrears within 12 months. 85% of lending is prime UK retail mortgages with an average new loan size of \u00a3228k (2022: \u00a3237k). Unsecured retail
constitutes 3% of lending.
2023 compared to 2022
There were no significant changes in collateral quality in 2023. Despite economic pressures, balance weighted average LTVs of stock were broadly flat over the
period. Balance weighted average LTVs of new business reduced in 2023 driven by proportionally more lending at LTV<=60%. We monitor the profile of new
lending and take action as needed to ensure the LTV mix of completions is in line with our risk appetite.
Credit performance (audited)
2023
2022
\u00a3m
\u00a3m
Mortgage loans and advances to customers
172,859
184,317
of which:
\u2013 Stage 1
152,975
169,066
\u2013 Stage 2
17,876
13,424
\u2013 Stage 3
2,008
1,827
Loss allowances(1)
242
251
%
%
Stage 1 ratio(2)
88.50
91.73
Stage 2 ratio(2)
10.34
7.28
Stage 3 ratio
1.17
1.00
(1) The ECL allowance is for both on and off\u2013balance sheet exposures.
(2) Stage 1/Stage 2 exposures as a percentage of customer loans.
Movement in total exposures and the corresponding ECL (audited)
The following tables show changes in total on and off-balance sheet exposures and ECL in the period. The footnotes to the Santander UK group level table on page
67 also apply to these tables.
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
176,965
25
13,533
131
1,848
95
192,346
251
Transfers from Stage 1 to Stage 2(3)
(10,791)
(3)
10,791
3
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
4,778
30
(4,778)
(30)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(335)
(3)
(566)
(15)
901
18
\u2014
\u2014
Transfers from Stage 3(3)
14
\u2014
277
9
(291)
(9)
\u2014
\u2014
Transfers of financial instruments
(6,334)
24
5,724
(33)
610
9
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(28)
\u2014
40
\u2014
22
\u2014
34
Change in economic scenarios(2)
\u2014
\u2014
\u2014
(2)
\u2014
3
\u2014
1
New lending and assets purchased(5)
12,947
4
154
3
5
1
13,106
8
Redemptions, repayments and assets sold(7)
(23,081)
(6)
(1,752)
(12)
(417)
(14)
(25,250)
(32)
Changes in risk parameters and other movements(6)
666
5
338
(17)
36
3
1,040
(9)
Assets written off (7)
\u2014
\u2014
\u2014
\u2014
(54)
(11)
(54)
(11)
At 31 December 2023
161,163
24
17,997
110
2,028
108
181,188
242
Net movement in the period
(15,802)
(1)
4,464
(21)
180
13
(11,158)
(9)
ECL (release)/charge to the Income Statement
(1)
(21)
24
2
Less: Discount unwind
\u2014
\u2014
(3)
(3)
Less: Recoveries net of collection costs
\u2014
\u2014
28
28
Total ECL (release)/charge to the Income Statement
(1)
(21)
49
27
At 1 January 2022
177,696
13
11,152
88
1,815
89
190,663
190
Transfers from Stage 1 to Stage 2(3)
(5,834)
(1)
5,834
1
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
2,961
16
(2,961)
(16)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(278)
(2)
(448)
(11)
726
13
\u2014
\u2014
Transfers from Stage 3(3)
4
\u2014
279
9
(283)
(9)
\u2014
\u2014
Transfers of financial instruments
(3,147)
13
2,704
(17)
443
4
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(15)
\u2014
40
\u2014
8
\u2014
33
Change in economic scenarios(2)
\u2014
1
\u2014
21
\u2014
2
\u2014
24
New lending and assets purchased(5)
35,028
7
529
11
1
\u2014
35,558
18
Redemptions, repayments and assets sold(7)
(32,565)
(3)
(1,229)
(11)
(415)
(12)
(34,209)
(26)
Changes in risk parameters and other movements(6)
(47)
9
377
(1)
14
7
344
15
Assets written off(7)
\u2014
\u2014
\u2014
\u2014
(10)
(3)
(10)
(3)
At 31 December 2022
176,965
25
13,533
131
1,848
95
192,346
251
Net movement in the period
(731)
12
2,381
43
33
6
1,683
61
ECL charge/(release) to the Income Statement
12
43
9
64
Less: Discount unwind
\u2014
\u2014
(2)
(2)
Less: Recoveries net of collection costs
\u2014
\u2014
(1)
(1)
Total ECL charge/(release) to the Income Statement
12
43
6
61
Loan modifications (audited)
Forbearance(1)
The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.
2023
2022
\u00a3m
\u00a3m
Financial assets modified in the period:
\u2013 Amortised cost before modification
346
315
\u2013 Net modification loss
5
7
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12 months ECL in the period
79
91
The balances at 31 December 2023 and 31 December 2022, analysed by their staging at the period-end and the forbearance we applied, were:
Capitalisation
Term
extension
Interest-only
Concessionary
interest rate
Total
Loss
allowances
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Stage 2
325
386
211
11
933
7
Stage 3
284
150
64
171
669
30
609
536
275
182
1,602
37
Proportion of portfolio
0.3%
0.3%
0.2%
0.1%
0.9%
2022
Stage 2
309
319
240
6
874
11
Stage 3
298
140
65
190
693
31
607
459
305
196
1,567
42
Proportion of portfolio
0.3%
0.3%
0.2%
0.1%
0.9%
(1) We base forbearance type on the first forbearance on the accounts.
At 31 December 2023, the proportion of the mortgage portfolio in forbearance remained flat at 0.9% (2022: 0.9%) and the proportion of accounts in forbearance
for more than six months that had made their last six months\u2019 contractual payments was 81% (2022: 85%). The weighted average LTV of all accounts in
forbearance was 44% (2022: 43%) compared to the weighted average portfolio LTV of 51% (2022: 50%)
At 31 December 2023, the carrying value of mortgages classified as multiple forbearance decreased to \u00a3121m (2022: \u00a3152m).
Credit performance (audited)
Portfolio of particular interest(1)
Total
Interest-only
Part interest-
only, part
repayment (2)
Flexible
LTV >100%
Buy-to-let
Other
portfolio
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage portfolio
172,859
38,825
12,584
5,418
445
15,585
118,981
\u2013 Stage 1
152,975
32,012
10,896
4,420
276
13,887
107,834
\u2013 Stage 2
17,876
5,829
1,449
744
104
1,647
10,402
\u2013 Stage 3
2,008
984
239
254
65
51
745
Stage 3 ratio
1.17%
2.55%
1.90%
5.01%
14.57%
0.33%
0.63%
Properties in possession
23
12
3
2
5
1
8
Balance weighted LTV (indexed)
51%
48%
51%
37%
116%
60%
53%
2022
Mortgage portfolio
184,317
40,825
13,510
6,765
370
16,799
126,996
\u2013 Stage 1
169,066
35,702
12,143
5,713
217
15,884
118,507
\u2013 Stage 2
13,424
4,250
1,149
839
101
876
7,791
\u2013 Stage 3
1,827
873
218
213
52
39
698
Stage 3 ratio
1.00%
2.16%
1.62%
3.45%
13.94%
0.23%
0.55%
Properties in possession
47
18
8
3
7
1
16
Balance weighted LTV (indexed)
50%
47%
49%
36%
117%
58%
52%
(1) Where a loan falls into more than one category, we include it in all the categories that apply. As a result, the sum of the mortgages in the segments of particular interest and the other portfolio does not agree to the
total mortgage portfolio.
(2) Mortgage balance includes both the interest-only part of \u00a39,531m ( 2022: \u00a310,010m) and the non-interest-only part of the loan.
2023 compared to 2022
In 2023, the combined total proportion of interest-only loans, part interest-only, part repayment loans and flexible loans was broadly stable at 32.9% (2022:
33.1%).
BTL mortgage balances decreased \u00a31.2bn to \u00a315.6bn (2022: \u00a316.8bn) driven by our strategy to deleverage our mortgage portfolio and changes in the market
dynamic. In 2023, the balance weighted average LTV of mortgage total new BTL lending was 58% (2022: 67%).
Forbearance (1) \u00a0 (audited)
The balances at 31 December 2023 and 31 December 2022 were:
Interest-only(2)
Flexible
LTV >100%
Buy-to-Let
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Total
365
74
12
23
\u2013 Stage 2
216
55
3
16
\u2013 Stage 3
149
19
9
7
2022
Total
290
36
9
15
\u2013 Stage 2
111
19
\u2014
11
\u2013 Stage 3
179
17
9
4
(1) Where a loan falls into more than one category, we have included it in all the categories that apply.
(2) Comprises full interest-only loans and part interest-only, part repayment loans.
2023 compared to 2022
Forbearance levels increased slightly although were lower than expected in 2023, with customers having the option to move to a temporary interest-only
conversion under the Mortgage Charter.
Credit performance (audited)
Business
banking
Other unsecured
Personal
loans
Credit
cards
Overdrafts
Total other
unsecured
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans and advances to customers
1,819
2,064
2,674
471
5,209
7,028
of which:
\u2013 Stage 1
1,574
1,743
2,283
207
4,233
5,807
\u2013 Stage 2
115
294
345
236
875
990
\u2013 Stage 3
130
27
46
28
101
231
Loss allowances(1)
16
66
140
78
284
300
Stage 3 undrawn exposures
2
37
39
Stage 3 ratio
7.25%
2.65%
3.83%
Gross write-offs (12 months)
11
119
130
2022
Loans and advances to customers
2,519
1,982
2,558
461
5,001
7,520
of which:
\u2013 Stage 1
2,223
1,730
2,192
155
4,077
6,300
\u2013 Stage 2
133
231
329
282
842
975
\u2013 Stage 3
163
21
37
24
82
245
Loss allowances(1)
19
62
130
82
274
293
Stage 3 undrawn exposures
3
32
35
Stage 3 ratio
6.58%
2.27%
3.71%
Gross write-offs (12 months)
11
99
110
(1) The ECL allowance is for both on and off\u2013balance sheet exposures.
2023 compared to 2022
Business Banking balances were lower, mainly due to reductions in the Bounce Back Loans (BBL) portfolio. Stage 3 assets reduced, although this had a minimal
impact on write-offs as the reduction in assets was mainly due to the BBLs where the 100% government guarantee was claimed. Stage 2 and 3 unsecured assets
and write-offs increased reflecting the current economic environment. However, these rates are yet to exceed long run averages. 55% (2022: 55%) of credit card
customers repay their balance in full each month and UPL average customer balances remained unchanged at \u00a36,000.
Loan modifications (audited)
Forbearance
The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.
Business
banking
Credit cards
Overdrafts
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial assets modified in the period:
\u2013 Amortised cost before modification
\u2014
13
8
21
\u2013 Net modification loss
\u2014
14
6
20
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12m ECL in the period
\u2014
2
1
3
2022
Financial assets modified in the period:
\u2013 Amortised cost before modification
\u2014
7
7
14
\u2013 Net modification loss
\u2014
7
6
13
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12m ECL in the period
\u2014
3
1
4
The balances at 31 December 2023 and 31 December 2022 were:
Other unsecured
Business
banking
Personal loans
Credit cards
Overdrafts
Total other
unsecured
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Total
3
1
47
19
67
70
\u2013 Stage 2
\u2014
1
5
2
8
8
\u2013 Stage 3
3
\u2014
42
17
59
62
2022
Total
3
1
34
16
51
54
\u2013 Stage 2
\u2014
1
6
2
9
9
\u2013 Stage 3
3
\u2014
28
14
42
45
Other loan modifications
There were no other loan modifications made in 2023 and 2022.
Credit performance (audited)
2023
2022
\u00a3m
\u00a3m
Loans and advances to customers
5,228
5,384
of which:
\u2013 Stage 1
4,870
5,005
\u2013 Stage 2
330
350
\u2013 Stage 3
28
29
Loss allowances(1)
70
67
Stage 3 ratio
0.53%
0.54 %
Gross write-offs
23
19
(1) The ECL allowance is for both on and off\u2013balance sheet exposures.
2023 compared to 2022
In 2023, we maintained our prudent Consumer (auto) finance underwriting criteria. The product mix was broadly unchanged, with wholesale balances increasing
slightly.
At 31 December 2023, Consumer (auto) finance gross lending (new business) was \u00a32,055m (2022: \u00a32,519m). Wholesale loans (Stock finance) to car dealerships at
31 December 2023 were approximately 9.9% (2022: 10.1%) of the Consumer loan book. At 31 December 2023, the average Consumer (auto) finance loan size was
\u00a317,308 (2022: \u00a317,256).
The risk profile was stable in terms of our credit scoring acceptance policies. The overall risk performance was good with the vast majority of customers paying.
Movement in total exposures and the corresponding ECL (audited)
The following tables show changes in total on and off-balance sheet exposures and ECL in the period. The footnotes to the Santander UK group level table on page
67 also apply to these tables.
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
23,838
83
3,888
166
572
145
28,298
394
Transfers from Stage 1 to Stage 2(3)
(1,376)
(1)
1,376
1
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
512
10
(512)
(10)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(118)
(3)
(258)
(8)
376
11
\u2014
\u2014
Transfers from Stage 3(3)
1
\u2014
9
1
(10)
(1)
\u2014
\u2014
Transfers of financial instruments
(981)
6
615
(16)
366
10
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(16)
\u2014
29
\u2014
64
\u2014
77
Change in economic scenarios(2)
\u2014
30
\u2014
(30)
\u2014
6
\u2014
6
New lending and assets purchased(5)
7,257
5
132
6
38
10
7,427
21
Redemptions, repayments and assets sold(7)
(6,713)
(13)
(869)
(10)
(193)
(23)
(7,775)
(46)
Changes in risk parameters and other movements(6)
(834)
(19)
199
(13)
137
28
(498)
(4)
Assets written off (7)
\u2014
\u2014
\u2014
\u2014
(175)
(68)
(175)
(68)
At 31 December 2023
22,567
76
3,965
132
745
172
27,277
380
Net movement in the period
(1,271)
(7)
77
(34)
173
27
(1,021)
(14)
ECL (release)/charge to the Income Statement
(7)
(34)
95
54
Less: Discount unwind
\u2014
\u2014
(9)
(9)
Less: Recoveries net of collection costs
\u2014
\u2014
(5)
(5)
Total ECL (release)/charge to the Income Statement
(7)
(34)
81
40
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2022
20,604
50
5,914
127
827
248
27,345
425
Transfers from Stage 1 to Stage 2(3)
(2,195)
(14)
2,195
14
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
4,023
92
(4,023)
(92)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(172)
(1)
(111)
(13)
283
14
\u2014
\u2014
Transfers from Stage 3(3)
\u2014
\u2014
463
135
(463)
(135)
\u2014
\u2014
Transfers of financial instruments
1,656
77
(1,476)
44
(180)
(121)
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(72)
\u2014
(41)
\u2014
61
\u2014
(52)
Change in economic scenarios(2)
\u2014
38
\u2014
76
\u2014
\u2014
\u2014
114
New lending and assets purchased(5)
8,629
16
228
19
43
12
8,900
47
Redemptions, repayments and assets sold(7)
(9,019)
(15)
(584)
(32)
(53)
(17)
(9,656)
(64)
Changes in risk parameters and other movements(6)
1,968
(11)
(194)
(27)
21
(14)
1,795
(52)
Assets written off (7)
\u2014
\u2014
\u2014
\u2014
(86)
(24)
(86)
(24)
At 31 December 2022
23,838
83
3,888
166
572
145
28,298
394
Net movement in the period
3,234
33
(2,026)
39
(255)
(103)
953
(31)
ECL charge/(release) to the Income Statement
33
39
(79)
(7)
Less: Discount unwind
\u2014
\u2014
(3)
(3)
Less: Recoveries net of collection costs
\u2014
\u2014
42
42
Total ECL charge/(release) to the Income Statement
33
39
(40)
32
Rating distribution (audited)
These tables show our credit risk exposure according to our internal rating scale (see the \u2018Santander UK group level \u2013 credit risk review\u2019 section) for each portfolio.
On this scale, the higher the rating, the better the quality of the counterparty.
Santander UK risk grade
9
8
7
6
5
4
3 to 1
Other(1)
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
SME and mid corporate
\u2014
166
911
2,970
3,497
3,575
1,439
118
12,676
Commercial Real Estate
\u2014
\u2014
360
1,684
2,132
972
209
1
5,358
Social Housing
43
3,032
4,881
\u2014
\u2014
\u2014
\u2014
\u2014
7,956
43
3,198
6,152
4,654
5,629
4,547
1,648
119
25,990
Of which:
Stage 1
43
3,130
6,152
4,618
4,715
2,363
141
118
21,280
Stage 2
\u2014
68
\u2014
36
914
2,184
762
1
3,965
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
745
\u2014
745
2022
SME and mid corporate
\u2014
336
923
2,341
3,299
5,327
1,791
106
14,123
Commercial Real Estate
\u2014
2
111
2,044
2,128
936
185
1
5,407
Social Housing
44
4,028
3,956
6
\u2014
\u2014
\u2014
\u2014
8,034
44
4,366
4,990
4,391
5,427
6,263
1,976
107
27,564
Of which:
Stage 1
39
4,364
4,944
4,202
4,773
4,289
386
107
23,104
Stage 2
5
2
46
189
654
1,974
1,018
\u2014
3,888
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
572
\u2014
572
(1) Smaller exposures mainly in the commercial mortgage portfolio. We use scorecards for them, instead of a rating model.
2023 compared to 2022
In 2023, committed exposure reduced by 5.7% , driven by reductions in the SME and mid corporate portfolios, which was down by 10.2%. The rating distribution
saw an improvement in the SME and mid corporate portfolios, with Commercial Real Estate broadly stable.
Geographical distribution (audited)
We typically classify geographical location according to the counterparty\u2019s country of domicile unless a full risk transfer guarantee is in place, in which case we use
the guarantor\u2019s country of domicile instead. At 31 December 2023 and 31 December 2022 this is mainly focused in the UK.
Credit risk mitigation (audited)
Gross exposure
Collateral
Net exposure
Stage 3
Stage 3
Stage 3
2023
\u00a3m
\u00a3m
\u00a3m
SME and mid corporate
627
190
437
Commercial Real Estate
118
28
90
745
218
527
2022
SME and mid corporate
513
169
344
Commercial Real Estate
59
30
29
572
199
373
Credit performance (audited)
We monitor exposures that show potentially higher risk characteristics using our Watchlist process. The table below shows the exposures we monitor, and those
we classify as Stage 3 by portfolio at 31 December 2023 and 31 December 2022.
Committed exposure
Watchlist
Fully
performing
Enhanced
monitoring
Proactive
management
Stage 3
Total(1)
Loss
allowances
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
SME and mid corporate
10,140
462
1,447
627
12,676
341
Commercial Real Estate
4,734
10
496
118
5,358
39
Social Housing
7,752
\u2014
204
\u2014
7,956
\u2014
22,626
472
2,147
745
25,990
380
2022
SME and mid corporate
11,796
431
1,383
513
14,123
355
Commercial Real Estate
4,765
103
480
59
5,407
38
Social Housing
7,978
46
10
\u2014
8,034
1
24,539
580
1,873
572
27,564
394
(1) Includes committed facilities and derivatives.
2023 compared to 2022
In 2023, Watchlist exposures increased, however the overall quality improved with reductions seen in Enhanced Monitoring of 18.6%. An increase in Proactive
Management of 14.6% was driven by a small number of larger exposures in Social Housing which have been downgraded to Proactive Management following
concerns raised by the Social Housing regulators rather than credit concerns.
Loan modifications (audited)
Forbearance
The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.
2023
2022
\u00a3m
\u00a3m
Financial assets modified in the period:
\u2013 Amortised cost before modification
189
240
\u2013 Net modification loss
10
8
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12-month ECL in the period
27
15
We only make forbearance arrangements for lending to customers. The balances at 31 December 2023 and 31 December 2022, analysed by their staging at the
period\u2013end and the forbearance we applied, were:
2023
2022
\u00a3m
\u00a3m
Stock(1)
\u2013 Term extension
113
98
\u2013 Interest-only
215
238
\u2013 Other payment rescheduling
264
219
592
555
Of which:
\u2013 Stage 1
2
17
\u2013 Stage 2
159
173
\u2013 Stage 3
431
365
592
555
Proportion of portfolio
2.3%
2.0%
(1) We base forbearance type on the first forbearance we applied. Tables only show accounts open at the period-end. Amounts are drawn balances and include off balance sheet balances.
Committed exposures
Credit risk arises on both on- and off\u2013balance sheet transactions, e.g. derivatives.
Rating distribution (audited)
These tables show our credit risk exposure according to our internal rating scale (see the \u2018Santander UK group level \u2013 credit risk review\u2019 section) for each portfolio.
On this scale, the higher the rating, the better the quality of the counterparty.
Santander UK risk grade
9
8
7
6
5
4
3 to 1
Other(1)
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Sovereign and Supranational
42,552
1,896
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44,448
Structured Products
170
1,470
787
\u2014
\u2014
\u2014
\u2014
\u2014
2,427
Financial Institutions
1,167
665
393
7
\u2014
\u2014
\u2014
\u2014
2,232
43,889
4,031
1,180
7
\u2014
\u2014
\u2014
\u2014
49,107
Of which:
Stage 1
43,889
4,031
1,180
7
\u2014
\u2014
\u2014
\u2014
49,107
Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2022
Sovereign and Supranational
47,040
1,077
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
48,117
Structured Products
136
1,162
875
\u2014
\u2014
\u2014
\u2014
\u2014
2,173
Financial Institutions
1,191
672
521
26
\u2014
\u2014
\u2014
\u2014
2,410
48,367
2,911
1,396
26
\u2014
\u2014
\u2014
\u2014
52,700
Of which:
Stage 1
48,367
2,911
1,396
26
\u2014
\u2014
\u2014
\u2014
52,700
Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
(1) Smaller exposures mainly in the commercial mortgage portfolio. We use scorecards for them, instead of a rating model.
2023 compared to 2022
Committed exposures reduced by 6.8% mainly driven by UK Sovereign and Supranational exposures, as part of normal liquid asset portfolio management, which
reduced by 7.6%. The portfolio profile remained short-term, reflecting the purpose of the holdings.
Geographical distribution (audited)
We typically classify geographical location according to the counterparty\u2019s country of domicile unless a full risk transfer guarantee is in place, in which case we use
the guarantor\u2019s country of domicile instead.
2023
2022
UK
Europe
US
Rest of
World
Total
UK
Europe
US
Rest of
World
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Sovereign and Supranational
39,581
2,063
\u2014
2,804
44,448
43,936
1,886
83
2,212
48,117
Structured Products
1,430
243
\u2014
754
2,427
1,379
422
4
368
2,173
Financial Institutions
884
968
186
194
2,232
988
1,005
230
187
2,410
41,895
3,274
186
3,752
49,107
46,303
3,313
317
2,767
52,700
Credit performance (audited)
We monitor exposures that show potentially higher risk characteristics using our Watchlist process. In Corporate Centre, committed exposures were all fully
performing at 31 December 2023 and 31 December 2022.
Loan modifications (audited)
There were no loan modifications made in 2023 and 2022.
OUR KEY LIQUIDITY RISKS (audited)
Through our Liquidity Risk Appetite (LRA) framework, we manage our funding or structural contingent and market liquidity risks wherever they arise. This can be in
retail and corporate deposit outflows, wholesale secured and unsecured liquidity outflows and off-balance sheet activities. Other risks our framework covers
include funding concentrations, intra-day cash flows, intra-group commitments and support, franchise retention and cross currency risk.
Our main sources of liquidity
Customer deposits finance most of our customer lending. Although these funds are mostly callable, in practice they give us a stable and predictable core of funding.
This is due to the nature of retail accounts and the breadth of our retail customer relationships.
We have a strong wholesale funding investor base, diversified across product types and geographies. Through the wholesale markets, we have active relationships
in many sectors including banks, other financial institutions, corporates, pensions and investment funds. We access the wholesale funding markets through the
issuance of capital, senior unsecured debt, covered bonds, structured notes and short-term funding. We also access these markets through securitisations of certain
assets of Santander UK plc and our operating subsidiaries. For more on our programmes, see Notes 14, 26 and 27 in the Consolidated Financial Statements.
We generate funding on the strength of our own balance sheet, our own profitability and our own network of investors. In addition, we have access to UK
Government funding schemes. We comply with rules set by the PRA, other regulators, and Banco Santander standards. While we manage, consolidate and monitor
liquidity risk centrally, we also manage and monitor it in the business area it comes from.
Our main uses of liquidity
Our main uses of liquidity are to fund our lending in Retail and Business Banking, Consumer Finance and Corporate & Commercial Banking, to pay interest and
dividends, and to repay debt. Our ability to pay dividends depends on various factors. These include our regulatory capital needs, the level of our distributable
reserves, and our financial performance. We also use liquidity to pay for business combinations.
Risk mitigation (audited)
The Board aims to make our balance sheet resilient at all times and for it to be perceived as such by stakeholders. This preserves our short and long-term viability.
The Board recognises that as we are involved in maturity transformation, we cannot hold enough liquidity to cover all possible stress scenarios. The Board requires
us to hold enough liquidity to make sure we will survive three plausible but severe stress scenarios (our LRA stress test, described above). We do this by maintaining
a prudent balance sheet structure and approved liquid resources.
Recovery and Resolution framework
The CFO is the accountable SMF for recovery and resolution and the related work is managed by the CFO division. They are overseen by the Board Audit Committee
and the Board. We review and refresh our recovery plan each year. It sets out the risks, the indicators we use to monitor those risks, and the actions that are
available to mitigate capital, liquidity or combined stress event. We are confident that we have sufficient credible and executable options to respond to a wide range
of stresses, be they market-wide or idiosyncratic, in a timely and effective manner. Recovery indicators are both qualitative and quantitative and we have embedded
them into our risk frameworks. We monitor recovery capacity, headroom to recovery triggers and recovery indicators regularly. If needed, we would invoke recovery
early to mitigate the effects of a stress and restore our financial position and balance sheet strength.\u00a0
Our resolution capabilities are underpinned by comprehensive governance, testing and assurance arrangements, which seek to ensure that our resolution readiness
is maintained and enhanced on an ongoing basis. In October 2023, we submitted our second resolvability self-assessment report to the PRA. This builds on the first
self-assessment report submitted in October 2021, as summarised in our June 2022 resolvability public disclosure. The next resolvability public disclosures by the
Bank of England and Santander UK are due in June 2024.
Risk monitoring and reporting (audited)
We monitor liquidity risk daily, weekly and monthly. We do this through different committees and levels of management, including ALCO and the BRC.
Reconciliation of wholesale funding to the balance sheet (audited)
This table reconciles our wholesale funding to our balance sheet at 31 December 2023 and 31 December 2022.
Balance sheet line item
Funding
analysis
Deposits
by banks (1)
Deposits
by customers (2)
Repurchase
agreements
- non
trading
Financial
liabilities
designated
at fair value
Debt
securities
in issue
Subordinated
liabilities
Other equity
instruments (3)
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Deposits by banks
1.1
1.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Certificates of deposit and commercial paper
4.3
\u2014
\u2014
\u2014
\u2014
4.3
\u2014
\u2014
Senior unsecured \u2013 public benchmark
12.7
\u2014
1.6
\u2014
\u2014
11.1
\u2014
\u2014
\u2013 privately placed
0.8
\u2014
0.1
\u2014
0.6
0.1
\u2014
\u2014
Covered bonds
14.8
\u2014
\u2014
\u2014
\u2014
14.8
\u2014
\u2014
Securitisation and structured issuance
2.7
\u2014
\u2014
\u2014
\u2014
2.7
\u2014
\u2014
TFSME
17.0
17.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Subordinated liabilities and equity
4.2
\u2014
\u2014
\u2014
\u2014
\u2014
2.2
2.0
Total wholesale funding
57.6
18.1
1.7
\u2014
0.6
33.0
2.2
2.0
Repos
8.4
\u2014
\u2014
8.4
\u2014
\u2014
\u2014
\u2014
Foreign exchange and hedge accounting
1.1
\u2014
\u2014
\u2014
\u2014
0.9
0.2
\u2014
Other
2.5
2.2
\u2014
\u2014
0.3
\u2014
\u2014
\u2014
Balance sheet total
69.6
20.3
1.7
8.4
0.9
33.9
2.4
2.0
2022
Deposits by banks
0.5
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Certificates of deposit and commercial paper
4.7
\u2014
\u2014
\u2014
\u2014
4.7
\u2014
\u2014
Senior unsecured \u2013 public benchmark
14.3
\u2014
4.6
\u2014
\u2014
9.7
\u2014
\u2013 privately placed
0.6
\u2014
0.1
\u2014
0.4
0.1
\u2014
\u2014
Covered bonds
14.9
\u2014
\u2014
\u2014
\u2014
14.9
\u2014
\u2014
Securitisation and structured issuance
1.0
\u2014
\u2014
\u2014
\u2014
1.0
\u2014
\u2014
TFSME
25.0
25.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Subordinated liabilities and equity
3.9
\u2014
\u2014
\u2014
\u2014
\u2014
1.9
2.0
Total wholesale funding
64.9
25.5
4.7
\u2014
0.4
30.4
1.9
2.0
Repos
8.0
\u2014
\u2014
8.0
\u2014
\u2014
\u2014
\u2014
Foreign exchange and hedge accounting
1.6
\u2014
0.1
\u2014
\u2014
1.1
0.4
\u2014
Other
3.4
3.0
\u2014
\u2014
0.4
\u2014
\u2014
\u2014
Balance sheet total
77.9
28.5
4.8
8.0
0.8
31.5
2.3
2.0
(1)\u00a0 \u00a0 Consists of Perpetual Capital Securities. See Note 33 to the Consolidated Financial Statements.
(2)\u00a0 \u00a0 This is included in our balance sheet total of 190,850m(2022: \u00a3195,568m).
(3)\u00a0 \u00a0 Other consists of items in the course of transmission and other deposits. See Note 24 to the Consolidated Financial Statements.
Maturity profile of wholesale funding (audited)
This table shows our main sources of wholesale funding. It does not include securities finance agreements. The table is based on exchange rates at issue and
scheduled repayments and call dates. It does not reflect the final contractual maturity of the funding.
For details of the maturities of financial liabilities and off-balance sheet commitments, see Note 39 to the Consolidated Financial Statements .
\u2264 1
month
>1 and \u2264 3
months
>3 and \u2264 6
months
>6 and \u2264 9
months
>9 and \u2264
12 months
Sub-total
\u2264 1 year
>1 and
\u2264 2 years
>2 and
\u2264 5 years
>5 years
Total
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Downstreamed from Santander UK Group Holdings plc to Santander UK plc(1)
Senior unsecured \u2013 public benchmark
\u2014
1.6
\u2014
\u2014
\u2014
1.6
2.4
6.8
0.4
11.2
\u2013 privately placed
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
Subordinated liabilities and equity (incl. AT1)
\u2014
\u2014
0.5
\u2014
\u2014
0.5
0.8
1.3
0.9
3.5
\u2014
1.6
0.5
\u2014
\u2014
2.1
3.2
8.2
1.3
14.8
Other Santander UK plc
Deposits by banks
0.3
0.8
\u2014
\u2014
\u2014
1.1
\u2014
\u2014
\u2014
1.1
Certificates of deposit and commercial paper
1.0
3.3
\u2014
\u2014
\u2014
4.3
\u2014
\u2014
\u2014
4.3
Senior unsecured \u2013 public benchmark
\u2014
0.6
0.2
\u2014
\u2014
0.8
0.4
\u2014
0.3
1.5
\u2013 privately placed
\u2014
\u2014
\u2014
0.1
\u2014
0.1
0.1
0.2
0.3
0.7
Covered bonds
0.1
1.0
0.9
0.4
1.0
3.4
1.1
9.2
1.1
14.8
Securitisation & structured issuance(2)
\u2014
\u2014
\u2014
\u2014
0.1
0.1
\u2014
2.1
\u2014
2.2
TFSME
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
17.0
\u2014
\u2014
17.0
Subordinated liabilities
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.7
0.7
1.4
5.7
1.1
0.5
1.1
9.8
18.6
11.5
2.4
42.3
Other group entities
Securitisation & structured issuance(3)
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\u2014
\u2014
0.5
31 December 2023
1.4
7.3
1.6
0.5
1.1
11.9
22.3
19.7
3.7
57.6
Of which:
\u2013 Secured
0.1
1.0
0.9
0.4
1.1
3.5
18.6
11.3
1.1
34.5
\u2013 Unsecured
1.3
6.3
0.7
0.1
\u2014
8.4
3.7
8.4
2.6
23.1
2022
Total at 31 December 2022
2.6
5.2
0.5
1.5
1.2
11.0
6.6
42.2
5.1
64.9
Of which:
\u2013 Secured
0.1
1.0
0.2
0.9
\u2014
2.2
3.5
34.0
1.2
40.9
\u2013 Unsecured
2.5
4.2
0.3
0.6
1.2
8.8
3.1
8.2
3.9
24.0
(1) 96% of senior unsecured debt issued from Santander UK Group Holdings plc has been downstreamed to Santander UK plc as \u2018secondary non-preferential debt\u2019 in line with the guidelines from the Bank of England
for Internal MREL.
(2) Includes funding from mortgage-backed securitisation vehicles where Santander UK plc is the asset originator.
(3) Includes funding from asset-backed securitisation vehicles where entities other than Santander UK plc are the asset originator.
2023 compared to 2022
Together with our immediate parent, Santander UK Group Holdings plc, our overall funding strategy remains to develop and sustain a diversified funding base. We
also need to fulfil regulatory requirements as well as support our credit ratings. We have stable and diversified wholesale funding programmes.
We repaid \u00a38.0bn of TFSME in 2023 as planned, with \u00a317.0bn outstanding.
At 31 December 2023, 79% (2022:83%) of wholesale funding had a maturity of greater than one year, with an overall residual duration of 35 months (2022: 37
months).
Currency composition of wholesale funds (audited)
This table shows our wholesale funding by major currency at 31 December 2023 and 31 December 2022.
2023
2022
Sterling
US Dollar
Euro
Other
Sterling
US Dollar
Euro
Other
%
%
%
%
%
%
%
%
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
Senior unsecured \u2013 public benchmark
23
60
17
\u2014
18
58
24
\u2014
\u2013 privately placed
\u2014
\u2014
\u2014
100
\u2014
\u2014
\u2014
100
Subordinated liabilities and equity (incl. AT1)
87
13
\u2014
\u2014
75
25
\u2014
\u2014
38
48
13
1
27
52
20
1
Other Santander UK plc
Deposits by banks
1
97
2
\u2014
29
71
\u2014
\u2014
Certificates of deposit and commercial paper
29
70
\u2014
1
56
42
2
\u2014
Senior unsecured \u2013 public benchmark
21
56
23
\u2014
18
62
20
\u2014
\u2013 privately placed
98
\u2014
2
\u2014
95
\u2014
5
\u2014
Covered bonds
54
5
39
2
43
12
45
\u2014
Securitisation & structured issuance
100
\u2014
\u2014
\u2014
100
\u2014
\u2014
\u2014
TFSME
100
\u2014
\u2014
\u2014
100
\u2014
\u2014
\u2014
Subordinated liabilities
76
24
\u2014
\u2014
48
52
\u2014
\u2014
71
14
15
\u2014
74
12
14
\u2014
Other group entities
Securitisation & structured issuance
100
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Total
63
23
14
\u2014
63
21
16
\u2014
Term issuance (audited)
In 2023, our external term issuance (sterling equivalent) was:
Sterling
US Dollar
Euro
Other
2023
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
Senior unsecured \u2013 public benchmark
0.4
1.1
\u2014
\u2014
1.5
3.9
Subordinated debt and equity (inc. AT1)
1.1
1.1
0.8
1.5
1.1
\u2014
\u2014
2.6
4.7
Other Santander UK plc
Securitisations and other secured funding
1.5
\u2014
\u2014
\u2014
1.5
0.6
Covered bonds
1.5
\u2014
\u2014
0.3
1.8
4.0
Senior unsecured \u2013 public benchmark
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Senior unsecured \u2013 privately placed
0.3
\u2014
\u2014
\u2014
0.3
0.1
3.3
\u2014
\u2014
0.3
3.6
4.7
Other group entities
Securitisations
0.5
\u2014
\u2014
\u2014
0.5
\u2014
Total gross issuances
5.3
1.1
\u2014
0.3
6.7
9.4
\u00a0
In 2023 we issued c\u00a35.6bn medium-term funding across a range of currencies, including c\u00a31.5bn of issuance to Santander UK Group Holdings plc and c\u00a34.1bn of
other secured issuance. We also issued \u00a31.1bn of Tier 2 securities which were bought by Santander UK Group Holdings plc.
On-balance sheet encumbered and unencumbered assets (audited)
Encumbered with counterparties other than central banks
Assets
positioned
at central
banks(3)
Covered
bonds
Securitis-
ations
Other
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash and balances at central banks(1)(2)
\u2014
\u2014
1,480
1,480
831
Financial assets at FVTPL:
\u2013 Derivative financial instruments
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at FVTPL
\u2014
\u2014
\u2014
\u2014
\u2014
Financial assets at amortised cost:
\u2013 Loans and advances to customers
21,880
5,208
59
27,147
58,489
\u2013 Loans and advances to banks
\u2014
\u2014
254
254
\u2014
\u2013 Repurchase agreements \u2013 non trading
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at amortised cost
\u2014
\u2014
14
14
\u2014
Financial assets at FVOCI
\u2014
\u2014
5,183
5,183
\u2014
Interests in other entities
\u2014
\u2014
\u2014
\u2014
\u2014
Intangible assets
\u2014
\u2014
\u2014
\u2014
\u2014
Property, plant and equipment
\u2014
\u2014
\u2014
\u2014
\u2014
Current tax assets
\u2014
\u2014
\u2014
\u2014
\u2014
Retirement benefit assets
\u2014
\u2014
\u2014
\u2014
\u2014
Other assets
\u2014
\u2014
\u2014
\u2014
\u2014
Total assets
21,880
5,208
6,990
34,078
59,320
2022
Cash and balances at central banks(1)(2)
\u2014
\u2014
1,330
1,330
893
Financial assets at FVTPL:
\u2013 Derivative financial instruments
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at FVTPL
\u2014
\u2014
\u2014
\u2014
\u2014
Financial assets at amortised cost:
\u2013 Loans and advances to customers
21,304
2,851
56
24,211
68,535
\u2013 Loans and advances to banks
\u2014
\u2014
163
163
\u2014
\u2013 Repurchase agreements \u2013 non trading
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at amortised cost
\u2014
\u2014
48
48
\u2014
Financial assets at FVOCI
\u2014
\u2014
4,365
4,365
\u2014
Interests in other entities
\u2014
\u2014
\u2014
\u2014
\u2014
Intangible assets
\u2014
\u2014
\u2014
\u2014
\u2014
Property, plant and equipment
\u2014
\u2014
\u2014
\u2014
\u2014
Current tax assets
\u2014
\u2014
\u2014
\u2014
\u2014
Retirement benefit assets
\u2014
\u2014
\u2014
\u2014
\u2014
Other assets
\u2014
\u2014
\u2014
\u2014
\u2014
Total assets
21,304
2,851
5,962
30,117
69,428
(1) Encumbered cash and balances at central banks include minimum cash balances we have to hold at central banks for regulatory purposes.
(2) Readily realisable cash and balances at central banks are amounts held at central banks as part of our liquidity management activities.
(3) Comprises pre-positioned assets and encumbered assets.
Regulatory capital resources (audited)
This table shows our qualifying regulatory capital:
2023
2022
\u00a3m
\u00a3m
CET1 capital
10,443
10,799
AT1 capital
1,956
1,956
Tier 1 capital
12,399
12,755
Tier 2 capital
2,172
1,548
Total regulatory capital(1)
14,571
14,303
(1)Capital resources include a transitional IFRS 9 benefit at 31 December 2023 of \u00a343m (2022: \u00a319m).
OUR KEY NON-TRADED MARKET RISKS (audited)
Non-traded market risk mainly comes from providing banking products and services to our customers, as well as our structural balance sheet exposures. It arises in
all our business segments. In Retail and Business Banking, Consumer Finance and Corporate & Commercial Banking, it is a by-product of us writing customer
business and we transfer most of these risks to Corporate Centre to manage. The only types of non-traded market risk that we keep in Retail and Business Banking,
Consumer Finance and Corporate & Commercial Banking are short-term mismatches due to forecasting variances in prepayment and launch risk. This is where
customers repay their loans earlier than their expected maturity date or do not take the expected volume of new products. Corporate Centre also manages our
structural balance sheet exposures, such as foreign exchange and Income Statement volatility risk.
Our key non-traded market risks are:
Key risks
Description
Interest rate risk
Yield curve risk: comes from timing mismatches in repricing fixed and variable rate assets, liabilities and off-balance sheet instruments. It
also comes from investing non-rate sensitive liabilities in interest-earning assets.
Basis risk: comes from pricing assets using a different rate index to the liabilities that fund them. We are exposed to basis risks associated
with Bank of England bank rate, reserve rate linked assets we deposit with central banks, and the Sterling Overnight Index Average (SONIA)
rate. Since the cessation of LIBOR at the end of 2021, basis risk exposure has been immaterial.
Spread risk
Spread risk arises when the value of assets or liabilities which are accounted for at fair value (either through Other Comprehensive Income
or through Profit and Loss) are affected by changes in the credit spread. We measure these spreads as the difference between the discount
rate we use to value the asset or liability, and an underlying interest rate curve.
Foreign exchange risk
Our banking businesses operate mainly in sterling markets, so we do not create significant foreign exchange exposures. The only exception
to this is money we raise in foreign currencies. For more on this, see \u2018Wholesale funding\u2019 in the \u2018Liquidity risk\u2019 section.
Income statement
volatility risk
We measure most of the assets and liabilities in our banking book balance sheet at amortised cost. We sometimes manage their risk profile
by using derivatives. As all derivatives are accounted for at fair value, the mismatch in their accounting treatment can lead to volatility in our
Income Statement. This happens even if the derivative is an economic hedge of the asset or liability.
NII and EVE sensitivities (audited)
The calculations for NII and EVE sensitivities to interest rate moves involve many assumptions, including expected customer behaviour (such as early repayment of
loans) and the projected evolution and repricing of our balance sheet. These assumptions are a key part of our overall control framework, so we update and review
them regularly. Our NII and EVE sensitivities include the interest rate risk from all our banking book positions. Our banking book positions generate almost all our
reported net interest income.
Net Interest Income (NII) sensitivity
\u2013 NII sensitivity is an income-based measure we use to forecast the changes to interest income and interest expense in different scenarios. It gives us a combined impact on
net interest income over a given period \u2013 usually 12 or 36 months.
\u2013 We calculate NII sensitivity as the change in NII for a defined set of instantaneous parallel and non-parallel shifts in the yield curve.
EVE sensitivity
\u2013 We calculate EVE sensitivity as the change in the net present value of all the interest rate sensitive items in the banking book balance sheet for a defined set of
instantaneous parallel and non-parallel shifts in the yield curve.
Value at Risk (VaR) (audited)
VaR
\u2013 VaR indicates the losses that we might suffer because of unfavourable changes in the markets under normal (non-stressed) market conditions.
\u2013 We run a historical simulation using historical daily price moves to find how much we might lose, normally at a 99% confidence level.
The limitations of VaR
VaR is a useful and important market standard measure of risk, but it does have some limitations. These include:
\u2013 VaR assumes what happened in the past is a reliable way to predict what will happen in the future. This may not always be the case
\u2013 VaR is based on positions at the end of the business day so it doesn\u2019t include intra-day positions
\u2013 VaR does not predict how big the loss could be on the 1% of trading days that it is greater than the VaR
\u2013 Using a time horizon of one day means VaR does not tell us everything about exposures that we cannot liquidate or hedge within a day, or products with
infrequent pricing.
Back-testing \u2013 comparing VaR estimates with reality
To check that the way we estimate VaR is reasonable, we back-test our VaR by comparing it against both actual and hypothetical profits and losses, using a one-day
time horizon. Back-testing allows us to identify exceptions \u2013 times when the predictions were out of line with what happened. We can then look for trends in these
exceptions, which can help us decide whether we need to recalibrate our VaR model.
Risk monitoring and reporting (audited)
We monitor our non-traded market risks using NII and EVE sensitivities, VaR and stress tests. We report them against limits and triggers to senior management daily
and to ALCO and ERCC each month. The VaR we report captures all key sources of volatility (including interest rate and spread risks) to fully reflect potential
volatility.", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialRiskManagementExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-1": { "value": "
Exposures (audited)
Exposures to credit risk arise in our business segments from:
Retail and Business Banking
Consumer Finance
Corporate & Commercial Banking
Corporate Centre
In Mortgages:
\u2013 Residential mortgages for customers
with good credit quality (prime
lending).
\u2013 We provide these mostly for owner-
occupiers, with buy-to-let mortgages
for non-professional landlords.
In Everyday Banking:
\u2013 Unsecured lending to individuals, such
as loans, credit cards and overdrafts.
\u2013 Banking services to businesses with
turnover up to \u00a36.5m per annum and
simpler borrowing needs. We offer
loans, credit cards and overdrafts.
\u2013 Financing for cars, vans, motorbikes
and leisure vehicles through Santander
Consumer (UK) plc (SCUK).
\u2013 Through our joint ventures, Hyundai
Capital UK Ltd and Volvo Car Financial
Services UK Limited, we provide retail
point of sale customer finance and
wholesale finance facilities (stock
finance).
\u2013 Loans, bank accounts, treasury
services, invoice discounting, cash
transmission, trade finance and asset
finance.
\u2013 We provide these to SMEs and mid-
sized corporates with turnover up to
\u00a3500m per annum, Commercial Real
Estate and Social Housing associations.
\u2013 Asset and liability management of\u00a0our
balance sheet.
\u2013 Exposures include financial institutions
(derivatives and other treasury
products), structured products, and
sovereign and supranational assets
chosen for diversification and liquidity.
1. Risk strategy and planning (audited)
All relevant areas of the business work together to create our business plans. We aim to balance our strategy, goals, and financial and technical resources with our
Risk Appetite. To do this, we focus on economic and market conditions and forecasts, regulations, conduct matters, profitability, returns and market share.
2. Assessment and origination (audited)
Managing credit risk begins with lending responsibly. That means only lending to customers who are committed to paying us back and can afford to, even if their
circumstances change. We perform a thorough risk assessment to make sure a customer can meet their obligations before we approve a loan. We take
proportionate steps to assess whether a customer will be able to repay the money borrowed. We do this by a series of initial affordability and credit risk
assessments. We access each customer\u2019s credit profile and signs of how reliable they are at repaying credit. When a customer applies, we assess the data they
provide, plus data from credit reference agencies (for Retail and Business Banking and Consumer Finance) and performance on their other Santander UK accounts (if
they have any) against our Credit Policy.
Retail and Business Banking
In Mortgages, for secured loans, we assess affordability by reviewing the customer\u2019s income and spending, their other credit commitments, and what would
happen if interest rates went up. Many of our decisions are automated as we use data available to us. We tailor our process and application assessment based on
the product. More complex transactions often need greater manual assessment using our credit underwriters\u2019 skill and experience.
In Everyday Banking and Business Banking, many of our decisions are automated. We assess affordability by reviewing the customer\u2019s income and spending,
including other credit commitments and adjusting for future inflation and expected interest rates.
Credit risk mitigation
The types of credit risk mitigation, including collateral, across each of our portfolios are:
Portfolio
Description
Residential mortgages
Collateral is in the form of a first legal charge over the property. Before we grant a mortgage, the property is valued either by a surveyor or
using automated valuation methodologies where our confidence in the accuracy of this method is high.
Unsecured lending
There is no collateral or security tied to the loan that can be used to mitigate any potential loss if the customer does not pay us back.
Business banking services
Business banking lending is unsecured. When lending to incorporated businesses, we typically obtain personal guarantees from each
director, but we do not treat these as collateral. We consider the UK Government guarantee supporting losses on amounts lent under its
Coronavirus Loan Schemes as collateral with 100% for Bounce Back Loan Scheme (BBLS) and 80% for Coronavirus Business Interruption Loan
Scheme (CBILS).
Consumer Finance
In Consumer Finance, similar to Retail and Business Banking, many decisions are automated and we tailor the process to the product. Residual value risk is one of
our top risks.
Credit risk mitigation
The type of credit risk mitigation, including collateral, is:
Portfolio
Description
Consumer (auto) finance
Collateral is in the form of legal ownership of the vehicle for most loans, with the customer being the registered keeper. Only a very small
proportion of business is underwritten as a personal loan. In these cases, there is no collateral or security tied to the loan. We use a leading
vehicle valuation company to assess the LTV at the proposal stage to ensure the value of the vehicle is appropriate.
Corporate & Commercial Banking
We assign each customer a credit rating according to the internal rating threshold, using our internal rating scale (see \u2018Credit quality\u2019 in \u2018Santander UK group level \u2013
credit risk review\u2019 section). To do this, we look at the customer\u2019s financial history and trends in the economy, backed up by the expert judgement of a risk analyst.
We review our internal ratings on a dynamic basis and at least once a year for those clients that are rated. We also assess the underlying risk of the transaction,
taking account of any mitigating factors (see the tables below) and how it fits with our risk policies, limits and Risk Appetite.
Responsible lending, including climate change and the transition to a low carbon economy
As part of the Banco Santander group, we comply with the Equator Principles to factor social, ethical and environmental impacts into our risk analysis and decision
making for qualifying financial transactions. We are committed to supporting clients and economies in their transition to a low carbon economy, providing financial
products and/or services to business activities that are environmentally and socially responsible. Our Environmental, Social and Climate Change (ESCC) policy sets
out how we identify, assess, monitor and manage environmental and social risks and other climate change related activities in the Oil and Gas, Power Generation
and Mining and Metals sectors and those arising from businesses engaged in soft commodities. Our ESCC policy prohibits project-related financing for new coal-
fired power plants (CFPP) worldwide and we will only work with new clients with CFPPs to provide specific financing for renewable energy projects. In line with
Banco Santander's commitment, by 2030 we will eliminate all exposure to thermal coal mining and stop providing financial services to power generation clients
with more than 10% of revenue from thermal coal.
Credit risk mitigation
The types of credit risk mitigation, including collateral, across each of our portfolios are as follows. In addition, from time to time, at a portfolio level we execute
significant risk transfer transactions, which typically reduce RWAs.
Portfolio
Description
SME and mid corporate
Includes secured and unsecured lending. We can take mortgage debentures or a first charge on commercial property as collateral. Before
agreeing the loan, we get an independent professional valuation of the property. Loan agreements typically allow us to obtain revaluations
during the term of the loan. We can also take guarantees, but we do not treat them as collateral unless they are supported by a tangible
asset charged to us. We also lend against assets (like vehicles and equipment) and invoices for some customers. We value assets before we
lend. For invoices, we review the customers' ledgers regularly and lend against debtors who meet agreed criteria.
Commercial Real Estate
We take a first charge on commercial property as collateral. The loan is subject to criteria such as the property condition, age and location,
tenant quality, lease terms and length, and the sponsor\u2019s experience and creditworthiness. Before advancing the loan and where appropriate,
a bank representative visits the property. We also get an independent professional valuation which typically includes a site visit. Loan
agreements typically allow us to obtain revaluations during the term of the loan.
Social Housing
We take a first charge on portfolios of residential real estate owned and let by UK Housing Associations as collateral, in most cases. We
revalue this every three to five years (in line with industry practice), using the standard methods for property used for Social Housing.
Corporate Centre
Credit risk mitigation
The types of credit risk mitigation, including collateral, across each of our portfolios are as follows. In addition, from time to time, at a portfolio level we execute
significant risk transfer transactions, which typically reduce RWAs.
Portfolio
Description
Sovereign and Supranational
In line with market practice, there is no collateral against these assets.
Structured Products
These are our High Quality Liquid Assets (HQLA) in our Eligible Liquidity Pool. They are mainly Asset Backed Securities (ABS) and covered
bonds, which hold senior positions in the creditor hierarchy. Their credit rating reflects over-collateralisation in the structure and the assets
that underpin their cash flows.
Financial Institutions
We use standard legal agreements to reduce credit risk via netting and collateralisation on derivatives, repos and reverse repos, and stock
borrowing/lending. We also reduce risk by clearing trades through central counterparties (CCPs) where possible.
3. Monitoring (audited)
We measure and monitor changes in our credit risk profile on a regular and systematic basis against our budgets, limits and benchmarks.
Credit concentrations
A core part of our monitoring and management is a focus on credit concentrations, such as the proportion of our lending that goes to specific borrowers, groups or
industries. We set and monitor concentration limits in line with our Risk Appetite and review them on a regular basis.
\u2013 Geographical concentrations: We set exposure limits to countries and geographies, with reference to the country limits set by Banco Santander and our own Risk
Appetite. For more geographical information, see \u2018Country risk exposures\u2019.
\u2013 Industry concentrations: We also set exposure limits by industry sector. We set these limits based on the industry outlook, our strategic aims and desired level of\u00a0
concentration, and relevant limits set by Banco Santander. We analyse committed exposures in the \u2018Credit risk review\u2019 section that follows.
Retail and Business Banking
We use IT systems and data available to us to monitor accounts. The main parts are:
\u2013 Behavioural scoring: we use statistical models that help predict whether a customer will have problems repaying, based on how they use their accounts
\u2013 Credit reference agencies: we often use data from agencies on how the borrower is handling credit from other lenders in our behaviour scoring models
\u2013 Other Santander UK accounts: each month, we also look at how the customer uses their other accounts with us, so we can identify problems early.
Our day-to-day retail credit risk monitoring relies on a mix of product, customer and portfolio performance measures as described above. However, changes in the
wider UK economy also impact our Mortgages and Everyday Banking portfolios. As part of our day-to-day risk monitoring, we use a Retail Risk Playbook tolerance
framework that sets out the most relevant macroeconomic variables to retail portfolio performance. We monitor these variables against our forecasts. If the
economy deviates materially from our forecasts, such as due to the effects of the cost of living crisis or high inflation, we formally review our retail risk
management policy and strategy.
We also use the Retail Risk Playbook tolerance framework and management judgements to ensure that portfolio quality remains within our Risk Appetite by
measuring against trigger values for key risk profile and performance metrics.
For secured lending, our monitoring also takes account of changes in property prices. We estimate the property\u2019s value every three months. In most cases, we use
statistical models based on recent sales prices and valuations in that local area. Use of this model is subject to Model Risk Governance. Where a lack of data means
the model\u2019s valuation is not available, we use the original surveyor valuation with a House Price Index (HPI) adjustment as needed.
For unsecured personal lending like credit cards and overdrafts, monitoring might lead us to raise or lower credit limits. For business banking services, we review
revolving credit facilities each year to ensure the facilities remain appropriate for the customer's financial circumstances.
Consumer Finance
In Consumer Finance, similar to Retail and Business Banking, we use IT systems and data available to us to monitor accounts, and we use the Retail Risk Playbook
tolerance framework and management judgements to ensure that portfolio quality remains within Risk Appetite. We also check the Residual Value of our portfolio
each month, using triggers set to identify any material change in trends.
Corporate & Commercial Banking and Corporate Centr e
We regularly monitor and report our credit risk by portfolio, segment, industry, location and customer. We monitor detailed analyses of our credit exposures and
risk trends each month. We also report our larger exposures and risks to the BRC each month.
Our Watchlist
We also use a Watchlist for exposures subject to annual reviews to help identify potential problem debt early. Just because a customer is on our Watchlist does not
mean they have defaulted. It just means that their probability of default has increased, such as they have breached a covenant or lost a major contract.
We classify Watchlist cases as:
\u2013 Enhanced monitoring: for less urgent cases. We monitor these cases more often and where appropriate may consider more collateral.
\u2013 Pr oactive management: for more urgent or serious cases. We may take steps to restructure debt including extending the term, taking more collateral, agreeing a
lower credit limit, or seeking repayment of the loan through refinancing or other means.
We assess Watchlist cases for impairment as set out in the \u2018Significant Increase in Credit Risk (SICR)\u2019 section. When a customer is in enhanced monitoring, we do not
consider it has suffered a SICR for ECL purposes, so it remains in Stage 1 for our loss allowance calculations. When a customer is in proactive management, we
consider it has suffered a SICR, so we transfer it to Stage 2 and apply a lifetime ECL for our loss allowance calculations. We take into account any forbearance we
offer. This includes any extra security, guarantees or equity available and the potential to enhance value by asset management.
In Corporate & Commercial Banking, as part of our annual reviews, for loans nearing maturity, we look at the prospect of refinancing the loan on current market
terms and applicable credit policy. If this is unlikely, we put the case on our Watchlist. We manage exposures not subject to annual reviews, mainly high volume and
low value cases, using early warning indicators including credit reference agency data, supported by teams of expert analysts.
In Corporate Centre, we typically monitor the credit quality of our exposures daily. We use internal and third-party data to detect any potential credit deterioration.
4. Arrears management (audited)
Retail and Business Banking and Consumer Finance
We have several strategies to manage arrears that we can use as early as the day after a missed payment. We also reach out to up-to-date customers who may be
at risk of going into arrears for support purposes. We assess the financial difficulties a customer is having, so we can offer them the right support to manage their
agreement whilst in arrears. The strategy we use depends on the risk and the customer\u2019s circumstances.
Corporate & Commercial Banking and Corporate Centre
We identify problem debt by close monitoring, supported by our Watchlist process for exposures subject to annual review. We aim to identify warning signs early by
monitoring customers\u2019 financial and trading data, checking to see they do not breach covenants, and having regular dialogue with them. We tailor our strategy to
the type of customer, their circumstances and the level of risk. We try to help our customers find their own way out of financial difficulty and agree on a plan that
works for both of us. We engage our Restructuring & Recoveries team as needed on Watchlist cases and we may hand over more serious cases to them. For
exposures not subject to annual review, we have strategies to manage arrears that we can use as early as the day of the missed payment. If a case becomes more
urgent or needs specialist attention, and if it transfers to Stage 3, we transfer it to our Restructuring & Recoveries team.
For more, see the Forbearance section.
5. Debt recovery (audited)
Sometimes, even when we have taken all reasonable and responsible steps to manage arrears in our Financial Support area, they are not effective. If this happens,
we may choose to end our agreement with the customer and try to recover the outstanding balance (with recourse to any associated collateral), or as much of it as
we can.
Retail and Business Banking
In Mortgages and Everyday Banking, we may use a debt collection agency, sell the debt, or take the customer to court. For retail mortgages, we may repossess the
property as a last resort or to protect it from damage or third-party claims. We make sure our estimated losses from repossessed properties are realistic by getting
two independent valuations and the estimated selling costs, and using them in our loss allowances calculations. Where we repossess a property, we do not take
ownership. We use agents to realise the value and settle the debt. Any surplus funds are returned to the borrower or dealt with in line with insolvency rules.
Consumer Finance
In Consumer Finance, similar to Retail and Business Banking, we may use a debt collection agency or a specialist law firm to recover the balance outstanding. We
may also consider the sale of debt where all avenues have been explored.
Corporate & Commercial Banking and Corporate Centre
Where we look for an exit, we aim to do this, if we can, by agreeing with the borrower that they will sell some or all their assets on a voluntary basis or agreeing to
give them time to refinance their debt with another lender. Where we cannot reach an agreement, we consider recovery options. This can be through an insolvency
proceeding, enforcing over any collateral or selling debt on the secondary market. We may also consider other legal action to recover what we are owed. If there is
a shortfall, we write it off against our loss allowances. In very rare cases, we may act as mortgagee in possession of assets held as collateral against non-
performing commercial lending. In such cases, we carry the assets on our balance sheet and classify them in line with our accounting policies.
Loan modifications (audited)
We sometimes change the terms of a loan when a customer gets into financial difficulty (this is known as forbearance), or for other commercial reasons.
Forbearance (audited)
We can change the terms of a customer's loan, temporarily or permanently, to help them through temporary periods of difficulty so they can get back on to
sustainable terms. We assess what we offer to make sure the customer can afford it. Forbearance improves our customer relationships and we review our approach
regularly to make sure it is still effective. We try to offer forbearance before a customer defaults and we only foreclose or repossess as a last resort.
The main types of forbearance we offer are:
Action
Description
Term extension
We can extend the loan term, making each monthly payment smaller. We may offer this if the customer is up to date with payments but shows
signs of financial difficulties. We may also offer this if the loan is about to mature and refinancing is not possible on market terms.
Interest-only
Historical interest-only payments due to financial difficulties are classed as forborne.\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0
For corporate customers, interest-only concessions are considered on a case by case basis. Concessions are only granted if the nature of the
financial difficulties is assessed to be temporary. Counterparties are expected to recover in full and resume making full capital and interest
payments once they are in a stronger financial position.
Other payment
rescheduling, including
capitalisation
For retail customers, we may add the arrears to the mortgage balance (this is known as capitalisation) if they cannot afford to increase their
monthly payment to pay off their arrears in a reasonable time but have been making their monthly payments, usually for at least six months. We
can also capitalise property charges due to a landlord. We pay them for the customer to avoid the lease being forfeited. We may combine this
help with term extensions and, in the past, interest-only concessions. In certain cases, we may offer interest rate concessions.
For corporate customers, we may lower or stop their payments until they have time to recover. We may reschedule payments to better match
the customer\u2019s cash flow \u2013 for example if the business is seasonal - or provide a temporary increase in facilities to cover peak demand ahead of
their trading improving. We might do this by arrears capitalisation or drawing from an overdraft. We may also offer to provide new facilities,
interest rate concessions and interest roll-up. In rare cases, we agree to forgive or reduce part of the debt.
When we agree forbearance, we consider the account has suffered a significant increase in credit risk (SICR), as we explain later on, and we classify it as Stage 2 or
3. A non-performing forborne account is one that has forbearance carried out in Stage 3, and a performing forborne account is one that has forbearance carried out
in Stage 2. If an account is already in Stage 2, we keep it in Stage 2 unless the account is deemed unlikely to pay, involves forgiving fees and interest or debt, or is
being granted multiple forbearances. In these cases, we move it into Stage 3. If an account is already in Stage 3, we keep it in Stage 3. A loan moves out of
forbearance once the exit criteria below are met. We monitor the performance of all forborne loans.
We signed up to the HM Treasury Mortgage Charter published in June 2023, that aims to provide more support for customers who may be struggling to maintain
their mortgage repayments. We made more customer support solutions available from July 2023, allowing customers who are up-to-date with their payments to
make interest-only payments for six months or extend their mortgage term to reduce their monthly payments. Volumes of accounts seeking more support were
less than 1% of active mortgage account stock. Mortgage Charter support solutions are not automatically classed as forbearance, unless other forbearance criteria
are met.
Exit from forbearance criteria
Exit from
Conditions to be met
Cure
Stage 3 to Stage 2
For an account in Stage 3 to exit non-performing forbearance, all the following conditions must be met:
If the account was classed as Stage 3 due to being more than 90 days past due, then the account should be 90 days or less past due
The customer has no other material default debt with us more than 90 days past due
If the account was classed as Stage 3 due to being unlikely to pay, then the account should no longer be deemed unlikely to pay
Account has exited its forbearance trigger for 12 consecutive months
If all the conditions are met, the account is re-classed as Stage 2 forbearance until the Stage 2 forbearance exit conditions set out
below are also met
Stage 2 to Stage 1
For an account in Stage 2 to exit forbearance, all the following conditions must be met:
The account is no longer in arrears, and the customer has no other material debts with us which are more than 30 days in arrears
The account no longer triggers SICR
The account has been classed as Stage 2 for at least two years since the end of the latest forbearance strategy
If an account fails whilst in probation to cure, i.e. in the 12 months backstop in Stage 3 or the two years in Stage 2, the probation period is reset and the account is
moved back to Stage 3.
Key metrics(audited)
We use a number of key metrics to measure and control credit risk, as follows:
Metric
Description
Expected Credit Loss
(ECL)
ECL tells us what credit risk is expected to cost us either over the next 12 months or over the lifetime of the exposure where there is evidence of a
SICR since origination. We explain how we calculate ECL below.
Stages 1, 2 and 3
We assess each facility\u2019s credit risk profile to determine which stage to allocate them to, and we monitor where there is a SICR and transfers
between the Stages including monitoring of coverage ratios for each stage.
Stage 3 ratio
The Stage 3 ratio is the sum of Stage 3 drawn and Stage 3 undrawn assets divided by the sum of total drawn assets and Stage 3 undrawn assets.
The Stage 3 ratio is a key indicator used to monitor underlying asset performance.
Expected Loss (EL)
EL is based on the CRD IV regulatory capital rules and gives us another view of credit risk. It is the product of the probability of default, exposure
at default and loss given default, and we include direct and indirect costs. We base it on our risk models and our assessment of each customer\u2019s
credit quality. The rest of our Risk review, impairments, losses and loss allowances refer to calculations in accordance with IFRS, unless we
specifically say they relate to CRD IV. For our IFRS impairment accounting policy, see Note 1 to the Consolidated Financial Statements.
We also assess risks from other perspectives, such as geography, business area, product and process to identify areas to focus on. We also use stress testing to
establish vulnerabilities to economic deterioration. Our business segments tailor their approach to credit risk to their customers, as we explain later on.
Recognising ECL (audited)
The ECL approach estimates the credit losses arising from defaults in the next 12 months on qualifying exposures, or defaults over the lifetime of the exposure
where there is evidence of a Significant Increase in Credit Risk (SICR) since the origination date. The ECL approach considers forward-looking data, including a range
of possible outcomes, which should be unbiased and probability-weighted to reflect the risk of a loss being incurred even when it is unlikely.
Critical judgements and accounting estimates applied in calculating ECL (audited)
The application of the ECL impairment methodology for calculating credit impairment allowances is susceptible to change from period to period. The methodology
requires management to make judgmental assumptions in determining the estimates.
For more on our approach to making critical judgements and accounting estimates applied in calculating ECL see 'Critical judgements and accounting estimates'
Note 1 to the Consolidated Financial Statements.
Multiple economic scenarios and probability weights (audited)
For all our portfolios, we use five forward-looking economic scenarios. For 2023, they consisted of a central base case, one upside scenario and three downside
scenarios. We use five scenarios to reflect a wide range of possible outcomes for the UK economy.
Our forecasting approach
We derive our scenarios in part by using a set of parameters in GDP fan charts published by the Office for Budget Responsibility (OBR). These fan charts reflect the
probability distribution of a deviation from the OBR\u2019s central forecast to show the uncertainty about the outcome of a variable, in this case GDP.
Once we have established the GDP paths for each scenario, we run them through the Oxford Global Economic Model (OGEM) to derive the other macroeconomic
variables, such as unemployment and house prices. These variables are the product of the GDP growth paths we have forecast and the output of the OGEM for
these growth paths. We then review them to ensure consistency with the narrative of each scenario and so changes to the variables may be needed in some cases.
We then impose a Bank Rate profile for each scenario using expert judgement with the base case as the starting point and then adjusting this for each of the four
other scenarios based on the narratives. We produce a range of Bank Rate profiles to reflect a range of possible outcomes the Bank of England may follow
depending on how it sees the trade-off between growth and inflation evolving over the forecast period. For example, this might consist of higher rates initially in
response to inflationary concerns followed by lower rates as inflation falls towards target, and that this may be sharper in the event of a deep recession.
We update the baseline in our economic scenarios at least twice a year in line with our annual budgeting and three-year planning processes, or sooner if there is a
material change in current or expected economic conditions. We refresh all our economic scenarios quarterly to reflect the latest data and OBR fan charts if these
changed, which are then reviewed and approved by the Credit Risk Provisions Forum (CRPF). The CRPF also assesses the probability weights at least once a quarter.
We do not use consensus forecasts as inputs to our models, but we do compare the outputs of our models against consensus views for the base case, to make sure
that we understand any significant differences and address them where needed. At 31 December 2023, there were no significant differences between our base
case forecasts and the consensus views.
In 2023, we undertook a further peer benchmarking analysis of the economic scenarios, which for Q423 included the mean weighted analysis for a selection of
economic variables, including GDP, unemployment rate and HPI. This meant that we could compare our weighted scenarios against the average of our peers to
understand what differences there may be. The conclusion of this analysis demonstrated that our economic scenarios were in line with our peers although, on a
weighted basis, our house price inflation assumption reflected a more conservative view.
In 2023, we also considered any likely impact from climate risk on our forecasting approach and concluded that no adjustment to the multiple economic scenarios
for climate risk was required. This is because climate change effects are generally regarded to be relevant over a longer timeframe than our forecast period of five
years.
Our use of five scenarios is designed to reflect different possible outcomes to the base case, highlighting the upside and downside risks associated with the central
scenario. The downside risks for the UK economy include a sharp downturn in global growth, a return to upside inflation surprises which raises the cost of living, a
continuation of the very low productivity growth seen in the UK, a move to a more protectionist agenda for trade and further geopolitical events adding to
challenging economic conditions. The upside risks were more muted at the end of 2023 and include a stronger recovery in global growth, a faster fall in inflation,
coupled with further trade agreements with other countries.
Our forecasting period for GDP is five years and then we revert to the average trend growth over three years based on the OBR\u2019s long-run GDP forecast assumption.
The reversion to mean for all macroeconomic variables is expected to take three years after the initial five-year forecast period.
Key changes to our forecasting approach in 2023
In 2023, there were no specific changes to our forecasting approach. We incorporated the OBR's March 2023 fan chart parameters to generate the GDP paths
(excluding the base case).
Base case
We review the scenarios and associated weights every quarter to ensure they appropriately reflect the current economic circumstances and UK Government policy
which is subject to change.
In summary, the outlook for the UK economy in 2024 remains challenging due to a lack of growth, weak investment and with continuing risks to the 2% inflation
target, particularly if the situations in the Middle East and Ukraine trigger a renewed surge in oil and gas prices. Inflationary pressures could be further exacerbated
by a tight UK labour market maintaining pressure on wage growth at a time when firms are struggling to match appropriately skilled workers to available vacancies.
Base case key macroeconomic assumptions
\u2013 House price growth: The sharp rise in mortgage rates triggered a slowdown in house price growth in recent months. With survey indicators pointing to a slump in buyer
demand as confidence is hit by a squeeze on affordability from the sharp rise in mortgage rates, house prices are expected to continue declining in the near-term.
However, as the supply of housing is also weak this has helped to limit the overall fall in house prices compared to previous downturns despite the sharp rise in interest
rates. We forecast a c.2% year-on-year decline in house prices by the end of 2023, with a further fall of 1% by the end of 2024. Looser monetary policy from the second
half of 2024 enables house price growth to recover with growth back to average levels by the end of the forecast period.
\u2013 GDP: While the monthly GDP estimate for October 2023 showed the economy shrinking marginally with a 0.3% month-on-month fall, this aligns to the picture of a
stagnating UK economy.\u00a0 The PMI data for November 2023 is marginally above 50 and suggests growth to be modest in Q423. As such, the near-term outlook for growth
remains broadly flat - but as the effects of higher interest rates filter through the economy this year and the bulk of fixed rate mortgages are renewed, consumer spending
growth could fall back sharply and with business insolvencies expected to increase, there are still downside risks to our forecast of 0.4% growth in 2024.
\u2013 Unemployment rate: Unemployment remained flat in October 2023 at 4.2% based on the ONS experimental data and combined with other surveys such as REC, suggest
that the labour market is slowly loosening. With companies under pressure from rising debt servicing costs and higher wages, it is likely that some will become insolvent
and others find that demand for their goods and services reduces as households restrict their spending. We do not envisage a large rise in unemployment compared to
previous recessions. The rate peaks at 4.8% by the end of 2024, in part impacted by the ongoing return of previously inactive workers to the labour force.
\u2013 Bank Rate: The Monetary Policy Committee (MPC) kept rates at 5.25% at the December 2023 meeting. Our base case assumes no further rate rises with the MPC
expected to start loosening monetary policy in Q224, with rates ending 2024 at 4.50%. Further cuts through the rest of the 5-year forecast period leaves bank rate at
3.00% by the end of 2028.
In the medium-term, the projections assume that current demographic and productivity trends will continue, causing a reduction in the UK\u2019s growth potential. For
instance, it is likely that the reduction in the UK workforce will continue and this will have a knock-on impact for the economy, particularly if there are shortages of
skilled workers in particular sectors. This is reflected in an average annual growth expectation of 1.6%, in line with the OBR\u2019s latest estimate of the UK\u2019s long run
average growth rate.
Key changes to our base case in 2023
For our base case, we no longer expect a short recession given that the economy has been more resilient than expected in 2023. However, risks around this
assumption remain as the full effects of higher interest rates have yet to be felt across the UK economy which keeps growth in 2024 significantly below average.
Our base case was updated to reflect the latest market data and to broadly align with the latest consensus estimates. The most notable change was to HPI with
expected house price falls now lower in 2023 and 2024.
Other scenarios
Based on this revised base case, we reviewed our suite of scenarios to ensure that they capture the wide range of potential outcomes for the UK economy. These
include (i) persistent above target inflation over the forecast period; (ii) a slower recovery that is more akin to the \u2018U\u2019 shape of past recessions; (iii) labour market
frictions due to skills mismatches and a shrinking workforce as some discouraged workers leave altogether (for example older UK-born workers retiring early and
longer term sickness levels remaining above pre-pandemic levels); and (iv) the global economy recovering more swiftly from higher inflation.
To reflect these potential outcomes, we continue to use the base case and four additional scenarios, which we consider sufficient to reflect all the above potential
outcomes. However, as the risks remain skewed to the downside, to reflect these outcomes sufficiently, we concluded that only one upside scenario would be
needed to reflect the upside risks to the base case. As with the base case, the scenarios are forecast over a five-year period and then mean revert over the next three
years to the OBR's latest estimate of the UK's long run average growth rate.
The other scenarios are:
One upside scenario
This scenario has a quicker recovery than the Baseline and is a bull case to the base forecasts. It assumes that inflation falls back more swiftly than in the base case,
helped by lower growth in wages and pass through of lower commodity prices. This allows the Bank of England to cut rates earlier, bringing them back towards
what might be considered the neutral rate. This results in higher consumer and business confidence enabling higher levels of spending with savings rates returning
to levels consistent with economic growth as real earnings growth returns. Unemployment peaks at a slightly lower level than the base case and drops more
quickly than the base, ending the 5-year forecast period at 3%. The Bank Rate profile is lower than the base case as inflation returns to target at a faster pace.
Three downside scenarios
The downside scenarios capture a range of risks, including continuing weaker investment, a larger negative impact from the EU trade deal and a continuing and
significant mismatch between job vacancies and skills, as well as a smaller labour force.
Downside 1 - This scenario is a bear case to the baseline. It assumes that the fall in economic growth is sharper and that there is a recession. In this scenario,
consumers keep savings rather than spend as consumer confidence remains extremely low while households are worried about the prospect of losing their jobs.
House prices fall further than in the base case as more households look to downsize in order to lower their mortgage repayments. With inflation remaining above
target, Bank Rate continues to increase as core inflation remains above the baseline view before cuts start as inflation falls back.
Stubborn inflation - This scenario considers the effect on the UK economy of a persistent inflationary environment. Here inflation remains above target for much of
the forecast period. This persistent inflation is created by a combination of factors, including higher energy costs exacerbated by the Ukraine/Russia crisis and
curtailment of oil supply by OPEC countries; continuous wage rises resulting in a spiral effect pushed by increasing numbers of strikes and falling productivity.
Despite the peak in inflation having already passed in Q422, inflation remains slightly above the 2% target over the 5-year forecast period. The 2.8% peak to trough
fall in GDP is similar to the early 1980s recession due to inflation remaining higher for longer, which in turn reduces households' real incomes and therefore
consumption. This is despite higher wage settlements due to increased strike action. Unemployment peaks at 6.2% in 2026 as although inflation eventually returns
to target, Bank Rate remains at higher levels compared to recent history and growth is still muted due to weak productivity as investment levels remain low.\u00a0 The
large increases in Bank Rate and falling real incomes result in house prices falling by c.26%.
Downside 2 - The scenario shows a marked fall in GDP, with rising unemployment and falling house prices reflecting the ongoing issues of a higher interest rate
environment and above target inflation, which feeds across the whole economy. It also reflects the ongoing strike action by various unions pushing for stronger pay
growth, alongside dealing with potential blackouts caused by an increase in energy shortage over the winter months in Q423 and into early 2024. It also assumes
that major risk events continue to occur exposing risks to countries\u2019 fiscal position and the means to respond to such events. For this scenario, an overlay to the
unemployment rate was also made to the model output from the OGEM. This was to account for the possibility of a recession of similar magnitude to that of
2008/09 where the unemployment rate peaked at 8.5%.
Key changes to our alternative scenarios in 2023
In 2023 we did not make any methodological changes to the scenarios.
Our macroeconomic assumptions and their evolution throughout the forecast period
Our macroeconomic assumptions and their evolution throughout the forecast period for each of the scenarios at 31 December 2023 were:
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted(4)
%
%
%
%
%
%
GDP(1)
2022 (actual)
4.3
4.3
4.3
4.3
4.3
4.3
2023
0.6
0.5
0.5
0.5
0.3
0.5
2024
1.0
0.4
(0.1)
(1.8)
(3.3)
(0.4)
2025
2.1
1.3
0.2
(0.9)
(1.4)
0.6
2026
2.4
1.5
0.5
0.4
0.6
1.1
2027
2.4
1.4
0.3
0.7
2.2
1.4
2028
2.4
1.4
0.3
0.8
2.6
1.4
5-year average increase/decrease
2.1
1.2
0.3
(0.2)
0.1
N/A
Peak/(trough) at(2)(3)
\u2014
\u2014
(0.2)
(2.8)
(5.1)
(1.1)
Bank Rate(1)
2022 (actual)
3.50
3.50
3.50
3.50
3.50
3.50
2023
5.25
5.25
5.25
5.25
5.25
5.25
2024
4.25
4.50
5.25
6.50
3.75
4.88
2025
3.25
3.50
4.00
5.00
2.00
3.68
2026
2.75
3.25
3.25
3.75
2.00
3.18
2027
2.75
3.00
3.00
3.00
2.50
2.93
2028
2.75
3.00
3.00
3.00
2.50
2.93
5-year end period
2.75
3.00
3.00
3.00
2.50
N/A
Peak/(trough) at
5.25
5.25
5.75
6.50
5.25
5.55
HPI(1)
2022 (actual)
5.0
5.0
5.0
5.0
5.0
5.0
2023
(1.7)
(2.2)
(4.7)
(6.3)
(7.8)
(3.8)
2024
2.0
(1.0)
(11.7)
(18.8)
(25.8)
(7.8)
2025
6.5
2.5
3.4
3.6
3.6
3.3
2026
5.1
3.0
2.1
1.6
1.6
2.7
2027
4.0
3.0
3.0
1.6
1.6
2.7
2028
3.6
3.0
3.1
1.8
1.8
2.7
5-year average increase/decrease
4.3
2.0
(0.8)
(3.3)
(5.4)
N/A
Peak/(trough) at(2)
(3.7)
(6.5)
(17.5)
(25.5)
(33.0)
(13.8)
Unemployment(1)
2022 (actual)
3.7
3.7
3.7
3.7
3.7
3.7
2023
4.3
4.3
4.3
4.3
4.4
4.3
2024
4.3
4.8
4.8
5.6
8.5
5.3
2025
3.7
4.4
4.9
5.9
8.0
5.1
2026
3.4
4.3
5.2
6.2
7.4
5.0
2027
3.0
4.3
5.4
6.1
6.8
4.9
2028
3.0
4.2
5.3
5.8
6.2
4.7
5-year end period
3.0
4.2
5.3
5.8
6.2
N/A
Peak/(trough) at
4.5
4.8
5.5
6.2
8.5
5.5
(1) GDP is the calendar year annual growth rate, HPI is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
(2) GDP peak taken from GDP level at Q2-23 and HPI peak taken from HPI level at Q3-22.
(3) Reported as Peak/(trough) from 2023 to align with other metrics.
(4) The weighted peak to trough and 5 year peak calculations are based on the annual profiles shown.
The table below sets out our macroeconomic assumptions and their evolution throughout the forecast period for each of the five scenarios at 31 December 2022:
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted(5)
%
%
%
%
%
%
GDP(1)
2021 (actual)
7.5
7.5
7.5
7.5
7.5
7.5
2022
4.4
4.4
4.3
4.2
3.7
4.3
2023
(1.0)
(1.3)
(1.9)
(2.7)
(6.4)
(2.2)
2024
0.8
0.5
(0.3)
(0.9)
(0.7)
\u2014
2025
2.0
1.6
0.5
0.2
1.7
1.2
2026
2.0
1.5
0.4
0.6
1.5
1.2
5-year average increase/decrease
1.2
0.8
(0.2)
(0.5)
(0.6)
0.3
Cumulative growth/(fall) to peak/(trough)(2)(4)
6.0
3.8
(0.8)
(2.2)
(3.1)
1.3
Bank Rate(1)
2021 (actual)
0.25
0.25
0.25
0.25
0.25
0.25
2022
3.50
3.50
3.50
3.50
3.50
3.50
2023
3.75
4.00
3.50
6.00
3.75
4.29
2024
3.00
3.25
2.75
5.50
3.00
3.59
2025
2.50
2.75
2.50
3.50
2.75
2.85
2026
2.25
2.50
2.25
3.00
2.50
2.55
5-year end period
2.25
2.50
2.25
3.00
2.50
2.55
Peak/(trough) at(3)
3.75
4.00
3.50
6.00
4.00
4.31
HPI(1)
2021 (actual)
8.7
8.7
8.7
8.7
8.7
8.7
2022
7.6
7.0
7.6
7.6
7.6
7.3
2023
(8.8)
(10.0)
(10.0)
(10.9)
(15.8)
(10.7)
2024
(4.3)
\u2014
(6.7)
(8.8)
(14.3)
(4.4)
2025
0.6
2.0
(3.1)
(4.9)
(4.1)
(0.8)
2026
4.1
3.0
(0.2)
(0.6)
4.7
2.0
5-year average increase/decrease
(0.7)
(0.6)
(3.8)
(4.7)
(4.8)
(2.3)
Peak/(trough) at(3)
(12.8)
(11.2)
(19.0)
(23.1)
(30.7)
(16.8)
Unemployment(1)
2021 (actual)
4.0
4.0
4.0
4.0
4.0
4.0
2022
3.7
3.8
3.7
3.7
4.4
3.8
2023
4.7
4.7
5.1
5.5
8.5
5.3
2024
4.5
5.1
5.4
5.9
8.0
5.6
2025
4.5
4.5
5.8
6.4
7.4
5.4
2026
4.4
4.3
6.1
6.6
6.8
5.3
5-year end period
4.2
4.3
6.1
6.4
6.2
5.2
Peak/(trough) at(3)
4.7
5.1
6.1
6.6
8.5
5.9
(1) GDP is the calendar year annual growth rate, HPI is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
(2) This is the cumulative growth for the 5-year period.
(3) For GDP and house price growth it is the peak to trough change within the 5-year period; for the unemployment rate it is the peak; and for Bank Rate it is the peak or trough.
(4) If we had calculated GDP on the peak/(trough) basis as adopted for 2023 our upside scenario would have been (1.5%); base case scenario (1.9%); downside 1 (2.7%); stubborn inflation (4.0%); downside 2 (8.8%).
(5) The weighted peak to trough and 5-year peak calculations are based on the annual profiles shown.
Scenario weights\u00a0
Each quarter, we undertake a full review of the scenario weights we apply. We consider the weighting of the economic scenarios as a whole, while ensuring that
the scenarios capture the non-linear distribution of losses across a reasonable range. To support our initial assessment of the weighting of a scenario, we undertake
a Monte Carlo analysis to ascertain the likelihood of a five-year average GDP forecast growth rate occurring based on the long run historically observed average.
Creating a standard distribution bell curve around this long run average allows us to estimate the probability of a given GDP scenario occurring based on past
experience and therefore assign a weight to that scenario.
The scenario weights we applied for 2023 and 2022 were:
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted
Scenario weights
%
%
%
%
%
%
2023
10
50
10
20
10
100
2022
5
50
15
20
10
100
2023 compared to 2022
We continue to use both the entire historical GDP data set available for the Monte Carlo analysis to smooth out the large GDP data swings seen in the pandemic as
well as the data set from 2009 onwards. The CAGRs are now returning to more 'normal' levels associated with our scenarios as the economy unwinds from the
2020 shock. For H223, the base case using the 2009 data set show that the base case sits around the 50th probability path and that the downside scenarios sit
between the 60th to 80th probability paths suggesting that a lower weight than the base case remains appropriate.
We also need to consider the UK economic and political environment when applying weights. Given the current cost of living crisis, we remain of the view that the
risks to UK growth are still biased to the downside and include: further geopolitical events creating more challenges for economies both in the UK and abroad; the
potential for further upside inflation surprises causing inflation to stay above target for longer, raising the cost of living and so reducing consumer demand;
continuing weak investment reflecting the uncertain nature of the economic environment; and a continuing and significant mismatch between vacancies and skills
along with a smaller labour force, which may bring disruption to any recovery in the latter years of the forecast.
In 2023, we increased the weight on the Upside scenario by 5% with a corresponding decrease in our Downside 1 to rebalance the overall weighted ECL. It was also
to reflect both the change in the fan chart parameters used to determine the Upside and Downside 1 scenarios and the fact that the economic growth outlook has
improved slightly since the end of 2022.
Definition of default (Credit impaired) (audited)
We define a financial instrument as in default (i.e. credit impaired) for the purpose of calculating ECL if it is more than three months past due, or if we have data that
suggests the customer is unlikely to pay. The data we have on customers varies across our business segments. It typically includes where:
Retail and Business Banking and Consumer Finance
\u2013 They have been reported bankrupt or insolvent and are in arrears
\u2013 Their loan term has ended, but they still owe us money more than three months later
\u2013 They have had forbearance while in default and have failed to perform under the new arrangement terms, or have had multiple forbearance. Performing forborne
accounts while not in default are reported in Stage 2
\u2013 We have suspended their fees and interest because they are in financial difficulties
\u2013 We have repossessed the property.
Corporate & Commercial Banking and Corporate Centre
\u2013 They have had a winding up notice issued, or something happens that is likely to trigger insolvency \u2013 such as another lender calls in a loan
\u2013 Something happens that makes them less likely to be able to pay us \u2013 such as they lose an important client or contract
\u2013 They have regularly missed or delayed payments, even though they have not gone over the three-month limit for default
\u2013 Their loan is unlikely to be refinanced or repaid in full on maturity
\u2013 Their loan has an excessive LTV that is unlikely to be resolved, such as by a change in planning policy, pay-downs, or increase in market value
\u2013 Loans restructured under financial difficulties, classified as forborne transactions, in last 12 months.
Where we use the advanced internal ratings-based basis for a portfolio in our capital calculations, there are differences with the default definitions for ECL
purposes. The main differences are as follows:
\u2013 Performing forborne accounts while not in default are in Stage 2 until they cure their forbearance status (measured as 12 consecutive months of successful
payments).
\u2013 Performing non-forborne accounts, which under our internal rating-based basis are subject to a 3-month cure period. For accounting purposes, we classify
them in Stage 2 until they cure all SICR triggers.
Significant Increase in Credit risk (SICR) (audited)
Loans which have suffered a SICR since origination are subject to a lifetime ECL assessment which extends to a maximum of the contractual term of the loan, or the
behavioural term for a revolving facility. Loans which have not experienced a SICR are provided for on a 12-month basis. We assess the credit risk profile of each
facility to determine which of three stages to allocate them to:
\u2013 Stage 1: when there has been no SICR since initial recognition. We apply a loss allowance equal to a 12-month ECL i.e. the proportion of lifetime expected losses
that relate to that default event expected in the next 12 months
\u2013 Stage 2: when there has been a SICR since initial recognition, but the exposure is not considered credit impaired. We apply a loss allowance equal to the lifetime
ECL i.e. the expected loss resulting from all possible defaults throughout the residual life of a facility
\u2013 Stage 3: when the exposure is considered credit impaired. We apply a loss allowance equal to the lifetime ECL. Objective evidence of credit impairment is
required. For more, see the section \u2018Definition of default (Credit impaired)\u2019 above.
We use quantitative, qualitative and backstop criteria to identify exposures that suffer a SICR. The Credit Risk Provisions Forum (CRPF) reviews and approves our SICR
thresholds periodically. The Board Audit Committee reviews and challenges their appropriateness each year, or more often if we change them.
Quantitative criteria
We use quantitative criteria to identify where an exposure has increased in credit risk. We base our criteria on whether any increase in the lifetime PD since
origination exceeds a threshold in relative and absolute terms. We base the value anticipated at origination on similar assumptions and data to the ones we use at
the reporting date, adjusted to reflect the account surviving to that date. The comparison uses either an annualised lifetime PD, where the lifetime PD is divided by
the forecast period, or the absolute change in lifetime PD since origination. These two sets of criteria are used to determine whether a significant increase of credit
risk has concurred since origination. The criteria for 2023 and 2022 were:
Retail and Business Banking
Consumer Finance(2)
Corporate &
Commercial Banking
Corporate Centre
Mortgages
Everyday Banking(1)
Personal loans
Credit cards
Overdrafts
30bps
30bps
340bps
260bps
300bps
30bps
Internal rating method
(1) For larger business banking customers, we apply the same criteria that we use for Corporate & Commercial Banking.
(2) Consumer Finance use the comparison of lifetime PDs to determine Stage allocation, unlike other products which first turn the lifetime PD into an average yearly PD (annualised) and then do the comparison.
Qualitative criteria
We also use qualitative criteria to identify where an exposure has increased in credit risk, independent of changes in PD. The criteria for 2023 and 2022 were:
Retail and Business Banking
Consumer Finance
Corporate &
Commercial Banking
Corporate Centre
Mortgages
Everyday Banking(1)
Personal loans
Credit cards
Overdrafts
\u2013 In forbearance
\u2013 Default in last 24m
\u2013 30 Days past due
(DPD) in last 12m
\u2013 Bankrupt
\u2013 \u00a3100+ arrears
\u2013 In Collections
\u2013 Default in last 12m
\u2013 \u00a350+ arrears
\u2013 In forbearance
\u2013 Default in last 12m
\u2013 In Collections
\u2013 \u00a3100+ arrears
\u2013 Behaviour score
indicators
\u2013 Fees suspended
\u2013 Default in last 12m
\u2013 Debit dormant >35
days
\u2013 Any excess in month
\u2013 In forbearance
\u2013 Deceased or
Insolvent
\u2013 Court \u2018Return of
goods\u2019 order or
Police watchlist
\u2013 Agreement
terminated
\u2013 Payment holiday
\u2013 Cash Collection
\u2013 In forbearance
\u2013 Default in last 12m
\u2013 Watchlist: proactive
management
\u2013 Default at proxy
origination
\u2013 Watchlist: proactive
management
(1)For larger business banking customers, we apply the same criteria that we use for Corporate & Commercial Banking.
We continue to apply the additional qualitative assessment that was introduced as part of a Judgemental Adjustment that commenced during 2022 in response to
the cost of living crisis. Exposures that were deemed more significantly impacted by cost of living pressures based on indebtedness and disposable income
thresholds were migrated to Stage 2. See 'Judgemental Adjustments (JAs)' below for more details.
Backstop criteria
As a backstop, we classify all exposures more than 30 or 90 DPD in at least Stage 2 or in Stage 3, respectively. This means that we do not rebut the backstop
presumptions in IFRS 9 (i.e. credit risk has significantly increased if contractual payments are more than 30 DPD) relating to either a SICR or default.
Improvement in credit risk or cure
We transfer Stage 3 exposures to Stage 2 or Stage 1 when we no longer consider them to be credit impaired. We transfer Stage 2 exposures to Stage 1 when they
no longer meet the stage 2 SICR criteria. Where we identified a SICR using quantitative criteria, we transfer the exposures to Stage 1 when they no longer meet the
original PD-based transfer criteria. Where we identified a SICR using qualitative criteria, the issues that led to the transfer must be cured before we transfer the
exposure to Stage 1. For a loan to exit forbearance, it must meet the conditions set out in the section \u2018Forbearance\u2019.
Judgemental Adjustments (JAs) (audited)
We use a range of methods to identify whether we need a JA. These include regular reviews of model monitoring tools, changes in the period, trend analysis,
comparisons against forecasts, and inputs from expert teams who manage key portfolio risks. We only recognise a JA if its expected impact is over \u00a31m and keep it
in place until we no longer need it. This is usually when we build it into our core credit model or the conditions that led to raising the JA no longer exist.
Our Risk Provisions & Forecasting team calculate JAs to ensure they are incremental to the core credit model and to ensure the calculation is performed in a
consistent and controlled manner. We apply standard end-user computing controls to JAs expected to be in place for more than six months. The CRPF reviews and
approves all JAs on a quarterly basis.
Retail and Business Banking
Everyday Banking
Consumer
Finance
CCB
Corporate
Centre
Total
Mortgages
Credit Cards
Other
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Modelled ECL
132
123
123
62
240
\u2014
680
Individually assessed
4
\u2014
\u2014
\u2014
124
\u2014
128
ECL before JAs
136
123
123
62
364
\u2014
808
JAs (excluding Affordability and Cost of Living JAs)
Long-term indeterminate arrears
16
\u2014
\u2014
\u2014
\u2014
\u2014
16
12+ months in arrears
14
\u2014
\u2014
\u2014
\u2014
\u2014
14
UPL loss floor
\u2014
\u2014
6
\u2014
\u2014
\u2014
6
Model underestimation
36
\u2014
\u2014
\u2014
\u2014
\u2014
36
Corporate single large exposure
\u2014
\u2014
\u2014
\u2014
23
\u2014
23
Other
12
1
3
4
(31)
\u2014
(11)
Total JAs (excluding Affordability and Cost of Living JAs)
78
1
9
4
(8)
\u2014
84
Affordability and Cost of Living JAs
Corporate lending to segments affected by supply chain
pressures
\u2014
\u2014
\u2014
\u2014
24
\u2014
24
Secured affordability
9
\u2014
\u2014
4
\u2014
\u2014
13
Unsecured affordability
\u2014
16
22
\u2014
\u2014
\u2014
38
Mortgage refinancing risk
19
\u2014
\u2014
\u2014
\u2014
\u2014
19
SME debt burden
\u2014
\u2014
6
\u2014
\u2014
\u2014
6
Total Affordability and Cost of Living JAs
28
16
28
4
24
\u2014
100
Total JAs
106
17
37
8
16
\u2014
184
Total ECL
242
140
160
70
380
\u2014
992
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Modelled ECL
133
112
93
65
194
\u2014
597
Individually assessed
\u2014
\u2014
\u2014
\u2014
112
\u2014
112
ECL before JAs
133
112
93
65
306
\u2014
709
JAs (excluding Affordability and Cost of Living JAs)
Long-term indeterminate arrears
13
\u2014
\u2014
\u2014
\u2014
\u2014
13
12+ months in arrears
22
\u2014
\u2014
\u2014
\u2014
\u2014
22
UPL loss floor
\u2014
\u2014
15
\u2014
\u2014
\u2014
15
Model underestimation
36
2
19
\u2014
\u2014
\u2014
57
Corporate single large exposure
\u2014
\u2014
\u2014
\u2014
23
\u2014
23
Other
20
1
10
2
3
\u2014
36
Total JAs (excluding Affordability and Cost of Living JAs)
91
3
44
2
26
\u2014
166
Affordability and Cost of Living JAs
Corporate lending to segments affected by supply chain
pressures
\u2014
\u2014
\u2014
\u2014
61
\u2014
61
Mortgage affordability
27
\u2014
\u2014
\u2014
\u2014
\u2014
27
Retail Unsecured Affordability
\u2014
15
20
\u2014
\u2014
\u2014
35
SME debt burden
\u2014
\u2014
7
\u2014
\u2014
\u2014
7
Total Affordability and Cost of Living JAs
27
15
27
\u2014
61
\u2014
130
Total JAs
118
18
71
2
87
\u2014
296
Total ECL
251
130
164
67
393
\u2014
1,005
JAs (excluding Affordability and Cost of Living JAs)
\u2013 Long-term indeterminate arrears: To mitigate the risk of model underestimation, we fully provide for accounts in arrears which have neither repaid (cured) nor
been written-off after a period of two years for unsecured portfolios or five years for secured portfolios. For our secured portfolios, we use expected security
valuations at the point of repossession to estimate the adjustment. At 31 December 2023, we only had to make an adjustment for mortgages. When calculating
this JA, we assume a two year delay in the time to repossessions which reflects experience and ensures the LTVs are impacted by our multiple scenario forecasts
for HPI. Over the medium term, as we continue to address long-term arrears in the portfolio, we expect the need for this JA will reduce. Had management
assumed no delay in repossessions, the JA would be \u00a312m.
\u2013 12+ months in arrears: To mitigate the risk of model underestimation, we fully provide for mortgage accounts more than 12 months past due after deducting a
historically observed self-cure rate. When calculating this JA, we assume a two year delay in the time to repossessions which reflects experience and ensures the
LTVs are impacted by our multiple scenario forecasts for HPI. Over the medium term, as we continue to address long-term arrears in the portfolio, we expect the
need for this JA will reduce. Had management assumed no delay in repossessions, the JA would be \u00a36m.
\u2013 UPL loss floor: We use this JA to address the perceived macroeconomic insensitivity in our Unsecured Personal Loans (UPL) models. This arises where historical
analysis of losses shows a larger correlation to the International Labour Organisation (ILO) unemployment forecast than the model gives. The JA then uplifts the
lifetime losses expected in each of the macroeconomic scenarios in the model to meet the expected losses the historical analysis predicts.
\u2013 Model underestimation: During the pandemic, the government introduced various support schemes which resulted in built up savings and subdued arrears and
defaults. This JA reduces the risk of potential ECL underestimation caused by the artificially low modelled PDs. Had management applied the same PD uplift on
the upside scenario, the JA would be \u00a313m. Had management applied the same PD uplift on the Downside 3 scenario as the Base case, Upside and Downside 1
scenarios, the JA would be \u00a365m.
\u2013 Corporate single large exposure: This JA safeguards against individual large exposures defaulting. We currently use the JA to safeguard against two historically
observed single name large losses in CCB. We continue to assess this risk over the medium term based on actual experience and refine the estimate based on
changes in our portfolio credit quality and loan size mix. Had management assumed only one average loss was incurred, the JA would be \u00a312m. The JA would be
\u00a335m assuming three average losses were incurred. This JA is still needed given UK corporate insolvencies have risen to a 30-year high. In the current high-
interest rate environment, the risk of single name defaults which incur high losses is considered greater than before as government support schemes ceased.
\u2013 Other: This includes adjustments for CCB and mortgages. In CCB, we calibrate our corporate model PDs based on a historical model development observation
period. We hold a JA to recalibrate these PDs to reflect more recent experience. This JA will be embedded into the model in 2024 with no material net impact
expected. In mortgages, this JA includes a similar adjustment to recalibrate the PD and LGDs to exclude the period impacted by Covid-19.
Affordability and Cost of Living JAs
\u2013 Corporate lending to segments affected by supply chain pressures: This JA reflects the corporate lending risks to those sectors susceptible to high inflation
and energy prices, higher input costs, potential for lower consumer and business demand and exposure to supply chain pressures. We updated the assumptions
of this JA to reflect the available historical default emergence of the sectors in scope of the JA. This JA calculates ECL depending on customers' risk profiles in
stage 1 and transfers the customers into stage 2. In the case of those customers already in stage 2 the JA is calculated by stressing PD levels according to the risk
profile of those customers. The range for this JA can be between \u00a316m to \u00a358m depending on PD assumptions of high and severe sectors.
\u2013 Secured affordability: We use this JA to identify over-indebted customers who, in the current high-interest rate environment, are more susceptible to stress. The
JA uses available bureau information (Consumer Indebtedness Index (CII) > 40) and classifies over-indebted customers as Stage 2, which are subsequently
provided for on a lifetime basis. The JA reflects the most recent available performance information for customers in scope of the judgement. At 31 December
2023, these accounts made up a significant amount of the total mortgage Stage 2 population as \u00a32.9bn mortgages were moved from Stage 1 into Stage 2 as a
result. Had management lowered the CII threshold to 30, the JA would be \u00a321m. Had management increased the CII threshold to 50, the JA would be \u00a38m.
\u2013 Unsecured affordability: The JA accounts for repayment affordability risk amongst customers with low disposable income. We use a combination of
performance indicators and forward-looking estimated disposable income to identify the number of unsecured customers that may struggle to meet their
contractual obligations in the current macroeconomic environment. Their overall level of unsecured debt is also considered (for Credit Cards and Banking
products) to determine whether they can absorb additional financial stress. Had management not considered the total level of unsecured debt as an additional
filter to identify customers in scope of the JA, the JA would be \u00a347m. Had management considered the same level of Total Unsecured Debt (TUD) for UPL
exposures as for Cards and Banking, the JA would be \u00a331m.
\u2013 Mortgage refinancing risk: We introduced this JA in December 2023. It considers the risk of mortgage customers being unable to afford their new mortgage
instalment after re-mortgaging in the current high-interest rate environment. The JA assesses the likely mortgage payment against the stressed interest rate that
customers had been assessed against at the point of application. Customers that are likely to secure rates above their stress levels are considered at risk of not
being able to afford their new mortgage. Their respective PDs are uplifted to account for the elevated levels of defaults observed for the most recent cohorts of
refinanced mortgages. The JA transfers \u00a36.8bn of exposures into Stage 2. The JA was designed using some profiling characteristics of customers that took
advantage of the Mortgage Charter government scheme as some of these accounts are considered to be at higher risk of arrears. Had management replaced the
probability weighted interest rate view with a flat 5% forecast, the JA would be \u00a39m. Had management assumed a flat 6% forecast, the JA would be \u00a322m.
\u2013 SME debt burden: This JA takes account of the potential debt burden risk of unsecured lending to our SME customers who also took a BBL. This does not
incorporate the credit risk on BBLs as these are government guaranteed, but instead considers the possible impact on repayment of other lending with us.
2023 compared to 2022
JAs reduced from \u00a3296m to \u00a3184m. The proportion of JAs to total ECL decreased from 29% to 19%. This was mainly due to the models reacting to the economic
environment normalising post Covid-19, reducing the need for JAs. In 2023, we expanded the scope of the Mortgage Affordability JA to include Consumer Finance
(previously included in Other) and renamed it as the Secured Affordability JA. We also renamed the Retail Unsecured Affordability JA as the Unsecured Affordability
JA with no change in the scope. In addition, we introduced a Mortgage Refinancing risk JA to target customers susceptible to refinance risk in response to the cost of
living crisis and increased interest rates. In 2023, in response to increasing regulatory requirements under SS1/23, we introduced a JA framework to further enhance
the governance around judgements.
Climate change
In 2023 and 2022, we assessed the risks to asset valuations in the customer loan book from both transitional and physical risks associated with climate change. At
31 December 2023 and 2022, we did not consider it appropriate to recognise a climate risk related JA for the following reasons:
\u2013 The behavioural life of the loan book is less than five years. Any material transitional risks are generally regarded to be relevant over a longer timeframe than five
years and, as such, the risk predominantly relates to assets yet to be written;
\u2013 There have been no observed default events or SICRs due to climate change for any part of the loan book;
\u2013 The absolute exposure to fossil fuel industries is not material. On an individually assessed basis, clients in these industries are highly rated and their markets
remain highly liquid;
\u2013 The residual value of automotive vehicles might be impacted by diesel obsolescence and the transition to electric vehicles. The residual value risk is already set at
the more cautious end of the acceptable range to capture the inherent risk of diesel obsolescence and measurement uncertainty of electric vehicles;\u00a0
\u2013 ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of 5 years , during which timeframe
climate change risks may crystallise;
\u2013 The proportion of mortgage loans subject to flood and subsidence risk is not material. The terms of our mortgage lending also require homeowners to have an
active flood protection at any point of the contract.
Internal credit risk rating for corporate borrowers (audited)
We assign each corporate borrower an internal credit rating based on our internal rating scale. To do this, we look at the customer\u2019s financial history and trends in
the economy backed up by the expert judgement of a risk analyst. We review our internal ratings on a dynamic basis and at least once a year. The internal risk rating
is used to determine the Probability of Default for a client.
Individually assessed corporate Stage 3 exposures (audited)
We assess the ECL requirement for large single name corporate exposures on an individual basis when they meet our definition of default and are transferred into
Stage 3. This assessment takes into consideration the latest specific information about the counterparty to determine a probability weighted ECL based on a best,
worst and mid case outcome. For those loans that were in default (i.e. Stage 3), the ECL net of government guarantee was \u00a3124m at 31 December 2023 (2022:
\u00a3112m). Had management assumed the best or worst outcome in terms of loss estimates, the ECL could have been within a range of \u00a342m to \u00a3209m.
Sensitivity of ECL allowance (audited)
The ECL allowance is sensitive to the methods, assumptions and estimates underlying its calculation. For example, management could have applied different
probability weights to the economic scenarios. In addition, the ECL for residential mortgages is significantly affected by the HPI assumptions which determine the
valuation of collateral used in the calculations.
Had management used different assumptions on probability weights and HPI, a larger or smaller ECL charge would have resulted that may have had a material
impact on the ECL allowance and profit before tax.
Scenario sensitivity
The tables below show the ECL allowances that would have arisen had management applied a 100% weight to each economic scenario. The allowances were
calculated using a stage allocation appropriate to each scenario and differs from the probability-weighted stage allocation used to determine the ECL allowance
shown above. For exposures subject to individual assessment, the distribution of ECL which could reasonably be expected has also been considered, assuming no
change in the number of cases subject to individual assessment, and within the context of a potential best to worst case outcome.
Upside
Base case
Downside 1
Stubborn
Inflation
Downside 2
Weighted
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposure
294,877
294,877
294,877
294,877
294,877
294,877
Retail and Business Banking
201,977
201,977
201,977
201,977
201,977
201,977
Of which:
\u2013 Mortgages
181,188
181,188
181,188
181,188
181,188
181,188
Consumer Finance
5,228
5,228
5,228
5,228
5,228
5,228
CCB
27,277
27,277
27,277
27,277
27,277
27,277
Corporate Centre
60,395
60,395
60,395
60,395
60,395
60,395
ECL
833
896
991
1,176
1,410
992
Retail and Business Banking
419
465
536
689
889
542
Of which:
\u2013 Mortgages
141
174
234
363
562
242
Consumer Finance
68
69
70
72
72
70
CCB
346
362
385
415
449
380
Corporate Centre
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposure
306,284
306,284
306,284
306,284
306,284
306,284
Retail and Business Banking
213,557
213,557
213,557
213,557
213,557
213,557
Of which:
\u2013 Mortgages
192,346
192,346
192,346
192,346
192,346
192,346
Consumer Finance
5,740
5,740
5,740
5,740
5,740
5,740
CCB
28,277
28,277
28,277
28,277
28,277
28,277
Corporate Centre
58,710
58,710
58,710
58,710
58,710
58,710
ECL
930
932
993
1,149
1,383
1,005
Retail and Business Banking
489
497
529
647
830
544
Of which:
\u2013 Mortgages
214
218
244
324
501
251
Consumer Finance
65
66
65
68
69
67
CCB
376
369
399
434
484
394
Corporate Centre
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2023 compared to 2022
ECL was broadly flat in 2023. In Retail and Business Banking, Mortgages ECL decreased as house prices held up better than expected and Unsecured lending ECL
increased in line with arrears. These are yet to rise above pre Covid-19 levels. CCB ECL decreased due to a small number of default cases that were exited late in
2023. The value of JAs decreased in 2023 with models better reflecting the economic environment as the economic distortion caused by Covid-19 reduced.
HPI sensitivity
Given the relative size of our residential mortgage portfolio, management considers that changes in HPI assumptions used to calculate the ECL allowance for
residential mortgages would have the most significant impact on the ECL allowance. The table below shows the ECL impact on the profit before tax of applying an
immediate and permanent house price increase/decrease to our unweighted base case scenario, and assumes no changes to the stage allocation of exposures.
Increase/decrease in house prices
+20%
+10%
-10%
-20%
Increase/(decrease) in profit before tax
\u00a3m
\u00a3m
\u00a3m
\u00a3m
2023
70
38
(54)
(155)
2022
48
32
(61)
(176)
2023 compared to 2022
The sensitivity to decreases in house prices was similar to 2022, but the sensitivity to increases in house prices was higher than in 2022. This is a function of the
model and JA interaction under a more benign economic environment. The drop in the average property value in 2023 resulted in a bigger potential benefit of future
house price increases, which was the main driver for the higher sensitivity towards +10/+20% house price increases.
Both the modelled ECL and the JAs were stressed in the sensitivity analysis to assess the potential impact on ECL from housing market volatility.
Measuring ECL (audited)
For accounts not in default at the reporting date, we estimate a monthly ECL for each exposure and for each month over the forecast period. The lifetime ECL is the
sum of the monthly ECLs over the forecast period, while the 12-month ECL is limited to the first 12 months. We calculate each monthly ECL as the discounted value
for the relevant forecast month of the product of the following factors:
Factor
Description
Survival rate (SR)
The probability that the exposure has not closed or defaulted since the reporting date.
Probability of default
(PD)
The likelihood of a borrower defaulting in the following month, assuming it has not closed or defaulted since the reporting date. For each month in
the forecast period, we estimate the monthly PD from a range of factors. These include the current risk grade for the exposure, which becomes less
relevant further into the forecast period, as well as the expected evolution of the account risk with maturity and factors for changing economics. We
support this with historical data analysis.
Exposure at default
(EAD)
The amount we expect to be owed if a default event occurs. We determine EAD for each month of the forecast period by the expected payment
profile, which varies by product. For amortising products, we base it on the borrower\u2019s contractual repayments over the forecast period. We adjust
this for any expected overpayments on Stage 1 accounts that the borrower may make and for any arrears we expect if the account was to default.
For revolving products, or amortising products with an off-balance sheet element, we determine EAD using the balance at default and the
contractual exposure limit. We vary these assumptions by product and base them on analysis of recent default data.
Loss given default
(LGD)
Our expected loss if a default event were to occur. We express it as a percentage and calculate it based on factors that we have observed to affect
the likelihood and/or value of any subsequent write-offs, which vary according to whether the product is secured or unsecured. If the product is
secured, we take into account collateral values as well as the historical discounts to market/book values due to forced sales type.
We use the original effective interest rate as the discount rate. For accounts in default, we use the EAD as the reporting date balance. We also calculate an LGD to
reflect the default status of the account, considering the current DPD and loan-to-value. PD and SR are not required for accounts in default.
Forecast period
We base the forecast period for amortising facilities on the remaining contract term. For revolving facilities, we base it on the behavioural, rather than contractual,
characteristics of the facility type. In some cases, we shorten the period to simplify the calculation. If we do this, we apply a Judgemental Adjustment to reflect our
view of the full lifetime ECL.
Forward-looking information
Our assessments of a SICR and the calculation of ECL incorporate forward-looking data. We perform historical analysis and identify the key economic variables that
impact credit risk and ECL for each portfolio. These can include house price growth, GDP, unemployment rate and BoE Bank Rate. Where applicable, we incorporate
these economic variables and their associated impacts into our models.
Economic forecasts have the most impact on ECL measurement for residential mortgages and, to a lesser extent, corporate loans. This is due to the long
behavioural lives and large size of these portfolios. Economic forecasts have less impact on ECL for other portfolios due to their shorter lives and smaller size.
Grouping of instruments for losses measured on a collective basis
We measure ECL at the individual financial instrument level. However, where we have used internal capital or similar models as the basis for our ECL models, this
typically results in a large number of relatively small homogenous groups. We typically group instruments where they share risk characteristics using statistical
models and assess them for impairment collectively. We use this approach for all our Retail and Business Banking and Consumer Finance portfolios, and SME
customers in Corporate & Commercial Banking.
We calculate separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed.
For all our portfolios (whether we assess them for impairment individually or collectively) we use five forward-looking economic scenarios.
Governance around ECL impairment allowances (audited)
Our Risk Methodology team developed our ECL models (except for the external models we use, such as OGEM which we described earlier in \u2018Our forecasting
approach\u2019), and our Independent Validations team reviews all material models. As model owners, our Risk Provisioning & Forecasting team run the models to
calculate our ECL each month. The models are sensitive to changes in credit conditions and reflect management judgements that give rise to measurement
uncertainty in our ECL as set out above. The following committees and forums review the provision drivers and ensure that the ECL remains appropriate:
\u2013 Model Risk Control Forum (MRCF) reviews and approves new models and model changes. It also reviews the use of OGEM as a reliable model on which to base
our other forecast macroeconomic variables. We use it across all stress testing and planning so it is subject to model risk criteria .
\u2013 ALCO reviews and approves the base case used in the economic scenarios we use to calculate forward-looking scenarios.
\u2013 CRPF reviews and approves the economic scenarios and probability weights we use to calculate forward-looking scenarios. It also reviews management
judgements and approves ECL impairment allowances.
\u2013 Board Audit Committee reviews and challenges the appropriateness of the estimates and judgements made by management.
For more on the governance around specific elements of the ECL impairment allowances, including the frequency of, and thresholds for, reviews, including by these
committees and forums, see the detailed sections above.
How we assess the performance of our ECL estimation process
We assess the reasonableness of our ECL provisions and the results of our Staging analysis using a range of methods. These include:
\u2013 Benchmarking: we compare our coverage levels with our peers
\u2013 Stand-back testing: we monitor the level of our coverage against actual write-offs
\u2013 Back-testing: we compare key drivers periodically as part of model monitoring practices
\u2013 Monitoring trends: we track ECL and Staged assets over time and against our internal budgets and forecasts, with triggers set accordingly.
SANTANDER UK GROUP LEVEL \u2013 CREDIT RISK REVIEW
Our maximum and net exposure to credit risk (audited)
The tables below show the main differences between our maximum and net exposure to credit risk. They show the effects of collateral, netting, and risk transfer to
mitigate our exposure. The tables only show the financial assets that credit risk affects and to which the impairment requirements in IFRS 9 are applied.
For balance sheet assets, the maximum exposure to credit risk is the carrying value after impairment loss allowances. Off-balance sheet exposures are mortgage
offers, guarantees, formal standby facilities, credit lines and other commitments. For off-balance sheet guarantees, the maximum exposure is the maximum
amount that we would have to pay if the guarantees were called on. For formal standby facilities, credit lines and other commitments that are irrevocable over the
life of the facility, the maximum exposure is the total amount of the commitment.
Maximum exposure
Balance sheet asset
Off-balance sheet
Collateral(1)
Gross
amounts
Loss
allowance
Net
amounts
Gross
amounts
Loss
allowance
Net
amounts
Cash
Non-cash
Netting(2)
Net
exposure
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Cash and balances at central banks
38.2
\u2014
38.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
38.2
Financial assets at amortised cost:
\u2013 Loans and advances to customers:(3)
\u2013 Retail Mortgages(4)
172.9
(0.2)
172.7
8.3
\u2014
8.3
\u2014
(175.4)
\u2014
5.6
\u2013 Corporate loans
18.3
(0.3)
18.0
8.9
\u2014
8.9
(0.1)
(15.3)
\u2014
11.5
\u2013 Finance leases
4.6
(0.1)
4.5
\u2014
\u2014
\u2014
\u2014
(4.5)
\u2014
\u2014
\u2013 Accrued interest and other adjustments
0.9
\u2014
0.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.9
\u2013 Other unsecured loans
7.1
(0.3)
6.8
13.8
(0.1)
13.7
\u2014
\u2014
\u2014
20.5
\u2013 Amounts due from fellow Banco Santander group
subsidiaries and JVs
4.5
\u2014
4.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
4.5
Total loans and advances to customers
208.3
(0.9)
207.4
31.0
(0.1)
30.9
(0.1)
(195.2)
\u2014
43.0
\u2013 Loans and advances to banks
1.1
\u2014
1.1
0.5
\u2014
0.5
\u2014
\u2014
\u2014
1.6
\u2013 Reverse repurchase agreements \u2013 non trading
12.5
\u2014
12.5
\u2014
\u2014
\u2014
\u2014
(12.4)
(0.1)
\u2014
\u2013 Other financial assets at amortised cost
0.2
\u2014
0.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.2
Total financial assets at amortised cost
222.1
(0.9)
221.2
31.5
(0.1)
31.4
(0.1)
(207.6)
(0.1)
44.8
Financial assets at fair value at FVOCI:
\u2013 Debt securities
8.5
\u2014
8.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
8.5
Total financial assets at FVOCI
8.5
\u2014
8.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
8.5
Total
268.8
(0.9)
267.9
31.5
(0.1)
31.4
(0.1)
(207.6)
(0.1)
91.5
2022
Cash and balances at central banks
44.2
\u2014
44.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44.2
Financial assets at amortised cost:
\u2013 Loans and advances to customers:(3)
\u2013 Retail Mortgages(4)
184.3
(0.2)
184.1
8.0
\u2014
8.0
\u2014
(187.4)
\u2014
4.7
\u2013 Corporate loans
19.1
(0.4)
18.7
9.3
\u2014
9.3
(0.1)
(16.5)
\u2014
11.4
\u2013 Finance leases
4.6
(0.1)
4.5
0.4
\u2014
0.4
\u2014
(4.8)
\u2014
0.1
\u2013 Accrued interest and other adjustments
0.7
\u2014
0.7
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.7
\u2013 Other unsecured loans
7.7
(0.2)
7.5
13.7
(0.1)
13.6
\u2014
\u2014
\u2014
21.1
\u2013 Amounts due from fellow Banco Santander group
subsidiaries and JVs
4.2
\u2014
4.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
4.2
Total loans and advances to customers
220.6
(0.9)
219.7
31.4
(0.1)
31.3
(0.1)
(208.7)
\u2014
42.2
\u2013 Loans and advances to banks
1.0
\u2014
1.0
0.4
\u2014
0.4
\u2014
\u2014
\u2014
1.4
\u2013 Reverse repurchase agreements \u2013 non trading
7.3
\u2014
7.3
\u2014
\u2014
\u2014
\u2014
(7.3)
\u2014
\u2014
\u2013 Other financial assets at amortised cost
0.2
\u2014
0.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.2
Total financial assets at amortised cost
229.1
(0.9)
228.2
31.8
(0.1)
31.7
(0.1)
(216.0)
\u2014
43.8
Financial assets at FVOCI:
\u2013 Debt securities
6.0
\u2014
6.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
6.0
Total financial assets at FVOCI
6.0
\u2014
6.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
6.0
Total
279.3
(0.9)
278.4
31.8
(0.1)
31.7
(0.1)
(216.0)
\u2014
94.0
(1) The forms of collateral we take to reduce credit risk include: residential and commercial property; other physical assets, including motor vehicles; liquid securities, including those transferred under reverse
repurchase agreements; cash, including cash used as collateral for derivative transactions; and receivables. Charges on residential property are most of the collateral we take.
(2) We can reduce credit risk exposures by applying netting. We do this mainly for derivative and repurchase transactions with financial institutions. For derivatives and securities finance transactions, we use standard
master netting agreements. For more on this, see \u2018Credit risk mitigation\u2019 in the \u2018Credit risk - Credit risk management\u2019 section.
(3) Balances include interest we have charged to the customer\u2019s account and accrued interest that we have not charged to the account yet.
(4) The collateral value shown against advances secured on residential property is limited to the balance of each associated individual loan. It does not include the impact of over\u2013collateralisation (where the collateral
has a higher value than the loan balance) and includes collateral we would receive on draw down of certain off\u2013balance sheet commitments.
The tables below show the main differences between our maximum and net exposure to credit risk on the financial assets that credit risk affects and to which the
impairment requirements in IFRS 9 are not applied.
Balance
sheet asset
gross
amount
Collateral(1)
Netting(2)
Net
exposure
Cash
Non-cash
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Financial assets at FVTPL:
\u2013 Derivative financial instruments
1.4
(0.8)
\u2014
(0.5)
0.1
\u2013 Other financial assets at FVTPL
0.3
\u2014
\u2014
\u2014
0.3
Total
1.7
(0.8)
\u2014
(0.5)
0.4
2022
Financial assets at FVTPL:
\u2013 Derivative financial instruments
2.4
\u2014
(1.7)
(0.5)
0.2
\u2013 Other financial assets at FVTPL
0.1
\u2014
\u2014
\u2014
0.1
Total
2.5
\u2014
(1.7)
(0.5)
0.3
(1) The forms of collateral we take to reduce credit risk include: liquid securities, including those transferred under reverse repurchase agreements; cash, including cash used as collateral for derivative transactions;
and receivables.
(2) We can reduce credit risk exposures by applying netting. We do this mainly for derivative and repurchase transactions with financial institutions. For derivatives and securities finance transactions, we use standard
master netting agreements. They allow us to set off our credit risk exposure to a counterparty against our obligations to the counterparty in relation to transactions under the master netting agreement in the event
of default. This gives us a lower net credit exposure. They may also reduce settlement exposure. For more on this, see \u2018Credit risk mitigation\u2019 in the \u2018Credit risk \u2013 Credit risk management\u2019 section.
Rating distribution (audited)
The tables below show the credit rating of our financial assets to which the impairment requirements in IFRS 9 apply. Financial assets with low risk concentrations
are not included and are all investment grade. JAs are incorporated in the balances. For more on the credit rating profiles of key portfolios, see the credit risk review
section for each business segment.
Santander UK risk grade
Loss
allowance
Total
9
8
7
6
5
4
3 to 1
Other(1)(2)
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Exposures - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers(2)
5.3
34.2
84.4
48.9
14.6
8.3
5.4
7.2
(0.9)
207.4
\u2013 Stage 1
5.3
33.1
80.4
43.6
10.3
2.8
0.3
6.9
(0.1)
182.6
\u2013 Stage 2
\u2014
1.1
4.0
5.3
4.3
5.4
2.4
0.1
(0.4)
22.2
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
2.7
0.2
(0.4)
2.6
Of which mortgages:
5.2
32.5
79.9
41.5
6.6
3.7
3.5
\u2014
(0.2)
172.7
\u2013 Stage 1
5.2
31.4
75.9
36.3
3.6
0.4
0.2
\u2014
\u2014
153.0
\u2013 Stage 2
\u2014
1.1
4.0
5.2
3.0
3.2
1.4
\u2014
(0.1)
17.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
1.9
\u2014
(0.1)
1.9
Total off\u2013balance sheet
\u2014
6.3
7.0
6.8
4.6
1.7
0.4
4.7
(0.1)
31.4
\u2013 Stage 1
\u2014
6.3
6.9
6.7
4.4
1.2
0.1
4.7
\u2014
30.3
\u2013 Stage 2
\u2014
\u2014
0.1
0.1
0.2
0.5
0.2
\u2014
(0.1)
1.0
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
Santander UK risk grade
Total
Coverage
Ratio
9
8
7
6
5
4
3 to 1
Other(1)(2)
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
%
ECL - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers(2)
\u2014
\u2014
\u2014
\u2014
0.2
0.2
0.5
\u2014
0.9
0.4
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
\u2014
0.1
0.1
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
0.1
0.2
0.1
\u2014
0.4
1.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.4
\u2014
0.4
13.3
Of which mortgages:
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
0.1
\u2014
0.2
0.1
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
0.6
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
5.0
Total off\u2013balance sheet
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
0.3
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
9.1
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Santander UK risk grade
Loss
allowance
9
8
7
6
5
4
3 to 1
Other(1)(2)
Total
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Exposures - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers\u207d\u00b2\u207e
9.5
35.9
85.6
52.1
15.2
9.2
5.4
7.7
(0.9)
219.7
\u2013 Stage 1
9.5
35.6
83.9
47.9
11.1
3.9
0.5
7.3
(0.1)
199.6
\u2013 Stage 2
\u2014
0.3
1.7
4.2
4.1
5.2
2.6
0.2
(0.5)
17.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
2.3
0.2
(0.3)
2.3
Of which mortgages:
9.5
33.4
82.3
45.0
7.2
3.8
3.1
\u2014
(0.2)
184.1
\u2013 Stage 1
9.5
33.1
80.7
41.1
4.1
0.5
0.1
\u2014
\u2014
169.1
\u2013 Stage 2
\u2014
0.3
1.6
3.9
3.1
3.2
1.3
\u2014
(0.1)
13.3
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
1.7
\u2014
(0.1)
1.7
Total off\u2013balance sheet
0.1
7.2
6.9
6.5
4.9
2.1
0.4
3.7
(0.1)
31.7
\u2013 Stage 1
0.1
7.2
6.8
6.4
4.7
1.7
0.2
3.7
\u2014
30.8
\u2013 Stage 2
\u2014
\u2014
0.1
0.1
0.2
0.4
0.1
\u2014
(0.1)
0.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
Santander UK risk grade
Coverage
Ratio
9
8
7
6
5
4
3 to 1
Other(1)(2)
Total
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
%
ECL - On balance sheet
Financial assets at amortised cost:
\u2013 Loans and advances to customers\u207d\u00b2\u207e
\u2014
\u2014
\u2014
\u2014
0.2
0.2
0.5
\u2014
0.9
0.4
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
\u2014
0.1
0.1
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
0.1
0.2
0.2
\u2014
0.5
2.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.3
\u2014
0.3
13.0
Of which mortgages:
\u2014
\u2014
\u2014
\u2014
0.1
0.1
\u2014
\u2014
0.2
0.1
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
\u2014
0.1
0.8
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
\u2014
0.1
5.9
Total off\u2013balance sheet
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
0.3
\u2013 Stage 1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
12.5
\u2013 Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
(1) Includes Joint Ventures and Business Banking (including BBLs balances). We use scorecards for these items, rather than rating models. Off-balance sheet exposures also include residential mortgage offers in the
pipeline.
(2) Includes interest we have charged to the customer\u2019s account and accrued interest we have not charged to the account yet.
Arrears over 90 days past due
31 December 2023
31 December 2022
%
%
Mortgages
0.80
0.62
Credit Cards
0.51
0.49
UPL
0.73
0.61
Overdrafts
2.43
2.24
Business Banking
4.15
3.47
Consumer Finance
0.43
0.44
2023 compared to 2022
With a slower housing market and higher mortgage rates, applications fell in 2023. Our decision to optimise the balance sheet given higher funding costs
contributed to a reduction in mortgage lending.
In 2023, early and late arrears remained at low levels despite a slight increase across the portfolio.
For more on the credit performance of our key portfolios by business segment, see the credit risk review section for each business segment.
Credit quality (audited)
Total on-balance sheet exposures at 31 December 2023 comprised \u00a3203.1 bn of customer loans, loans and advances to banks of \u00a31.1bn, \u00a312.6bn of sovereign
assets measured at amortised cost, \u00a38.5bn of assets measured at FVOCI, and \u00a338.2bn of cash and balances at central banks.
Stage 1
Stage 2
Stage 3
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposures
On-balance sheet
Retail and Business Banking
158,782
18,866
2,239
179,887
Consumer Finance
4,870
330
28
5,228
CCB
13,822
3,418
699
17,939
Corporate Centre
60,395
\u2014
\u2014
60,395
Total on-balance sheet
237,869
22,614
2,966
263,449
Off-balance sheet
Retail and Business Banking(1)
21,597
434
59
22,090
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
8,745
547
46
9,338
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet(2)
30,342
981
105
31,428
Total exposures
268,211
23,595
3,071
294,877
ECL
On-balance sheet
Retail and Business Banking
57
273
169
499
Consumer Finance
21
30
19
70
CCB
64
118
163
345
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
142
421
351
914
Off-balance sheet
Retail and Business Banking
16
26
1
43
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
12
14
9
35
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet
28
40
10
78
Total ECL
170
461
361
992
Coverage ratio(3)
%
%
%
%
On-balance sheet
Retail and Business Banking
\u2014
1.4
7.5
0.3
Consumer Finance
0.4
9.0
68.5
1.3
CCB
0.5
3.5
23.4
1.9
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
0.1
1.9
11.8
0.3
Off-balance sheet
Retail and Business Banking
0.1
6.0
2.8
0.2
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
0.1
2.5
20.2
0.4
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet
0.1
4.1
10.4
0.2
Total coverage
0.1
2.0
11.8
0.3
(1) Off-balance sheet exposures include\u00a33.3bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 31.
(3) ECL as a percentage of the related exposure.
Total on-balance sheet exposures at 31 December 2022 comprised \u00a3215.7bn of customer loans, loans and advances to banks of \u00a31.0bn, \u00a37.5bn of sovereign assets
measured at amortised cost, \u00a36.0bn of assets measured at FVOCI, and \u00a344.2bn of cash and balances at central banks.
Gross write-offs
Stage 1
Stage 2
Stage 3
Total
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exposures
On-balance sheet
Retail and Business Banking
175,365
14,399
2,072
191,836
Consumer Finance
5,005
350
29
5,384
CCB
14,507
3,476
535
18,518
Corporate Centre
58,710
\u2014
\u2014
58,710
Total on-balance sheet
253,587
18,225
2,636
274,448
Off-balance sheet
Retail and Business Banking(1)
21,175
490
56
21,721
Consumer Finance
356
\u2014
\u2014
356
CCB
9,310
412
37
9,759
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total off-balance sheet(2)
30,841
902
93
31,836
Total exposures
284,428
19,127
2,729
306,284
ECL and Gross Write-offs
On-balance sheet
Retail and Business Banking
113
56
295
151
502
Consumer Finance
19
19
27
21
67
CCB
24
69
155
138
362
Corporate Centre
\u2014
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
156
144
477
310
931
Off-balance sheet
Retail and Business Banking
\u2014
12
28
2
42
Consumer Finance
\u2014
\u2014
\u2014
\u2014
\u2014
CCB
\u2014
14
11
7
32
Total off-balance sheet
\u2014
26
39
9
74
Total ECL
156
170
516
319
1,005
Coverage ratio(3)
%
%
%
%
On-balance sheet
Retail and Business Banking
\u2014
2.0
7.3
0.3
Consumer Finance
0.4
7.7
72.4
1.2
CCB
0.5
4.5
25.8
2.0
Corporate Centre
\u2014
\u2014
\u2014
\u2014
Total on-balance sheet
0.1
2.6
11.8
0.3
Off-balance sheet
Retail and Business Banking
0.1
5.7
3.6
0.2
Consumer Finance
\u2014
\u2014
\u2014
\u2014
CCB
0.2
2.7
18.9
0.3
Total off-balance sheet
0.1
4.3
9.7
0.2
Total coverage
0.1
2.7
11.7
0.3
(1) Off-balance sheet exposures include \u00a32.8bn of residential mortgage offers in the pipeline.
(2) Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note 31.\u00a0
(3) ECL as a percentage of the related exposure.
2023 compared to 2022
The ECL provision at 31 December 2023 decreased by \u00a313m to \u00a3992m (2022: \u00a31,005m) largely due to updated economic assumptions.
Gross write-off utilisation of \u00a3232m in CCB and unsecured retail (2022: \u00a3157m).
Key movements in exposures and ECL in the year by Stage were:
\u2013 The reduction in Stage 1 exposures was mainly driven by reduced Mortgage new business due to slowing of the housing market, and customers reducing debt in
response to increasing rates. The Stage 1 ECL was broadly flat as reduced Mortgage Stage 1 exposures had little impact on ECL due to their secured nature.
\u2013 Stage 2 exposures increased reflecting current economic conditions, but levels of arrears are yet to increase above the long-term average. Stage 2 ECL reduced
primarily due to the reduced requirement for mortgages, driven by house prices performing better than expected, and in CCB where expected loss rates
improved.
\u2013 Stage 3 exposures rose due to the economic environment with increases across all portfolios. ECL increased, driven by CCB and Mortgages.
Stage 2 analysis (audited)
The following table analyses our Stage 2 exposures and ECL by the reason the exposure is classified as Stage 2.
2023
PD
deterioration
Forbearance
Other
30 DPD
Secured
affordability
Unsecured
affordability
Mortgage
Refinancing
High risk
corporate
Total
Retail and Business
Banking - Mortgages
Exposure \u00a3m
5,877
516
265
560
2,889
\u2014
7,769
\u2014
17,876
ECL \u00a3m
65
2
3
11
9
\u2014
19
\u2014
109
Consumer Finance
Exposure \u00a3m
115
\u2014
126
25
64
\u2014
\u2014
\u2014
330
ECL \u00a3m
10
\u2014
5
11
4
\u2014
\u2014
\u2014
30
CCB
Exposure \u00a3m
1,809
85
533
93
\u2014
\u2014
\u2014
898
3,418
ECL \u00a3m
75
2
17
2
\u2014
\u2014
\u2014
22
118
Corporate Centre
Exposure \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
ECL \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Total Drawn
Exposure \u00a3m
8,345
601
960
856
2,953
232
7,769
898
22,614
ECL \u00a3m
249
4
33
46
13
35
19
22
421
Undrawn
ECL \u00a3m
28
\u2014
4
3
\u2014
3
\u2014
2
40
Total Reported
Exposure \u00a3m
9,160
601
1,152
893
2,889
233
7,769
898
23,595
ECL \u00a3m
277
4
37
49
13
38
19
24
461
2022
Retail and Business
Banking - Mortgages
Exposure \u00a3m
7,310
449
241
463
4,961
\u2014
n/a
\u2014
13,424
ECL \u00a3m
86
2
5
10
27
\u2014
n/a
\u2014
130
Consumer Finance
Exposure \u00a3m
159
\u2014
164
27
\u2014
\u2014
n/a
\u2014
350
ECL \u00a3m
11
\u2014
6
10
\u2014
\u2014
n/a
\u2014
27
CCB
Exposure \u00a3m
1,548
64
684
214
\u2014
\u2014
n/a
966
3,476
ECL \u00a3m
81
4
1
10
\u2014
\u2014
n/a
59
155
Corporate Centre
Exposure \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
n/a
\u2014
\u2014
ECL \u00a3m
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
n/a
\u2014
\u2014
Total Drawn
Exposure \u00a3m
9,560
513
1,137
890
4,961
198
n/a
966
18,225
ECL \u00a3m
284
6
22
48
27
31
n/a
59
477
Undrawn
ECL \u00a3m
19
\u2014
8
6
\u2014
4
n/a
2
39
Total Reported
Exposure \u00a3m
10,323
625
1,116
937
4,961
199
n/a
966
19,127
ECL \u00a3m
303
6
30
54
27
35
n/a
61
516
Where balances satisfy more than one of the criteria above for determining a SICR, we have assigned the corresponding gross carrying amount and ECL in order of
the categories presented.
Reconciliation of exposures, loss allowance and net carrying amounts (audited)
The table below shows the relationships between disclosures in this Credit risk review section which refer to drawn exposures and the associated ECL , and the total
assets as presented in the Consolidated Balance Sheet. The Credit risk review disclosures exclude Joint ventures, as they carry low credit risk and therefore have an
immaterial ECL, and Other items, mainly accrued interest that we have not yet charged to the customer's account, and cash collateral.
On-balance sheet
Off-balance sheet
Exposures
Loss
allowance
Net carrying
amount
Exposures
Loss
allowance
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Retail and Business Banking(1)(2)
179,887
499
179,388
22,090
43
Consumer Finance
5,228
70
5,158
\u2014
\u2014
Corporate & Commercial Banking
17,939
345
17,594
9,338
35
Corporate Centre
60,395
\u2014
60,395
\u2014
\u2014
Total exposures presented in Credit Quality tables
263,449
914
262,535
31,428
78
Joint ventures
4,544
Other items
751
Adjusted net carrying amount
267,830
Assets classified at FVTPL
1,694
Non-financial assets(3)
5,924
Total assets per the Consolidated Balance Sheet
275,448
2022
Retail and Business Banking(1)(2)
191,836
502
191,334
21,721
42
Consumer Finance
5,384
67
5,317
356
\u2014
Corporate & Commercial Banking
18,518
362
18,156
9,759
32
Corporate Centre
58,710
\u2014
58,710
\u2014
\u2014
Total exposures presented in Credit Quality tables
274,448
931
273,517
31,836
74
Joint ventures
4,164
Other items
745
Adjusted net carrying amount
278,426
Assets classified at FVTPL
2,536
Non-financial assets(3)
4,251
Total assets per the Consolidated Balance Sheet
285,213
(1) Off-balance sheet exposures include offers in the pipeline and undrawn flexible mortgages products.
(2) Off-balance sheet exposures include credit cards.
(3) Non-financial assets include \u00a3632m (2022: \u00a32,657m) of Macro hedge of interest rate risk.
Movement in total exposures and the corresponding ECL (audited)
The following table shows changes in total on and off-balance sheet exposures, subject to ECL assessment, and the corresponding ECL, in the period. The table
presents total gross carrying amounts and ECLs at a Santander UK group level. We present segmental views in the sections below.
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
284,428
170
19,127
516
2,729
319
306,284
1,005
Transfers from Stage 1 to Stage 2(3)
(12,945)
(9)
12,945
9
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
5,913
111
(5,913)
(111)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(598)
(6)
(920)
(38)
1,518
44
\u2014
\u2014
Transfers from Stage 3(3)
28
1
304
15
(332)
(16)
\u2014
\u2014
Transfers of financial instruments
(7,602)
97
6,416
(125)
1,186
28
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(111)
\u2014
145
\u2014
130
\u2014
164
Change in economic scenarios(2)
\u2014
29
\u2014
(33)
\u2014
9
\u2014
5
New lending and assets purchased(5)
25,409
28
562
45
59
20
26,030
93
Redemptions, repayments and assets sold(7)
(33,805)
(35)
(3,017)
(53)
(886)
(46)
(37,708)
(134)
Changes in risk parameters and other movements(6)
(219)
(8)
507
(34)
395
133
683
91
Assets written off(7)
\u2014
\u2014
\u2014
\u2014
(412)
(232)
(412)
(232)
At 31 December 2023
268,211
170
23,595
461
3,071
361
294,877
992
Net movement in the period
(16,217)
\u2014
4,468
(55)
342
42
(11,407)
(13)
ECL (release)/charge to the Income Statement
\u2014
(55)
274
219
Less: Discount unwind
\u2014
\u2014
(21)
(21)
Less: Recoveries net of collection costs
\u2014
\u2014
7
7
Total ECL (release)/charge to the Income Statement
\u2014
(55)
260
205
At 1 January 2022
292,366
132
17,964
330
3,017
403
313,347
865
Transfers from Stage 1 to Stage 2(3)
(9,100)
(25)
9,100
25
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
7,207
133
(7,207)
(133)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(621)
(4)
(624)
(32)
1,245
36
\u2014
\u2014
Transfers from Stage 3(3)
10
1
758
150
(768)
(151)
\u2014
\u2014
Transfers of financial instruments
(2,504)
105
2,027
10
477
(115)
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(110)
\u2014
98
\u2014
110
\u2014
98
Change in economic scenarios(2)
\u2014
37
\u2014
123
\u2014
3
\u2014
163
New lending and assets purchased(5)
48,194
42
1,119
76
64
24
49,377
142
Redemptions, repayments and assets sold(7)
(54,546)
(35)
(2,065)
(60)
(950)
(35)
(57,561)
(130)
Changes in risk parameters and other movements(6)
918
(1)
82
(61)
375
86
1,375
24
Assets written off(7)
\u2014
\u2014
\u2014
\u2014
(254)
(157)
(254)
(157)
At 31 December 2022
284,428
170
19,127
516
2,729
319
306,284
1,005
Net movement in the period
(7,938)
38
1,163
186
(288)
(84)
(7,063)
140
ECL charge/(release) to the Income Statement
38
186
73
297
Less: Discount unwind
\u2014
\u2014
(13)
(13)
Less: Recoveries net of collection costs
\u2014
\u2014
36
36
Total ECL charge/(release) to the Income Statement
38
186
96
320
(1) Exposures that have attracted an ECL, and as reported in the Credit Quality table above.
(2) Changes to assumptions in the period. Isolates the impact on ECL from changes to the economic variables for each scenario, the scenarios themselves, and the probability weights from all other movements. Also
includes the impact of quarterly revaluation of collateral. The impact of changes in economics on exposure Stage allocations are shown in Transfers of financial instruments.
(3) Total impact of facilities that moved Stage(s) in the period. This means, for example, that where risk parameter changes (model inputs) or model changes (methodology) result in a facility moving Stage, the full
impact is reflected here (rather than in Other). Stage flow analysis only applies to facilities that existed at both the start and end of the period. Transfers between Stages are based on opening balances and ECL at
the start of the period.
(4) Relates to the revaluation of ECL following the transfer of an exposure from one Stage to another.
(5) Exposures and ECL of facilities that did not exist at the start of the period but did at the end. Amounts in Stage 2 and 3 represent assets which deteriorated in the period after origination in Stage 1.
(6) Residual movements on existing facilities that did not change Stage in the period, and which were not acquired in the period. Includes the net increase or decrease in the period of the mortgage pipeline, cash at
central banks, the impact of changes in risk parameters in the period, unwind of discount rates and increases in ECL requirements of accounts which ultimately were written off in the period.
(7) Exposures and ECL for facilities that existed at the start of the period but not at the end.
COUNTRY RISK EXPOSURES (audited)
We manage our country risk exposure under our global limits framework. We set our Risk\u00a0Appetite for each country, considering factors that may affect its risk
profile. These can include political events, macroeconomics and the nature of the risk. We actively manage exposures if we need to.
The tables below show our total exposures, which are the total of balance sheet and off\u2013balance sheet values. We calculate balance sheet values in line with IFRS
(i.e. after netting allowed under IAS 32) except for credit provisions which we add back. Off\u2013balance sheet values are undrawn facilities and letters of credit. We
classify location by country of risk \u2013 the country where each client has its main business or assets. That is unless there is a full risk transfer guarantee in place. If so,
we use the guarantor\u2019s country of domicile. If a client has operations in many countries, we use their country of incorporation. The table below excludes balances
with other Banco Santander group members. We show them separately in the section that immediately follows.
2023
2022
Financial
institutions
Financial
institutions
Governments
Banks(1)
Other
Retail
Corporate
Total(2)
Governments
Banks(1)
Other
Retail
Corporate
Total(2)
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Eurozone
Ireland
\u2014
\u2014
3.1
\u2014
0.1
3.2
\u2014
\u2014
2.3
\u2014
0.1
2.4
Spain
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
France
0.1
1.7
0.8
\u2014
\u2014
2.6
0.1
0.8
0.5
\u2014
\u2014
1.4
Germany
\u2014
0.2
0.3
\u2014
\u2014
0.5
\u2014
0.3
\u2014
\u2014
0.1
0.4
Luxembourg
\u2014
\u2014
0.5
\u2014
0.1
0.6
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Other(3)
0.3
0.7
\u2014
\u2014
\u2014
1.0
0.3
0.5
\u2014
\u2014
\u2014
0.8
0.4
2.6
4.7
\u2014
0.2
7.9
0.4
1.6
2.8
\u2014
0.2
5.0
Other countries
UK
38.5
1.7
6.5
206.0
25.0
277.7
44.1
1.8
5.8
217.3
26.9
295.9
US
\u2014
0.7
\u2014
\u2014
\u2014
0.7
0.1
0.9
0.1
\u2014
\u2014
1.1
Japan
2.0
0.9
\u2014
\u2014
\u2014
2.9
1.1
0.3
\u2014
\u2014
\u2014
1.4
Switzerland
2.1
\u2014
\u2014
\u2014
\u2014
2.1
1.2
\u2014
\u2014
\u2014
\u2014
1.2
Other
0.1
1.2
0.2
0.1
0.7
2.3
0.1
0.7
0.2
\u2014
0.5
1.5
42.7
4.5
6.7
206.1
25.7
285.7
46.6
3.7
6.1
217.3
27.4
301.1
Total
43.1
7.1
11.4
206.1
25.9
293.6
47.0
5.3
8.9
217.3
27.6
306.1
(1) Excludes balances with central banks.
(2) Excludes cash at hand, interests in other entities, intangible assets, property, plant and equipment, tax assets, retirement benefit assets and other assets.
(3)\u00a0 \u00a0 \u00a0 Includes The Netherlands \u00a30.3bn (2022: \u00a30.1bn), Belgium \u00a30.5bn (2022: \u00a30.6bn), and Finland \u00a30.1bn (2022: \u00a30.1bn).
Balances with other Banco Santander group members (audited)
We deal with other Banco Santander group members in the ordinary course of business. We do this where we have a particular business advantage or expertise and
where they can offer us commercial opportunities. These transactions also arise where we support the activities of, or with, larger multinational corporate clients
and financial institutions which may deal with other Banco Santander group members. We conduct these activities on the same terms as for similar transactions
with third parties, and in a way that manages the\u00a0credit risk within limits acceptable to the Board and the PRA.
At 31 December 2023 and 31 December 2022, we had gross balances with other Banco Santander group members as follows:
2023
2022
Financial institutions
Financial institutions
Banks
Other
Corporate
Total
Banks
Other
Corporate
Total
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Assets
Spain
0.8
\u2014
\u2014
0.8
1.4
\u2014
\u2014
1.4
UK
\u2014
4.6
\u2014
4.6
\u2014
4.2
\u2014
4.2
0.8
4.6
\u2014
5.4
1.4
4.2
\u2014
5.6
Liabilities
Spain
1.1
0.1
\u2014
1.2
1.7
0.1
\u2014
1.8
UK
\u2014
14.3
\u2014
14.3
\u2014
15.6
\u2014
15.6
1.1
14.4
\u2014
15.5
1.7
15.7
\u2014
17.4
Borrower profile (audited)
Stock
New business
2023
2022
2023
2022
\u00a3m
%
\u00a3m
%
\u00a3m
%
\u00a3m
%
Home movers(1)
71,931
42
76,357
41
5,009
41
12,221
36
Remortgagers(2)
48,475
28
53,190
29
3,901
32
10,644
31
First-time buyers
36,868
21
37,971
21
3,015
25
8,129
24
Buy-to-let
15,585
9
16,799
9
239
2
3,133
9
172,859
100
184,317
100
12,164
100
34,127
100
(1) 'Home movers\u2019 include both existing customers moving house and taking out a new mortgage with us, and customers who switch their mortgage to us when they move house.
(2) 'Remortgagers\u2019 are new customers who are taking a new mortgage with us.
As well as the new business in the table above, there were \u00a331.2bn (2022: \u00a324.9bn) of remortgages where we moved our customers with maturing mortgages
onto new ones. We also provided \u00a30.7bn (2022: \u00a31.2bn) of further advances and flexible mortgage drawdowns. 77% (2022: 81%) of customers with a maturing
mortgage were retained, which applied to mortgages four months post maturity, based on a 12-month average of retention rates to September 2023 and
December 2022 respectively.
2023 compared to 2022
In 2023, mortgage asset stock decreased across all sectors, with the stock borrower profile unchanged. Our new business also decreased, particularly in the Buy-to-
Let sector reflecting market conditions where landlords' appetite to expand their portfolios reduced. In 2023, we helped first-time buyers buy their new home with
\u00a33.0bn of gross lending (2022: \u00a38.1bn).
Interest rate profile (audited)
The interest rate profile of our maturing mortgage asset stock was:
2023
2022
\u00a3m
%
\u00a3m
%
Fixed rate
153,207
89
163,622
89
Of which maturing:
\u2013 < 12 months
37,630
22
38,233
21
\u2013 Later than 1 year but no later than 3 years
65,502
38
38,213
21
\u2013 Later than 3 years but no later than 4 years
34,725
20
24,310
13
\u2013 Later than 4 years but no later than 5 years
10,977
6
24,888
14
\u2013 Later than 5 years
4,373
3
37,978
21
Variable rate
13,761
8
12,430
7
Standard Variable Rate (SVR)
3,915
2
5,645
3
Follow on Rate (FoR)
1,976
1
2,620
1
172,859
100
184,317
100
2023 compared to 2022
In 2023 , we continued to see customers refinance from reversion to fixed rate products influenced by rapid increases in interest rates, with a slight increase in
demand for variable rate products tracking the Bank of England base rate. We also saw more customers choosing shorter-term fixed rate products in 2023.
Geographical distribution (audited)
The geographical distribution of our mortgage asset stock and new business was:
Stock
New business
2023
2022
2023
2022
Region
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
London
44.0
47.0
2.9
8.3
Midlands and East Anglia
24.2
25.6
1.8
5.3
North
22.9
24.4
1.7
4.7
Northern Ireland
2.6
2.9
0.1
0.3
Scotland
6.4
6.8
0.6
1.2
South East excluding London
54.8
58.4
3.8
10.6
South West, Wales and other
18.0
19.2
1.3
3.7
172.9
184.3
12.2
34.1
2023 compared to 2022
The portfolio's geographical distribution continued to represent a broad footprint across the UK, with a concentration around London and the South East. The loan-
to-income multiple of mortgage lending in the year, based on average earnings of new business at inception, was 2.98 (2022: 3.35).
Mortgage loan size (audited)
The split of our mortgage asset by size was:
Mortgage loan size
2023
2022
>\u00a31.0m
2%
2%
\u00a30.5m to \u00a31.0m
10%
10%
\u00a30.25m to \u00a30.5m
31%
31%
<\u00a30.25m
57%
57%
Average loan size (stock) (1)
\u00a3187k
\u00a3183k
Average loan size (new business)
\u00a3228k
\u00a3237k
(1) Average initial advance of existing stock.
Loan-to-value analysis (audited)
This table shows the LTV distribution for the gross carrying amount and the related ECL of our total mortgage portfolio and Stage 3 mortgages, and new business.
We also show the collateral value and average LTV. We use our estimate of the property value at the balance sheet date and include fees that have been added to
the loan. For flexible products, we only include the drawn amount, not undrawn limits.
2023
2022
Stock
Stage 3
New
Stock
Stage 3
New
Total
ECL
Total
ECL
Business
Total
ECL
Total
ECL
Business
LTV
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Up to 50%
78,673
31
1,106
12
2,616
87,379
37
1,111
14
4,890
>50-60%
32,837
24
347
10
1,604
35,664
29
283
11
4,014
>60-70%
30,874
40
246
16
1,977
33,868
50
197
16
6,104
>70-80%
18,721
48
138
19
2,736
17,824
45
110
15
10,094
>80-90%
8,893
35
67
15
2,318
7,339
29
42
9
6,002
>90-100%
2,416
20
39
11
900
1,873
17
32
9
2,999
>100%
445
44
65
25
13
370
45
52
21
24
172,859
242
2,008
108
12,164
184,317
252
1,827
95
34,127
Collateral value (1)
172,803
1,997
12,164
184,269
1,818
34,126
%
%
%
%
%
%
Average LTV - Balance weighted(2)
51
49
66
50
47
69
(1) Collateral value is limited to the balance of each loan and excludes the impact of any over-collateralisation. Includes collateral against loans in negative equity of \u00a3389m (2022: \u00a3323m).
(2) Balance weighted LTV = (Loan 1 balance x (Loan 1 Balance/Loan 1 latest property valuation) + (Loan 2 balance x (loan 2 balance/Loan 2 latest property valuation) +\u00a0 ...) /(Loan 1 balance + Loan 2 balance+...).
The balance weighted average LTV of new business in the period in London was 65% (2022: 66%). \u00a345bn of new business and internal transfers were re-priced in
2023 and a further \u00a339bn will reach the end of the incentive period by the end of 2024. Arrears from recent internal transfers remain low, with less than 1% of
customers entering arrears within 12 months. 85% of lending is prime UK retail mortgages with an average new loan size of \u00a3228k (2022: \u00a3237k). Unsecured retail
constitutes 3% of lending.
2023 compared to 2022
There were no significant changes in collateral quality in 2023. Despite economic pressures, balance weighted average LTVs of stock were broadly flat over the
period. Balance weighted average LTVs of new business reduced in 2023 driven by proportionally more lending at LTV<=60%. We monitor the profile of new
lending and take action as needed to ensure the LTV mix of completions is in line with our risk appetite.
Credit performance (audited)
2023
2022
\u00a3m
\u00a3m
Mortgage loans and advances to customers
172,859
184,317
of which:
\u2013 Stage 1
152,975
169,066
\u2013 Stage 2
17,876
13,424
\u2013 Stage 3
2,008
1,827
Loss allowances(1)
242
251
%
%
Stage 1 ratio(2)
88.50
91.73
Stage 2 ratio(2)
10.34
7.28
Stage 3 ratio
1.17
1.00
(1) The ECL allowance is for both on and off\u2013balance sheet exposures.
(2) Stage 1/Stage 2 exposures as a percentage of customer loans.
Movement in total exposures and the corresponding ECL (audited)
The following tables show changes in total on and off-balance sheet exposures and ECL in the period. The footnotes to the Santander UK group level table on page
67 also apply to these tables.
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
176,965
25
13,533
131
1,848
95
192,346
251
Transfers from Stage 1 to Stage 2(3)
(10,791)
(3)
10,791
3
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
4,778
30
(4,778)
(30)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(335)
(3)
(566)
(15)
901
18
\u2014
\u2014
Transfers from Stage 3(3)
14
\u2014
277
9
(291)
(9)
\u2014
\u2014
Transfers of financial instruments
(6,334)
24
5,724
(33)
610
9
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(28)
\u2014
40
\u2014
22
\u2014
34
Change in economic scenarios(2)
\u2014
\u2014
\u2014
(2)
\u2014
3
\u2014
1
New lending and assets purchased(5)
12,947
4
154
3
5
1
13,106
8
Redemptions, repayments and assets sold(7)
(23,081)
(6)
(1,752)
(12)
(417)
(14)
(25,250)
(32)
Changes in risk parameters and other movements(6)
666
5
338
(17)
36
3
1,040
(9)
Assets written off (7)
\u2014
\u2014
\u2014
\u2014
(54)
(11)
(54)
(11)
At 31 December 2023
161,163
24
17,997
110
2,028
108
181,188
242
Net movement in the period
(15,802)
(1)
4,464
(21)
180
13
(11,158)
(9)
ECL (release)/charge to the Income Statement
(1)
(21)
24
2
Less: Discount unwind
\u2014
\u2014
(3)
(3)
Less: Recoveries net of collection costs
\u2014
\u2014
28
28
Total ECL (release)/charge to the Income Statement
(1)
(21)
49
27
At 1 January 2022
177,696
13
11,152
88
1,815
89
190,663
190
Transfers from Stage 1 to Stage 2(3)
(5,834)
(1)
5,834
1
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
2,961
16
(2,961)
(16)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(278)
(2)
(448)
(11)
726
13
\u2014
\u2014
Transfers from Stage 3(3)
4
\u2014
279
9
(283)
(9)
\u2014
\u2014
Transfers of financial instruments
(3,147)
13
2,704
(17)
443
4
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(15)
\u2014
40
\u2014
8
\u2014
33
Change in economic scenarios(2)
\u2014
1
\u2014
21
\u2014
2
\u2014
24
New lending and assets purchased(5)
35,028
7
529
11
1
\u2014
35,558
18
Redemptions, repayments and assets sold(7)
(32,565)
(3)
(1,229)
(11)
(415)
(12)
(34,209)
(26)
Changes in risk parameters and other movements(6)
(47)
9
377
(1)
14
7
344
15
Assets written off(7)
\u2014
\u2014
\u2014
\u2014
(10)
(3)
(10)
(3)
At 31 December 2022
176,965
25
13,533
131
1,848
95
192,346
251
Net movement in the period
(731)
12
2,381
43
33
6
1,683
61
ECL charge/(release) to the Income Statement
12
43
9
64
Less: Discount unwind
\u2014
\u2014
(2)
(2)
Less: Recoveries net of collection costs
\u2014
\u2014
(1)
(1)
Total ECL charge/(release) to the Income Statement
12
43
6
61
Loan modifications (audited)
Forbearance(1)
The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.
2023
2022
\u00a3m
\u00a3m
Financial assets modified in the period:
\u2013 Amortised cost before modification
346
315
\u2013 Net modification loss
5
7
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12 months ECL in the period
79
91
The balances at 31 December 2023 and 31 December 2022, analysed by their staging at the period-end and the forbearance we applied, were:
Capitalisation
Term
extension
Interest-only
Concessionary
interest rate
Total
Loss
allowances
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Stage 2
325
386
211
11
933
7
Stage 3
284
150
64
171
669
30
609
536
275
182
1,602
37
Proportion of portfolio
0.3%
0.3%
0.2%
0.1%
0.9%
2022
Stage 2
309
319
240
6
874
11
Stage 3
298
140
65
190
693
31
607
459
305
196
1,567
42
Proportion of portfolio
0.3%
0.3%
0.2%
0.1%
0.9%
(1) We base forbearance type on the first forbearance on the accounts.
At 31 December 2023, the proportion of the mortgage portfolio in forbearance remained flat at 0.9% (2022: 0.9%) and the proportion of accounts in forbearance
for more than six months that had made their last six months\u2019 contractual payments was 81% (2022: 85%). The weighted average LTV of all accounts in
forbearance was 44% (2022: 43%) compared to the weighted average portfolio LTV of 51% (2022: 50%)
At 31 December 2023, the carrying value of mortgages classified as multiple forbearance decreased to \u00a3121m (2022: \u00a3152m).
Credit performance (audited)
Portfolio of particular interest(1)
Total
Interest-only
Part interest-
only, part
repayment (2)
Flexible
LTV >100%
Buy-to-let
Other
portfolio
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage portfolio
172,859
38,825
12,584
5,418
445
15,585
118,981
\u2013 Stage 1
152,975
32,012
10,896
4,420
276
13,887
107,834
\u2013 Stage 2
17,876
5,829
1,449
744
104
1,647
10,402
\u2013 Stage 3
2,008
984
239
254
65
51
745
Stage 3 ratio
1.17%
2.55%
1.90%
5.01%
14.57%
0.33%
0.63%
Properties in possession
23
12
3
2
5
1
8
Balance weighted LTV (indexed)
51%
48%
51%
37%
116%
60%
53%
2022
Mortgage portfolio
184,317
40,825
13,510
6,765
370
16,799
126,996
\u2013 Stage 1
169,066
35,702
12,143
5,713
217
15,884
118,507
\u2013 Stage 2
13,424
4,250
1,149
839
101
876
7,791
\u2013 Stage 3
1,827
873
218
213
52
39
698
Stage 3 ratio
1.00%
2.16%
1.62%
3.45%
13.94%
0.23%
0.55%
Properties in possession
47
18
8
3
7
1
16
Balance weighted LTV (indexed)
50%
47%
49%
36%
117%
58%
52%
(1) Where a loan falls into more than one category, we include it in all the categories that apply. As a result, the sum of the mortgages in the segments of particular interest and the other portfolio does not agree to the
total mortgage portfolio.
(2) Mortgage balance includes both the interest-only part of \u00a39,531m ( 2022: \u00a310,010m) and the non-interest-only part of the loan.
2023 compared to 2022
In 2023, the combined total proportion of interest-only loans, part interest-only, part repayment loans and flexible loans was broadly stable at 32.9% (2022:
33.1%).
BTL mortgage balances decreased \u00a31.2bn to \u00a315.6bn (2022: \u00a316.8bn) driven by our strategy to deleverage our mortgage portfolio and changes in the market
dynamic. In 2023, the balance weighted average LTV of mortgage total new BTL lending was 58% (2022: 67%).
Forbearance (1) \u00a0 (audited)
The balances at 31 December 2023 and 31 December 2022 were:
Interest-only(2)
Flexible
LTV >100%
Buy-to-Let
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Total
365
74
12
23
\u2013 Stage 2
216
55
3
16
\u2013 Stage 3
149
19
9
7
2022
Total
290
36
9
15
\u2013 Stage 2
111
19
\u2014
11
\u2013 Stage 3
179
17
9
4
(1) Where a loan falls into more than one category, we have included it in all the categories that apply.
(2) Comprises full interest-only loans and part interest-only, part repayment loans.
2023 compared to 2022
Forbearance levels increased slightly although were lower than expected in 2023, with customers having the option to move to a temporary interest-only
conversion under the Mortgage Charter.
Credit performance (audited)
Business
banking
Other unsecured
Personal
loans
Credit
cards
Overdrafts
Total other
unsecured
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans and advances to customers
1,819
2,064
2,674
471
5,209
7,028
of which:
\u2013 Stage 1
1,574
1,743
2,283
207
4,233
5,807
\u2013 Stage 2
115
294
345
236
875
990
\u2013 Stage 3
130
27
46
28
101
231
Loss allowances(1)
16
66
140
78
284
300
Stage 3 undrawn exposures
2
37
39
Stage 3 ratio
7.25%
2.65%
3.83%
Gross write-offs (12 months)
11
119
130
2022
Loans and advances to customers
2,519
1,982
2,558
461
5,001
7,520
of which:
\u2013 Stage 1
2,223
1,730
2,192
155
4,077
6,300
\u2013 Stage 2
133
231
329
282
842
975
\u2013 Stage 3
163
21
37
24
82
245
Loss allowances(1)
19
62
130
82
274
293
Stage 3 undrawn exposures
3
32
35
Stage 3 ratio
6.58%
2.27%
3.71%
Gross write-offs (12 months)
11
99
110
(1) The ECL allowance is for both on and off\u2013balance sheet exposures.
2023 compared to 2022
Business Banking balances were lower, mainly due to reductions in the Bounce Back Loans (BBL) portfolio. Stage 3 assets reduced, although this had a minimal
impact on write-offs as the reduction in assets was mainly due to the BBLs where the 100% government guarantee was claimed. Stage 2 and 3 unsecured assets
and write-offs increased reflecting the current economic environment. However, these rates are yet to exceed long run averages. 55% (2022: 55%) of credit card
customers repay their balance in full each month and UPL average customer balances remained unchanged at \u00a36,000.
Loan modifications (audited)
Forbearance
The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.
Business
banking
Credit cards
Overdrafts
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial assets modified in the period:
\u2013 Amortised cost before modification
\u2014
13
8
21
\u2013 Net modification loss
\u2014
14
6
20
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12m ECL in the period
\u2014
2
1
3
2022
Financial assets modified in the period:
\u2013 Amortised cost before modification
\u2014
7
7
14
\u2013 Net modification loss
\u2014
7
6
13
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12m ECL in the period
\u2014
3
1
4
The balances at 31 December 2023 and 31 December 2022 were:
Other unsecured
Business
banking
Personal loans
Credit cards
Overdrafts
Total other
unsecured
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Total
3
1
47
19
67
70
\u2013 Stage 2
\u2014
1
5
2
8
8
\u2013 Stage 3
3
\u2014
42
17
59
62
2022
Total
3
1
34
16
51
54
\u2013 Stage 2
\u2014
1
6
2
9
9
\u2013 Stage 3
3
\u2014
28
14
42
45
Other loan modifications
There were no other loan modifications made in 2023 and 2022.
Credit performance (audited)
2023
2022
\u00a3m
\u00a3m
Loans and advances to customers
5,228
5,384
of which:
\u2013 Stage 1
4,870
5,005
\u2013 Stage 2
330
350
\u2013 Stage 3
28
29
Loss allowances(1)
70
67
Stage 3 ratio
0.53%
0.54 %
Gross write-offs
23
19
(1) The ECL allowance is for both on and off\u2013balance sheet exposures.
2023 compared to 2022
In 2023, we maintained our prudent Consumer (auto) finance underwriting criteria. The product mix was broadly unchanged, with wholesale balances increasing
slightly.
At 31 December 2023, Consumer (auto) finance gross lending (new business) was \u00a32,055m (2022: \u00a32,519m). Wholesale loans (Stock finance) to car dealerships at
31 December 2023 were approximately 9.9% (2022: 10.1%) of the Consumer loan book. At 31 December 2023, the average Consumer (auto) finance loan size was
\u00a317,308 (2022: \u00a317,256).
The risk profile was stable in terms of our credit scoring acceptance policies. The overall risk performance was good with the vast majority of customers paying.
Loan modifications (audited)
Forbearance
There were no accounts in forbearance at 31 December 2023 and 31 December 2022.
Other loan modifications
There were no other loan modifications made in 2023 and 2022 .
The gross carrying amount of financial assets for which the ECL allowance changed to a 12-month measurement at 31 December 2023 was \u00a330m (2022 : \u00a395m ).
Movement in total exposures and the corresponding ECL (audited)
The following tables show changes in total on and off-balance sheet exposures and ECL in the period. The footnotes to the Santander UK group level table on page
67 also apply to these tables.
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
23,838
83
3,888
166
572
145
28,298
394
Transfers from Stage 1 to Stage 2(3)
(1,376)
(1)
1,376
1
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
512
10
(512)
(10)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(118)
(3)
(258)
(8)
376
11
\u2014
\u2014
Transfers from Stage 3(3)
1
\u2014
9
1
(10)
(1)
\u2014
\u2014
Transfers of financial instruments
(981)
6
615
(16)
366
10
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(16)
\u2014
29
\u2014
64
\u2014
77
Change in economic scenarios(2)
\u2014
30
\u2014
(30)
\u2014
6
\u2014
6
New lending and assets purchased(5)
7,257
5
132
6
38
10
7,427
21
Redemptions, repayments and assets sold(7)
(6,713)
(13)
(869)
(10)
(193)
(23)
(7,775)
(46)
Changes in risk parameters and other movements(6)
(834)
(19)
199
(13)
137
28
(498)
(4)
Assets written off (7)
\u2014
\u2014
\u2014
\u2014
(175)
(68)
(175)
(68)
At 31 December 2023
22,567
76
3,965
132
745
172
27,277
380
Net movement in the period
(1,271)
(7)
77
(34)
173
27
(1,021)
(14)
ECL (release)/charge to the Income Statement
(7)
(34)
95
54
Less: Discount unwind
\u2014
\u2014
(9)
(9)
Less: Recoveries net of collection costs
\u2014
\u2014
(5)
(5)
Total ECL (release)/charge to the Income Statement
(7)
(34)
81
40
Stage 1
Stage 2
Stage 3
Total
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
Exposures(1)
ECL
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2022
20,604
50
5,914
127
827
248
27,345
425
Transfers from Stage 1 to Stage 2(3)
(2,195)
(14)
2,195
14
\u2014
\u2014
\u2014
\u2014
Transfers from Stage 2 to Stage 1(3)
4,023
92
(4,023)
(92)
\u2014
\u2014
\u2014
\u2014
Transfers to Stage 3(3)
(172)
(1)
(111)
(13)
283
14
\u2014
\u2014
Transfers from Stage 3(3)
\u2014
\u2014
463
135
(463)
(135)
\u2014
\u2014
Transfers of financial instruments
1,656
77
(1,476)
44
(180)
(121)
\u2014
\u2014
Net ECL remeasurement on stage transfer(4)
\u2014
(72)
\u2014
(41)
\u2014
61
\u2014
(52)
Change in economic scenarios(2)
\u2014
38
\u2014
76
\u2014
\u2014
\u2014
114
New lending and assets purchased(5)
8,629
16
228
19
43
12
8,900
47
Redemptions, repayments and assets sold(7)
(9,019)
(15)
(584)
(32)
(53)
(17)
(9,656)
(64)
Changes in risk parameters and other movements(6)
1,968
(11)
(194)
(27)
21
(14)
1,795
(52)
Assets written off (7)
\u2014
\u2014
\u2014
\u2014
(86)
(24)
(86)
(24)
At 31 December 2022
23,838
83
3,888
166
572
145
28,298
394
Net movement in the period
3,234
33
(2,026)
39
(255)
(103)
953
(31)
ECL charge/(release) to the Income Statement
33
39
(79)
(7)
Less: Discount unwind
\u2014
\u2014
(3)
(3)
Less: Recoveries net of collection costs
\u2014
\u2014
42
42
Total ECL charge/(release) to the Income Statement
33
39
(40)
32
Rating distribution (audited)
These tables show our credit risk exposure according to our internal rating scale (see the \u2018Santander UK group level \u2013 credit risk review\u2019 section) for each portfolio.
On this scale, the higher the rating, the better the quality of the counterparty.
Santander UK risk grade
9
8
7
6
5
4
3 to 1
Other(1)
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
SME and mid corporate
\u2014
166
911
2,970
3,497
3,575
1,439
118
12,676
Commercial Real Estate
\u2014
\u2014
360
1,684
2,132
972
209
1
5,358
Social Housing
43
3,032
4,881
\u2014
\u2014
\u2014
\u2014
\u2014
7,956
43
3,198
6,152
4,654
5,629
4,547
1,648
119
25,990
Of which:
Stage 1
43
3,130
6,152
4,618
4,715
2,363
141
118
21,280
Stage 2
\u2014
68
\u2014
36
914
2,184
762
1
3,965
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
745
\u2014
745
2022
SME and mid corporate
\u2014
336
923
2,341
3,299
5,327
1,791
106
14,123
Commercial Real Estate
\u2014
2
111
2,044
2,128
936
185
1
5,407
Social Housing
44
4,028
3,956
6
\u2014
\u2014
\u2014
\u2014
8,034
44
4,366
4,990
4,391
5,427
6,263
1,976
107
27,564
Of which:
Stage 1
39
4,364
4,944
4,202
4,773
4,289
386
107
23,104
Stage 2
5
2
46
189
654
1,974
1,018
\u2014
3,888
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
572
\u2014
572
(1) Smaller exposures mainly in the commercial mortgage portfolio. We use scorecards for them, instead of a rating model.
2023 compared to 2022
In 2023, committed exposure reduced by 5.7% , driven by reductions in the SME and mid corporate portfolios, which was down by 10.2%. The rating distribution
saw an improvement in the SME and mid corporate portfolios, with Commercial Real Estate broadly stable.
Geographical distribution (audited)
We typically classify geographical location according to the counterparty\u2019s country of domicile unless a full risk transfer guarantee is in place, in which case we use
the guarantor\u2019s country of domicile instead. At 31 December 2023 and 31 December 2022 this is mainly focused in the UK.
Credit risk mitigation (audited)
Gross exposure
Collateral
Net exposure
Stage 3
Stage 3
Stage 3
2023
\u00a3m
\u00a3m
\u00a3m
SME and mid corporate
627
190
437
Commercial Real Estate
118
28
90
745
218
527
2022
SME and mid corporate
513
169
344
Commercial Real Estate
59
30
29
572
199
373
Credit performance (audited)
We monitor exposures that show potentially higher risk characteristics using our Watchlist process. The table below shows the exposures we monitor, and those
we classify as Stage 3 by portfolio at 31 December 2023 and 31 December 2022.
Committed exposure
Watchlist
Fully
performing
Enhanced
monitoring
Proactive
management
Stage 3
Total(1)
Loss
allowances
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
SME and mid corporate
10,140
462
1,447
627
12,676
341
Commercial Real Estate
4,734
10
496
118
5,358
39
Social Housing
7,752
\u2014
204
\u2014
7,956
\u2014
22,626
472
2,147
745
25,990
380
2022
SME and mid corporate
11,796
431
1,383
513
14,123
355
Commercial Real Estate
4,765
103
480
59
5,407
38
Social Housing
7,978
46
10
\u2014
8,034
1
24,539
580
1,873
572
27,564
394
(1) Includes committed facilities and derivatives.
2023 compared to 2022
In 2023, Watchlist exposures increased, however the overall quality improved with reductions seen in Enhanced Monitoring of 18.6%. An increase in Proactive
Management of 14.6% was driven by a small number of larger exposures in Social Housing which have been downgraded to Proactive Management following
concerns raised by the Social Housing regulators rather than credit concerns.
Loan modifications (audited)
Forbearance
The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.
2023
2022
\u00a3m
\u00a3m
Financial assets modified in the period:
\u2013 Amortised cost before modification
189
240
\u2013 Net modification loss
10
8
Financial assets modified since initial recognition:
\u2013 Gross carrying amount of financial assets for which the loss allowance changed to 12-month ECL in the period
27
15
We only make forbearance arrangements for lending to customers. The balances at 31 December 2023 and 31 December 2022, analysed by their staging at the
period\u2013end and the forbearance we applied, were:
2023
2022
\u00a3m
\u00a3m
Stock(1)
\u2013 Term extension
113
98
\u2013 Interest-only
215
238
\u2013 Other payment rescheduling
264
219
592
555
Of which:
\u2013 Stage 1
2
17
\u2013 Stage 2
159
173
\u2013 Stage 3
431
365
592
555
Proportion of portfolio
2.3%
2.0%
(1) We base forbearance type on the first forbearance we applied. Tables only show accounts open at the period-end. Amounts are drawn balances and include off balance sheet balances.
Committed exposures
Credit risk arises on both on- and off\u2013balance sheet transactions, e.g. derivatives.
Rating distribution (audited)
These tables show our credit risk exposure according to our internal rating scale (see the \u2018Santander UK group level \u2013 credit risk review\u2019 section) for each portfolio.
On this scale, the higher the rating, the better the quality of the counterparty.
Santander UK risk grade
9
8
7
6
5
4
3 to 1
Other(1)
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Sovereign and Supranational
42,552
1,896
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44,448
Structured Products
170
1,470
787
\u2014
\u2014
\u2014
\u2014
\u2014
2,427
Financial Institutions
1,167
665
393
7
\u2014
\u2014
\u2014
\u2014
2,232
43,889
4,031
1,180
7
\u2014
\u2014
\u2014
\u2014
49,107
Of which:
Stage 1
43,889
4,031
1,180
7
\u2014
\u2014
\u2014
\u2014
49,107
Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2022
Sovereign and Supranational
47,040
1,077
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
48,117
Structured Products
136
1,162
875
\u2014
\u2014
\u2014
\u2014
\u2014
2,173
Financial Institutions
1,191
672
521
26
\u2014
\u2014
\u2014
\u2014
2,410
48,367
2,911
1,396
26
\u2014
\u2014
\u2014
\u2014
52,700
Of which:
Stage 1
48,367
2,911
1,396
26
\u2014
\u2014
\u2014
\u2014
52,700
Stage 2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Stage 3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
(1) Smaller exposures mainly in the commercial mortgage portfolio. We use scorecards for them, instead of a rating model.
2023 compared to 2022
Committed exposures reduced by 6.8% mainly driven by UK Sovereign and Supranational exposures, as part of normal liquid asset portfolio management, which
reduced by 7.6%. The portfolio profile remained short-term, reflecting the purpose of the holdings.
Geographical distribution (audited)
We typically classify geographical location according to the counterparty\u2019s country of domicile unless a full risk transfer guarantee is in place, in which case we use
the guarantor\u2019s country of domicile instead.
2023
2022
UK
Europe
US
Rest of
World
Total
UK
Europe
US
Rest of
World
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Sovereign and Supranational
39,581
2,063
\u2014
2,804
44,448
43,936
1,886
83
2,212
48,117
Structured Products
1,430
243
\u2014
754
2,427
1,379
422
4
368
2,173
Financial Institutions
884
968
186
194
2,232
988
1,005
230
187
2,410
41,895
3,274
186
3,752
49,107
46,303
3,313
317
2,767
52,700
Credit performance (audited)
We monitor exposures that show potentially higher risk characteristics using our Watchlist process. In Corporate Centre, committed exposures were all fully
performing at 31 December 2023 and 31 December 2022.
Loan modifications (audited)
There were no loan modifications made in 2023 and 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCreditRiskExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-3": { "value": "
OUR KEY LIQUIDITY RISKS (audited)
Through our Liquidity Risk Appetite (LRA) framework, we manage our funding or structural contingent and market liquidity risks wherever they arise. This can be in
retail and corporate deposit outflows, wholesale secured and unsecured liquidity outflows and off-balance sheet activities. Other risks our framework covers
include funding concentrations, intra-day cash flows, intra-group commitments and support, franchise retention and cross currency risk.
Our main sources of liquidity
Customer deposits finance most of our customer lending. Although these funds are mostly callable, in practice they give us a stable and predictable core of funding.
This is due to the nature of retail accounts and the breadth of our retail customer relationships.
We have a strong wholesale funding investor base, diversified across product types and geographies. Through the wholesale markets, we have active relationships
in many sectors including banks, other financial institutions, corporates, pensions and investment funds. We access the wholesale funding markets through the
issuance of capital, senior unsecured debt, covered bonds, structured notes and short-term funding. We also access these markets through securitisations of certain
assets of Santander UK plc and our operating subsidiaries. For more on our programmes, see Notes 14, 26 and 27 in the Consolidated Financial Statements.
We generate funding on the strength of our own balance sheet, our own profitability and our own network of investors. In addition, we have access to UK
Government funding schemes. We comply with rules set by the PRA, other regulators, and Banco Santander standards. While we manage, consolidate and monitor
liquidity risk centrally, we also manage and monitor it in the business area it comes from.
Our main uses of liquidity
Our main uses of liquidity are to fund our lending in Retail and Business Banking, Consumer Finance and Corporate & Commercial Banking, to pay interest and
dividends, and to repay debt. Our ability to pay dividends depends on various factors. These include our regulatory capital needs, the level of our distributable
reserves, and our financial performance. We also use liquidity to pay for business combinations.
Risk mitigation (audited)
The Board aims to make our balance sheet resilient at all times and for it to be perceived as such by stakeholders. This preserves our short and long-term viability.
The Board recognises that as we are involved in maturity transformation, we cannot hold enough liquidity to cover all possible stress scenarios. The Board requires
us to hold enough liquidity to make sure we will survive three plausible but severe stress scenarios (our LRA stress test, described above). We do this by maintaining
a prudent balance sheet structure and approved liquid resources.
Recovery and Resolution framework
The CFO is the accountable SMF for recovery and resolution and the related work is managed by the CFO division. They are overseen by the Board Audit Committee
and the Board. We review and refresh our recovery plan each year. It sets out the risks, the indicators we use to monitor those risks, and the actions that are
available to mitigate capital, liquidity or combined stress event. We are confident that we have sufficient credible and executable options to respond to a wide range
of stresses, be they market-wide or idiosyncratic, in a timely and effective manner. Recovery indicators are both qualitative and quantitative and we have embedded
them into our risk frameworks. We monitor recovery capacity, headroom to recovery triggers and recovery indicators regularly. If needed, we would invoke recovery
early to mitigate the effects of a stress and restore our financial position and balance sheet strength.\u00a0
Our resolution capabilities are underpinned by comprehensive governance, testing and assurance arrangements, which seek to ensure that our resolution readiness
is maintained and enhanced on an ongoing basis. In October 2023, we submitted our second resolvability self-assessment report to the PRA. This builds on the first
self-assessment report submitted in October 2021, as summarised in our June 2022 resolvability public disclosure. The next resolvability public disclosures by the
Bank of England and Santander UK are due in June 2024.
Risk monitoring and reporting (audited)
We monitor liquidity risk daily, weekly and monthly. We do this through different committees and levels of management, including ALCO and the BRC.
Reconciliation of wholesale funding to the balance sheet (audited)
This table reconciles our wholesale funding to our balance sheet at 31 December 2023 and 31 December 2022.
Balance sheet line item
Funding
analysis
Deposits
by banks (1)
Deposits
by customers (2)
Repurchase
agreements
- non
trading
Financial
liabilities
designated
at fair value
Debt
securities
in issue
Subordinated
liabilities
Other equity
instruments (3)
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Deposits by banks
1.1
1.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Certificates of deposit and commercial paper
4.3
\u2014
\u2014
\u2014
\u2014
4.3
\u2014
\u2014
Senior unsecured \u2013 public benchmark
12.7
\u2014
1.6
\u2014
\u2014
11.1
\u2014
\u2014
\u2013 privately placed
0.8
\u2014
0.1
\u2014
0.6
0.1
\u2014
\u2014
Covered bonds
14.8
\u2014
\u2014
\u2014
\u2014
14.8
\u2014
\u2014
Securitisation and structured issuance
2.7
\u2014
\u2014
\u2014
\u2014
2.7
\u2014
\u2014
TFSME
17.0
17.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Subordinated liabilities and equity
4.2
\u2014
\u2014
\u2014
\u2014
\u2014
2.2
2.0
Total wholesale funding
57.6
18.1
1.7
\u2014
0.6
33.0
2.2
2.0
Repos
8.4
\u2014
\u2014
8.4
\u2014
\u2014
\u2014
\u2014
Foreign exchange and hedge accounting
1.1
\u2014
\u2014
\u2014
\u2014
0.9
0.2
\u2014
Other
2.5
2.2
\u2014
\u2014
0.3
\u2014
\u2014
\u2014
Balance sheet total
69.6
20.3
1.7
8.4
0.9
33.9
2.4
2.0
2022
Deposits by banks
0.5
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Certificates of deposit and commercial paper
4.7
\u2014
\u2014
\u2014
\u2014
4.7
\u2014
\u2014
Senior unsecured \u2013 public benchmark
14.3
\u2014
4.6
\u2014
\u2014
9.7
\u2014
\u2013 privately placed
0.6
\u2014
0.1
\u2014
0.4
0.1
\u2014
\u2014
Covered bonds
14.9
\u2014
\u2014
\u2014
\u2014
14.9
\u2014
\u2014
Securitisation and structured issuance
1.0
\u2014
\u2014
\u2014
\u2014
1.0
\u2014
\u2014
TFSME
25.0
25.0
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Subordinated liabilities and equity
3.9
\u2014
\u2014
\u2014
\u2014
\u2014
1.9
2.0
Total wholesale funding
64.9
25.5
4.7
\u2014
0.4
30.4
1.9
2.0
Repos
8.0
\u2014
\u2014
8.0
\u2014
\u2014
\u2014
\u2014
Foreign exchange and hedge accounting
1.6
\u2014
0.1
\u2014
\u2014
1.1
0.4
\u2014
Other
3.4
3.0
\u2014
\u2014
0.4
\u2014
\u2014
\u2014
Balance sheet total
77.9
28.5
4.8
8.0
0.8
31.5
2.3
2.0
(1)\u00a0 \u00a0 Consists of Perpetual Capital Securities. See Note 33 to the Consolidated Financial Statements.
(2)\u00a0 \u00a0 This is included in our balance sheet total of 190,850m(2022: \u00a3195,568m).
(3)\u00a0 \u00a0 Other consists of items in the course of transmission and other deposits. See Note 24 to the Consolidated Financial Statements.
Maturity profile of wholesale funding (audited)
This table shows our main sources of wholesale funding. It does not include securities finance agreements. The table is based on exchange rates at issue and
scheduled repayments and call dates. It does not reflect the final contractual maturity of the funding.
For details of the maturities of financial liabilities and off-balance sheet commitments, see Note 39 to the Consolidated Financial Statements .
\u2264 1
month
>1 and \u2264 3
months
>3 and \u2264 6
months
>6 and \u2264 9
months
>9 and \u2264
12 months
Sub-total
\u2264 1 year
>1 and
\u2264 2 years
>2 and
\u2264 5 years
>5 years
Total
2023
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Downstreamed from Santander UK Group Holdings plc to Santander UK plc(1)
Senior unsecured \u2013 public benchmark
\u2014
1.6
\u2014
\u2014
\u2014
1.6
2.4
6.8
0.4
11.2
\u2013 privately placed
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\u2014
0.1
Subordinated liabilities and equity (incl. AT1)
\u2014
\u2014
0.5
\u2014
\u2014
0.5
0.8
1.3
0.9
3.5
\u2014
1.6
0.5
\u2014
\u2014
2.1
3.2
8.2
1.3
14.8
Other Santander UK plc
Deposits by banks
0.3
0.8
\u2014
\u2014
\u2014
1.1
\u2014
\u2014
\u2014
1.1
Certificates of deposit and commercial paper
1.0
3.3
\u2014
\u2014
\u2014
4.3
\u2014
\u2014
\u2014
4.3
Senior unsecured \u2013 public benchmark
\u2014
0.6
0.2
\u2014
\u2014
0.8
0.4
\u2014
0.3
1.5
\u2013 privately placed
\u2014
\u2014
\u2014
0.1
\u2014
0.1
0.1
0.2
0.3
0.7
Covered bonds
0.1
1.0
0.9
0.4
1.0
3.4
1.1
9.2
1.1
14.8
Securitisation & structured issuance(2)
\u2014
\u2014
\u2014
\u2014
0.1
0.1
\u2014
2.1
\u2014
2.2
TFSME
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
17.0
\u2014
\u2014
17.0
Subordinated liabilities
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.7
0.7
1.4
5.7
1.1
0.5
1.1
9.8
18.6
11.5
2.4
42.3
Other group entities
Securitisation & structured issuance(3)
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\u2014
\u2014
0.5
31 December 2023
1.4
7.3
1.6
0.5
1.1
11.9
22.3
19.7
3.7
57.6
Of which:
\u2013 Secured
0.1
1.0
0.9
0.4
1.1
3.5
18.6
11.3
1.1
34.5
\u2013 Unsecured
1.3
6.3
0.7
0.1
\u2014
8.4
3.7
8.4
2.6
23.1
2022
Total at 31 December 2022
2.6
5.2
0.5
1.5
1.2
11.0
6.6
42.2
5.1
64.9
Of which:
\u2013 Secured
0.1
1.0
0.2
0.9
\u2014
2.2
3.5
34.0
1.2
40.9
\u2013 Unsecured
2.5
4.2
0.3
0.6
1.2
8.8
3.1
8.2
3.9
24.0
(1) 96% of senior unsecured debt issued from Santander UK Group Holdings plc has been downstreamed to Santander UK plc as \u2018secondary non-preferential debt\u2019 in line with the guidelines from the Bank of England
for Internal MREL.
(2) Includes funding from mortgage-backed securitisation vehicles where Santander UK plc is the asset originator.
(3) Includes funding from asset-backed securitisation vehicles where entities other than Santander UK plc are the asset originator.
2023 compared to 2022
Together with our immediate parent, Santander UK Group Holdings plc, our overall funding strategy remains to develop and sustain a diversified funding base. We
also need to fulfil regulatory requirements as well as support our credit ratings. We have stable and diversified wholesale funding programmes.
We repaid \u00a38.0bn of TFSME in 2023 as planned, with \u00a317.0bn outstanding.
At 31 December 2023, 79% (2022:83%) of wholesale funding had a maturity of greater than one year, with an overall residual duration of 35 months (2022: 37
months).
Currency composition of wholesale funds (audited)
This table shows our wholesale funding by major currency at 31 December 2023 and 31 December 2022.
2023
2022
Sterling
US Dollar
Euro
Other
Sterling
US Dollar
Euro
Other
%
%
%
%
%
%
%
%
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
Senior unsecured \u2013 public benchmark
23
60
17
\u2014
18
58
24
\u2014
\u2013 privately placed
\u2014
\u2014
\u2014
100
\u2014
\u2014
\u2014
100
Subordinated liabilities and equity (incl. AT1)
87
13
\u2014
\u2014
75
25
\u2014
\u2014
38
48
13
1
27
52
20
1
Other Santander UK plc
Deposits by banks
1
97
2
\u2014
29
71
\u2014
\u2014
Certificates of deposit and commercial paper
29
70
\u2014
1
56
42
2
\u2014
Senior unsecured \u2013 public benchmark
21
56
23
\u2014
18
62
20
\u2014
\u2013 privately placed
98
\u2014
2
\u2014
95
\u2014
5
\u2014
Covered bonds
54
5
39
2
43
12
45
\u2014
Securitisation & structured issuance
100
\u2014
\u2014
\u2014
100
\u2014
\u2014
\u2014
TFSME
100
\u2014
\u2014
\u2014
100
\u2014
\u2014
\u2014
Subordinated liabilities
76
24
\u2014
\u2014
48
52
\u2014
\u2014
71
14
15
\u2014
74
12
14
\u2014
Other group entities
Securitisation & structured issuance
100
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Total
63
23
14
\u2014
63
21
16
\u2014
Term issuance (audited)
In 2023, our external term issuance (sterling equivalent) was:
Sterling
US Dollar
Euro
Other
2023
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
Senior unsecured \u2013 public benchmark
0.4
1.1
\u2014
\u2014
1.5
3.9
Subordinated debt and equity (inc. AT1)
1.1
1.1
0.8
1.5
1.1
\u2014
\u2014
2.6
4.7
Other Santander UK plc
Securitisations and other secured funding
1.5
\u2014
\u2014
\u2014
1.5
0.6
Covered bonds
1.5
\u2014
\u2014
0.3
1.8
4.0
Senior unsecured \u2013 public benchmark
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Senior unsecured \u2013 privately placed
0.3
\u2014
\u2014
\u2014
0.3
0.1
3.3
\u2014
\u2014
0.3
3.6
4.7
Other group entities
Securitisations
0.5
\u2014
\u2014
\u2014
0.5
\u2014
Total gross issuances
5.3
1.1
\u2014
0.3
6.7
9.4
\u00a0
In 2023 we issued c\u00a35.6bn medium-term funding across a range of currencies, including c\u00a31.5bn of issuance to Santander UK Group Holdings plc and c\u00a34.1bn of
other secured issuance. We also issued \u00a31.1bn of Tier 2 securities which were bought by Santander UK Group Holdings plc.
On-balance sheet encumbered and unencumbered assets (audited)
Encumbered with counterparties other than central banks
Assets
positioned
at central
banks(3)
Covered
bonds
Securitis-
ations
Other
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash and balances at central banks(1)(2)
\u2014
\u2014
1,480
1,480
831
Financial assets at FVTPL:
\u2013 Derivative financial instruments
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at FVTPL
\u2014
\u2014
\u2014
\u2014
\u2014
Financial assets at amortised cost:
\u2013 Loans and advances to customers
21,880
5,208
59
27,147
58,489
\u2013 Loans and advances to banks
\u2014
\u2014
254
254
\u2014
\u2013 Repurchase agreements \u2013 non trading
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at amortised cost
\u2014
\u2014
14
14
\u2014
Financial assets at FVOCI
\u2014
\u2014
5,183
5,183
\u2014
Interests in other entities
\u2014
\u2014
\u2014
\u2014
\u2014
Intangible assets
\u2014
\u2014
\u2014
\u2014
\u2014
Property, plant and equipment
\u2014
\u2014
\u2014
\u2014
\u2014
Current tax assets
\u2014
\u2014
\u2014
\u2014
\u2014
Retirement benefit assets
\u2014
\u2014
\u2014
\u2014
\u2014
Other assets
\u2014
\u2014
\u2014
\u2014
\u2014
Total assets
21,880
5,208
6,990
34,078
59,320
2022
Cash and balances at central banks(1)(2)
\u2014
\u2014
1,330
1,330
893
Financial assets at FVTPL:
\u2013 Derivative financial instruments
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at FVTPL
\u2014
\u2014
\u2014
\u2014
\u2014
Financial assets at amortised cost:
\u2013 Loans and advances to customers
21,304
2,851
56
24,211
68,535
\u2013 Loans and advances to banks
\u2014
\u2014
163
163
\u2014
\u2013 Repurchase agreements \u2013 non trading
\u2014
\u2014
\u2014
\u2014
\u2014
\u2013 Other financial assets at amortised cost
\u2014
\u2014
48
48
\u2014
Financial assets at FVOCI
\u2014
\u2014
4,365
4,365
\u2014
Interests in other entities
\u2014
\u2014
\u2014
\u2014
\u2014
Intangible assets
\u2014
\u2014
\u2014
\u2014
\u2014
Property, plant and equipment
\u2014
\u2014
\u2014
\u2014
\u2014
Current tax assets
\u2014
\u2014
\u2014
\u2014
\u2014
Retirement benefit assets
\u2014
\u2014
\u2014
\u2014
\u2014
Other assets
\u2014
\u2014
\u2014
\u2014
\u2014
Total assets
21,304
2,851
5,962
30,117
69,428
(1) Encumbered cash and balances at central banks include minimum cash balances we have to hold at central banks for regulatory purposes.
(2) Readily realisable cash and balances at central banks are amounts held at central banks as part of our liquidity management activities.
(3) Comprises pre-positioned assets and encumbered assets.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLiquidityRiskExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-4": { "value": "
Capital risk
Overview
Capital risk is the risk that we do not have an adequate amount or quality of capital to
meet our business objectives, regulatory requirements and market expectations.
In this section, we set out how we are regulated. We explain how we manage capital on
a standalone basis as a subsidiary in the Banco Santander group. We then analyse our
capital resources and key capital ratios including our RWAs.
Key metrics
CET1 capital ratio of 15.4% (2022: 15.4%)
Total qualifying regulatory capital of \u00a3 14.6bn (2022: \u00a3 14.3bn)
THE SCOPE OF OUR CAPITAL ADEQUACY
Regulatory supervision
For capital purposes, we are subject to prudential supervision by the PRA, as a UK banking group, and by the European Central Bank (ECB) as part of the Banco
Santander group. The ECB supervises Banco Santander as part of the Single Supervisory Mechanism (SSM). Although we are part of the Banco Santander group, we
do not have a guarantee from Banco Santander SA and we operate as a standalone subsidiary. As we are part of the UK sub-group regulated by the PRA, we have to
meet the PRA capital requirements on a standalone basis. We also have to show the PRA that we can withstand capital stress tests without the support of our
parent. Reinforcing our corporate governance framework, the PRA exercises oversight through its rules and regulations on the Board and senior management
appointments.
Santander UK Group Holdings plc is the holding company of Santander UK plc and is the head of the Santander UK group for regulatory capital and leverage
purposes. Santander UK plc is the head of the ring-fenced bank sub-group and is subject to regulatory capital and leverage rules in relation to that sub-group. Our
basis of consolidation for our capital disclosures is substantially the same as for our Consolidated Financial Statements.
CAPITAL RISK MANAGEMENT
The Board is responsible for capital management strategy and policy and ensuring that we monitor and control our capital within regulatory and internal limits. We
manage our funding and maintain capital adequacy on a standalone basis. We operate within the capital risk framework and appetite approved by our Board. This
reflects the environment we operate in, our strategy for each material risk and the potential impact of adverse scenarios or stresses on our capital.
Management of capital requirements (audited)
Our capital risk appetite aims to maintain capital levels appropriate to the level of stress applied, and the expected regulatory response. In:
\u2013 An adverse economic stress, which we expect once in 20 years, the firm should remain profitable and exceed all regulatory capital minimums at all times.
\u2013 A very severe economic stress, which we expect once in 100 years, and which has been designed to test any specific weaknesses of a firm\u2019s business model, the
firm should meet all regulatory capital minimums at all times. This is subject to using regulatory buffers designed to absorb losses in such a stress.
Management of capital resources (audited)
We use a mix of regulatory and EC ratios and limits, internal buffers and restrictions to manage our capital resources. We also take account of the costs of differing
capital instruments and capital management techniques. We also use these to shape the best structure for our capital needs. We decide how to allocate our capital
resources as part of our strategic planning process. We base this in part on the relative returns on capital using both EC and regulatory capital measures. We plan
for severe stresses and we set out what action we would take if an extremely severe stress threatened our viability and solvency. This could include not paying
dividends, selling assets, reducing our business and issuing more capital.
Risk measurement
We apply Banco Santander\u2019s approach to capital measurement and risk management for CRD IV. Santander UK plc is classified as a significant subsidiary of Banco
Santander SA. For more on the CRD IV risk measurement of our exposures, see Banco Santander\u2019s Pillar 3 report. For more on our capital, see our Additional Capital
and Risk Management Disclosures on our website: aboutsantander.co.uk.
Key metrics
The main metrics we use to measure capital risk are CET1 capital ratio and total capital ratio. We continue to be in excess of overall capital requirements, minimum
leverage requirements and minimum requirements for own funds and eligible liabilities (MREL).
Stress testing
Each year we create a capital plan, as part of our ICAAP. We share our ICAAP with the PRA. The PRA then tells us how much capital (Pillar 2A), and of what quality, it
thinks we should hold on top of our Pillar 1 requirements and buffer levels. We also develop a series of economic scenarios to stress test our capital needs and
confirm that we have enough regulatory capital to meet our projected and stressed capital needs and to meet our obligations as they fall due.
In 2022, we developed a Climate Internal Scenario Analysis (CISA) to help understand better the potential impact of climate change on our business portfolios and
balance sheet. Since then, we have invested in a strategic solution to deliver capability to run long-term horizon multi-scenario assessments which will inform
future strategic decisions and enhance risk management capabilities (CISA Development). The model capability will support in exploring scenarios which would
reflect a range of climate outcomes, covering shorter and longer-term (30-year) horizons and reflect physical and transition risks. The CISA outputs will form the
basis of our future ICAAP exercises for climate risk and will help us prioritise our actions for the next five years.
We augment our regulatory minimum capital with internal buffers. We hold buffers to ensure we have enough time to take action against unexpected changes.
Risk mitigation
We designed our capital risk framework, policies and procedures to ensure that we operate within our Risk Appetite. We manage capital transferability between our
subsidiaries in line with our business strategy, our risk and capital management policies, UK laws and regulations. There are no legal restrictions on us moving
capital resources promptly, or repaying liabilities, between the Company and its subsidiaries except for distributions between Santander UK entities in the ring-
fenced bank sub-group and Santander UK entities that are not members of the ring-fenced bank sub-group, where the PRA is required to assess the impact of
proposed distribution prior to payment. For details on our Recovery framework in the event of a capital stress, see 'risk mitigation' in the \u2018Liquidity risk\u2019 section.
At 31 December 2023, Santander UK plc, Cater Allen Limited, Santander ISA Managers Limited and certain other non-regulated subsidiaries of Santander UK plc
were party to a capital support deed entered into on 17 December 2021 and effective from 1 January 2022 (the RFB Sub-Group Capital Support Deed). These parties
were permitted by the PRA to form a core UK group as defined in the PRA Rulebook, a permission which expires on 31 December 2024. Exposures of each of the
regulated entities to other members of the core UK group are exempt from large exposure limits that would otherwise apply and these exposures are risk-weighted
at 0%. Where applicable this permission also provides for intra-group exposures to be excluded from the leverage exposure measure. The purpose of the RFB Sub-
Group Capital Support Deed is to facilitate the prompt transfer of available capital resources from, or repayment of liabilities by, the non-regulated parties to any of
the regulated parties in the event that one of the regulated parties breached or was at risk of breaching its capital resources or risk concentrations requirements.
Risk monitoring and reporting
We monitor and report regularly against our capital plan. We do this to identify any change in our business performance that might affect our capital. Each month,
we also review the economic assumptions we use to create and stress test our capital plan. We do this to identify any potential reduction in our capital.
CAPITAL RISK REVIEW
Meeting evolving capital requirements
We target a CET1 management buffer of sufficient size to absorb volatility in CET1 deductions, capital supply and capital demand whilst remaining above the
current and expected future regulatory CET1 requirement. Distribution restrictions would be expected to be applied if we were unable to meet both our minimum
requirement, which consists of the Pillar 1 minimum plus Pillar 2A, the CRD IV buffers consisting of the Capital Conservation Buffer (CCB), the Countercyclical Capital
Buffer (CCyB), and the Other Systemically Important Institutions Buffer (O-SII).
Impact of IFRS 9 on regulatory capital
Our ECL methodology takes account of forward-looking data and covers a range of possible economic outcomes, and so provision movements may result in
increased pro-cyclicality of risk-based capital and leverage ratios. However, the impact is currently mitigated by our surplus of IRB model regulatory expected losses
over provisions for exposures using the IRB approach. For such exposures (which include residential mortgages) the adverse impact on CET1 capital of provision
increases from reserve movements is offset by the related reduction of the negative CET1 capital adjustment for regulatory expected loss amounts. Also, the UK
CRR transitional rules for the capital impact of IFRS 9 mean that adverse CET1 effects from increases in ECL-based provisions from the level of such provisions at 1
January 2018 are partly reduced until the end of 2024.
We reflect projections of ECL provisions in our capital position forecasting under base case and stress scenarios for ICAAP and capital management purposes. We
also consider the dynamics of ECL in how we assess and manage capital risk. A period of economic instability, such as that seen in early 2020 due to the impacts of
the Covid-19 pandemic, could significantly impact our results and our financial assets. It could also impact the amount of capital we have to hold. We take into
account the volatility of ECL in our capital planning strategy.
Key capital ratios
2023
2022
%
%
CET1 capital ratio
15.4
15.4
AT1
2.9
2.8
Tier 2
3.2
2.2
Total capital ratio
21.5
20.4
The total subordination available to Santander UK plc senior unsecured bondholders was 21.5% (2022 :20.4%) of RWAs.
Return on assets - profit after tax divided by average total assets was 0.55% (2022: 0.49%).
2023 compared to 2022
The CET1 capital ratio remained stable at 15.4%. Higher profit and a reduction in RWA exposure was partially offset by the dividends paid in 2023.
Regulatory capital resources (audited)
This table shows our qualifying regulatory capital:
2023
2022
\u00a3m
\u00a3m
CET1 capital
10,443
10,799
AT1 capital
1,956
1,956
Tier 1 capital
12,399
12,755
Tier 2 capital
2,172
1,548
Total regulatory capital(1)
14,571
14,303
(1)Capital resources include a transitional IFRS 9 benefit at 31 December 2023 of \u00a343m (2022: \u00a319m).
Risk-weighted assets
Total RWAs at 31 December 2023 were \u00a367.8bn (2022: \u00a370.1bn) which are consistent with our regulatory filings. RWAs decreased with lower mortgage lending
and active balance sheet management.
", "dimensions": { "concept": "ifrs-full:DisclosureOfObjectivesPoliciesAndProcessesForManagingCapitalExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-5": { "value": "
OUR KEY NON-TRADED MARKET RISKS (audited)
Non-traded market risk mainly comes from providing banking products and services to our customers, as well as our structural balance sheet exposures. It arises in
all our business segments. In Retail and Business Banking, Consumer Finance and Corporate & Commercial Banking, it is a by-product of us writing customer
business and we transfer most of these risks to Corporate Centre to manage. The only types of non-traded market risk that we keep in Retail and Business Banking,
Consumer Finance and Corporate & Commercial Banking are short-term mismatches due to forecasting variances in prepayment and launch risk. This is where
customers repay their loans earlier than their expected maturity date or do not take the expected volume of new products. Corporate Centre also manages our
structural balance sheet exposures, such as foreign exchange and Income Statement volatility risk.
Our key non-traded market risks are:
Key risks
Description
Interest rate risk
Yield curve risk: comes from timing mismatches in repricing fixed and variable rate assets, liabilities and off-balance sheet instruments. It
also comes from investing non-rate sensitive liabilities in interest-earning assets.
Basis risk: comes from pricing assets using a different rate index to the liabilities that fund them. We are exposed to basis risks associated
with Bank of England bank rate, reserve rate linked assets we deposit with central banks, and the Sterling Overnight Index Average (SONIA)
rate. Since the cessation of LIBOR at the end of 2021, basis risk exposure has been immaterial.
Spread risk
Spread risk arises when the value of assets or liabilities which are accounted for at fair value (either through Other Comprehensive Income
or through Profit and Loss) are affected by changes in the credit spread. We measure these spreads as the difference between the discount
rate we use to value the asset or liability, and an underlying interest rate curve.
Foreign exchange risk
Our banking businesses operate mainly in sterling markets, so we do not create significant foreign exchange exposures. The only exception
to this is money we raise in foreign currencies. For more on this, see \u2018Wholesale funding\u2019 in the \u2018Liquidity risk\u2019 section.
Income statement
volatility risk
We measure most of the assets and liabilities in our banking book balance sheet at amortised cost. We sometimes manage their risk profile
by using derivatives. As all derivatives are accounted for at fair value, the mismatch in their accounting treatment can lead to volatility in our
Income Statement. This happens even if the derivative is an economic hedge of the asset or liability.
NII and EVE sensitivities (audited)
The calculations for NII and EVE sensitivities to interest rate moves involve many assumptions, including expected customer behaviour (such as early repayment of
loans) and the projected evolution and repricing of our balance sheet. These assumptions are a key part of our overall control framework, so we update and review
them regularly. Our NII and EVE sensitivities include the interest rate risk from all our banking book positions. Our banking book positions generate almost all our
reported net interest income.
Net Interest Income (NII) sensitivity
\u2013 NII sensitivity is an income-based measure we use to forecast the changes to interest income and interest expense in different scenarios. It gives us a combined impact on
net interest income over a given period \u2013 usually 12 or 36 months.
\u2013 We calculate NII sensitivity as the change in NII for a defined set of instantaneous parallel and non-parallel shifts in the yield curve.
EVE sensitivity
\u2013 We calculate EVE sensitivity as the change in the net present value of all the interest rate sensitive items in the banking book balance sheet for a defined set of
instantaneous parallel and non-parallel shifts in the yield curve.
Value at Risk (VaR) (audited)
VaR
\u2013 VaR indicates the losses that we might suffer because of unfavourable changes in the markets under normal (non-stressed) market conditions.
\u2013 We run a historical simulation using historical daily price moves to find how much we might lose, normally at a 99% confidence level.
The limitations of VaR
VaR is a useful and important market standard measure of risk, but it does have some limitations. These include:
\u2013 VaR assumes what happened in the past is a reliable way to predict what will happen in the future. This may not always be the case
\u2013 VaR is based on positions at the end of the business day so it doesn\u2019t include intra-day positions
\u2013 VaR does not predict how big the loss could be on the 1% of trading days that it is greater than the VaR
\u2013 Using a time horizon of one day means VaR does not tell us everything about exposures that we cannot liquidate or hedge within a day, or products with
infrequent pricing.
Back-testing \u2013 comparing VaR estimates with reality
To check that the way we estimate VaR is reasonable, we back-test our VaR by comparing it against both actual and hypothetical profits and losses, using a one-day
time horizon. Back-testing allows us to identify exceptions \u2013 times when the predictions were out of line with what happened. We can then look for trends in these
exceptions, which can help us decide whether we need to recalibrate our VaR model.
Risk mitigation (audited)
We typically hedge the interest rate risk of the securities we hold for liquidity and investment purposes with interest rate swaps. We retain spread exposures, and
these are the key drivers of the VaR and stress tests we use to assess the risk of the portfolio. We mitigate Income Statement volatility mainly through hedge
accounting. We monitor any hedge accounting ineffectiveness that might lead to Income Statement volatility with a VaR measure and trigger, reported monthly. For
our accounting policies for derivatives and hedge accounting, see Note 1 to the Consolidated Financial Statements.
We hedge our foreign currency funding positions back to sterling, so our foreign exchange positions tend to be residual exposures that remain after hedging. These
exposures could be, for example, to \u2018spot\u2019 foreign exchange rates or to cross currency basis. We monitor foreign exchange risk against absolute net exposures and
VaR-based limits and triggers.
For more on this, see \u2018Funding strategy\u2018 and \u2018Term issuance\u2019 in the \u2018Liquidity risk\u2019 section.
Risk monitoring and reporting (audited)
We monitor our non-traded market risks using NII and EVE sensitivities, VaR and stress tests. We report them against limits and triggers to senior management daily
and to ALCO and ERCC each month. The VaR we report captures all key sources of volatility (including interest rate and spread risks) to fully reflect potential
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"ifrs-full:ComponentsOfEquityAxis": "ifrs-full:NoncontrollingInterestsMember", "unit": "iso4217:GBP" } }, "f-506": { "value": "-181000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:IncreaseDecreaseThroughDisposalOfSubsidiary", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f-507": { "value": "1358000000", "decimals": -6, "dimensions": { "concept": "san:DividendsRecognisedOnOrdinaryShares", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:RetainedEarningsMember", "unit": "iso4217:GBP" } }, "f-508": { "value": "1358000000", "decimals": -6, "dimensions": { "concept": "san:DividendsRecognisedOnOrdinaryShares", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:EquityAttributableToOwnersOfParentMember", "unit": "iso4217:GBP" } }, "f-509": { "value": "1358000000", "decimals": -6, "dimensions": { "concept": "san:DividendsRecognisedOnOrdinaryShares", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f-510": { "value": "147000000", "decimals": -6, "dimensions": { "concept": "san:DividendsRecognisedOnPreferenceSharesAndOtherEquityInstruments", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:RetainedEarningsMember", "unit": "iso4217:GBP" } }, "f-511": { "value": "147000000", "decimals": -6, "dimensions": { "concept": "san:DividendsRecognisedOnPreferenceSharesAndOtherEquityInstruments", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "ifrs-full:ComponentsOfEquityAxis": "ifrs-full:EquityAttributableToOwnersOfParentMember", "unit": "iso4217:GBP" } }, "f-512": { "value": "147000000", "decimals": -6, 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1. ACCOUNTING POLICIES
Basis of preparation
These financial statements incorporate the financial statements of the Company and entities it controls (its subsidiaries) made up to 31 December each year. The
consolidated financial statements have been prepared on the going concern basis using the historical cost convention, except for financial assets and liabilities that
have been measured at fair value. An assessment of the appropriateness of the adoption of the going concern basis of accounting is disclosed in the statement of
going concern in the Directors\u2019 report.
Compliance with International Financial Reporting Standards (IFRS)
The consolidated financial statements of the Santander UK group and the separate financial statements of the Company comply with UK-adopted International
Accounting Standards (IAS). The financial statements are also prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB),
including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRS as issued by the IASB for the periods
presented.
Disclosures required by IFRS 7 \u2018Financial Instruments: Disclosure\u2019 relating to the nature and extent of risks arising from financial instruments, and IAS 1
\u2018Presentation of Financial Statements\u2019 relating to objectives, policies and processes for managing capital, have been included in the Risk review section of this
Annual Report. This information forms an integral part of these financial statements by this cross reference, is marked as audited, and is covered by the Independent
auditors' report.
Climate change
Santander UK continues to develop its assessment of the potential impacts that climate change and the transition to a low carbon economy may have on the assets
and liabilities recognised and presented in its financial statements.
Santander UK is mindful of its responsibilities as a responsible lender and is focused on ways to meet the objectives of the Paris Agreement on climate change and
to support the UK\u2019s transition to a climate-resilient, net zero economy.
Santander UK's current climate change strategy focuses on three main areas to achieve Banco Santander's ambition to reach net zero emissions by 2050:
1. Managing climate risks by integrating climate considerations into risk management frameworks, screening and stress testing our portfolio for climate related
financial risks, and setting risk appetites to help steer our portfolio in line with the Paris Agreement,
2. Supporting our customers\u2019 transition by developing products and services that promote a reduction in CO 2 emissions, and
3. Reducing emissions in our operations and supply chain by focusing on continuous improvement in our operations, and environmental and energy management
systems in accordance with ISO14001 and 15001, promoting responsible procurement practices and employee engagement.
Santander UK's current climate change strategy and its view of the risks associated with climate change and the transition to a low carbon economy are reflected in
its critical judgements and accounting estimates, although climate change risk did not have a material impact at 31 December 2023 and 2022, consistent with
management's assessment that climate change and the transition to a low carbon economy are not currently expected to have a meaningful impact on the viability
of the Santander UK group in the medium term.
At 31 December 2023 and 2022, management specifically considered the potential impact of climate change and the transition to a low carbon economy on:
\u2013 Loans and advances to customers ( see Note 13 and the credit risk section of the Risk review). Some climate change risks arise due to the requirements of IFRS 9
and others relate to specific portfolios and sectors:
\u2013 ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of 5 years, during which timeframe
climate change risks may crystallise;
\u2013 For mortgages in Retail & Business Banking and commercial real estate lending in Corporate & Commercial Banking, the value of property collateral might be
affected by physical impacts related to the frequency and scale of extreme weather events, such as flood and subsidence risk, or changing environmental
performance standards for property.
\u2013 For automotive loans in Consumer Finance, the residual value of automotive vehicles might be impacted by diesel obsolescence and the transition to electric
vehicles.
\u2013 For corporate lending in Corporate & Commercial Banking, certain sectors give rise to fossil fuel exposures, such as Oil & Gas, Mining & Extraction and Power
Generation.
\u2013 Goodwill impairment assessment (see Note 20). Estimates underpinning the determination of whether or not goodwill balances are impaired are partly based on
forecast business performance beyond the time horizon for management's detailed plans.
Future changes to Santander UK's climate change strategy may impact Santander UK's critical judgements and accounting estimates and result in material changes
to financial results and the carrying values of certain assets and liabilities in future reporting periods.
Future accounting developments
At 31 December 2023, for the Santander UK group, there were no significant new or revised standards and interpretations, and amendments thereto, which have
been issued but which are not yet effective, or which have otherwise not been early adopted where permitted.
Comparative information
As required by US public company reporting requirements, these financial statements include two years of comparative information for the consolidated income
statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and related notes.
Material accounting policy information
The following material accounting policies have been applied in preparing these financial statements. For material accounting policies which involve the application
of judgements or accounting estimates that are determined to be critical to the preparation of these financial statements see 'Critical judgements and accounting
estimates'.
Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by it and its
subsidiaries. The acquisition method of accounting is used to account for the acquisition of subsidiaries which meet the definition of a business.
Business combinations between entities under common control (i.e. fellow subsidiaries of Banco Santander SA, the ultimate parent) are outside the scope of IFRS 3
\u2013 \u2018Business Combinations\u2019, and there is no other guidance for such transactions under IFRS. The Santander UK group elects to account for business combinations
between entities under common control at their book values in the acquired entity by including the acquired entity\u2019s results from the date of the business
combination and not restating comparatives. Reorganisations of entities within the Santander UK group are also accounted for at their book values.
Credit protection entities established as part of significant risk transfer (SRT) transactions are not consolidated by the Santander UK group in cases where third party
investors have the exposure, or rights, to all of the variability of returns from the performance of the entities.
Revenue recognition
a) Interest income and expense
Interest and similar income and expense are recognised in the income statement using the effective interest rate method for: all financial instruments measured at
amortised cost; debt instruments measured at FVOCI; and the effective part of any related accounting hedging instruments.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have
subsequently become credit-impaired (i.e. Stage 3), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of
the ECL provision). For more information on stage allocations of credit risk exposures, see \u2018Significant increase in credit risk\u2019 in the \u2018Santander UK group level \u2013 credit
risk management\u2019 section of the Risk review.
b) Fee and commission income and expense
Fees and commissions that are not an integral part of the effective interest rate are recognised when the service is performed. Most fee and commission income is
recognised at a point in time. Certain commitment, upfront and management fees are recognised over time but are not material. For retail and corporate products,
fee and commission income consists principally of collection services fees, commission on foreign currencies, commission and other fees received from retailers for
processing credit card transactions, fees received from other credit card issuers for providing cash advances for their customers through the Santander UK group\u2019s
branch and ATM networks, annual fees payable by credit card holders and fees for non-banking financial products.
For insurance products, fee and commission income consists principally of commissions and profit share arising from the sale of building and contents insurance
and life protection insurance. Commissions arising from the sale of buildings and contents insurance are recognised over the period of insurance cover, adjusted to
take account of cancelled policies. Profit share income from the sale of buildings and contents insurance which is not subject to any adjustment is recognised when
the profit share income is earned. Commissions and profit share arising from the sale of life protection insurance is subject to adjustment for cancellations of
policies within 3 years from inception.
Fee and commission income which forms an integral part of the effective interest rate of a financial instrument (for example certain loan commitment fees) is
recognised as an adjustment to the effective interest rate and recorded in \u2018Interest income\u2019.
c) Other operating income
Other operating income includes all gains and losses from changes in the fair value of financial assets and liabilities held at fair value through profit or loss
(comprising financial assets and liabilities held for trading, trading derivatives and other financial assets and liabilities at fair value through profit or loss), together
with related interest income, expense, dividends, and changes in fair value of any derivatives managed in conjunction with these assets and liabilities. Other
operating income also includes hedge ineffectiveness arising from fair value and cash flow hedging, income from operating lease assets, and profits and losses
arising on the sales of property, plant and equipment and subsidiary undertakings.
Defined benefit pension schemes (see 'Critical judgements and accounting estimates')
A defined benefit scheme is a pension scheme that guarantees an amount of pension benefit to be provided, usually as a function of one or more factors such as
age, years of service or compensation. Pension costs are charged to \u2018Administration expenses\u2019, within the line item \u2018Operating expenses before impairment losses,
provisions and charges\u2019 with the net interest on the defined benefit asset or liability included within \u2018Net interest income\u2019 in the income statement. The asset or
liability recognised in respect of defined benefit pension schemes is the present value of the defined benefit obligation at the balance sheet date, less the fair value
of scheme assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The assets of the schemes
are measured at their fair values at the balance sheet date.
The present value of the defined benefit obligation is estimated by projecting forward the growth in current accrued pension benefits to reflect inflation and salary
growth to the date of pension payment, then discounted to present value using the yield applicable to high-quality AA rated corporate bonds of the same currency
and which have terms to maturity closest to the terms of the scheme liabilities, adjusted where necessary to match those terms. In determining the value of
scheme liabilities, demographic and financial assumptions are made by management about life expectancy, inflation, discount rates, pension increases and
earnings growth, based on past experience and future expectations. Financial assumptions are based on market conditions at the balance sheet date and can
generally be derived objectively.
Demographic assumptions require a greater degree of estimation and judgement to be applied to externally derived data. Any surplus or deficit of scheme assets
over liabilities is recognised in the balance sheet as an asset (surplus) or liability (deficit). An asset is only recognised to the extent that the surplus can be recovered
through reduced contributions in the future or through refunds from the scheme.
Share-based payments
The Santander UK group engages in cash-settled and equity-settled share-based payment transactions in respect of services received from certain of its employees.
Shares of the Santander UK group\u2019s parent, Banco Santander SA are purchased in the open market by the Santander UK group (for the Employee Sharesave scheme)
or are purchased by Banco Santander SA or another Banco Santander subsidiary (including awards granted under the Long-Term Incentive Plan and the Deferred
Shares Bonus Plan) to satisfy share options or awards as they vest.
Options granted under the Employee Sharesave scheme and awards granted under the Transformation Incentive Plan are accounted for as cash-settled share-
based payment transactions. Awards granted under the Long-Term Incentive Plan and Deferred Shares Bonus Plan are accounted for as equity-settled share-based
payment transactions.
The fair value of the options granted under the Employee Sharesave scheme is determined using an option pricing model, which takes into account the exercise
price of the option, the current share price, the risk-free interest rate, the expected volatility of the Banco Santander SA share price over the life of the option and the
dividend growth rate. The fair value of the awards granted for the Long-Term Incentive Plan was determined at the grant date using an option pricing model, which
takes into account the share price at grant date, the risk-free interest rate, the expected volatility of the Banco Santander SA share price over the life of the award
and the dividend growth rate.
Goodwill and other intangible assets (for goodwill see 'Critical judgements and accounting estimates')
Goodwill represents the excess of the cost of an acquisition, as well as the fair value of any interest previously held, over the fair value of the share of the
identifiable net assets of the acquired subsidiary, or business at the date of acquisition. Goodwill on the acquisition of subsidiaries and businesses is included in
intangible assets. Goodwill is tested for impairment annually, or more frequently when events or changes in circumstances dictate and carried at cost less
accumulated impairment losses. Gains and losses on the disposal of an entity or business include the carrying amount of goodwill relating to the entity or business
sold.
Other intangible assets are recognised if they arise from contractual or other legal rights or if they are capable of being separated or divided from Santander UK and
sold, transferred, licensed, rented or exchanged. The value of such intangible assets, where they are available for use, is amortised on a straight-line basis over their
useful economic life of three to seven years and the assets are reviewed annually for impairment indicators and tested for impairment where indicators are present.
Other intangible assets that are not yet available for use are tested for impairment annually or more frequently when events or changes in circumstances dictate.
Software development costs are capitalised when they are direct costs associated with identifiable and unique software products that are expected to provide
future economic benefits and the cost of those products can be measured reliably. These costs include payroll, materials, services and directly attributable
overheads. Internally developed software meeting these criteria and externally purchased software are classified in intangible assets on the balance sheet and
amortised on a straight-line basis over their useful life of three to seven years, unless the software is an integral part of the related computer hardware, in which
case it is treated as property, plant and equipment as described below. Capitalisation of costs ceases when the software is capable of operating as intended. Costs
of maintaining software are expensed as incurred.
Property, plant and equipment
Property, plant and equipment include owner-occupied properties (including leasehold properties), office fixtures and equipment and computer software. Property,
plant and equipment also includes operating leases where the Santander UK group is the lessor and right-of-use assets where the Santander UK group is the lessee.
Internally developed software meeting the criteria set out in \u2018Goodwill and other intangible assets\u2019 above and externally purchased software are classified in
property, plant and equipment where the software is an integral part of the related computer hardware (for example, the operating system of a computer). Classes
of property, plant and equipment are depreciated on a straight-line basis over their useful life, as follows:
Owner-occupied properties
Not exceeding 50 years
Office fixtures and equipment
3 to 15 years
Computer software
3 to 7 years
Right-of-use assets
Shorter of the lease term or the useful life of the underlying asset
Operating lease assets - vehicles
1 to 4 years
Depreciation is not charged on freehold land. Depreciation of operating lease assets where the Santander UK group is the lessor is described in 'Leases' below.
Financial instruments (for impairment of debt instrument financial assets see 'Critical judgements and accounting estimates: Credit impairment losses')
a) Initial recognition and measurement
Financial assets and liabilities are initially recognised when the Santander UK group becomes a party to the contractual terms of the instrument. The Santander UK
group determines the classification of its financial assets and liabilities at initial recognition and measures a financial asset or financial liability at its fair value plus or
minus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are incremental and directly attributable to the acquisition or issue of
the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss. Immediately after
initial recognition, an expected credit loss (ECL) allowance is recognised for financial assets measured at amortised cost and investments in debt instruments
measured at FVOCI.
A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the timeframe established
generally by regulation or convention in the marketplace concerned. Regular way purchases and sales of financial assets measured at amortised cost are recognised
on settlement date; all other regular way purchases and sales of financial assets are recognised on trade date.
b) Financial assets and liabilities
i) Classification and subsequent measurement
The Santander UK group classifies its financial assets in the measurement categories of amortised cost, FVOCI and FVTPL.
Financial assets and financial liabilities are classified as FVTPL where there is a requirement to do so or where they are otherwise designated at FVTPL on initial
recognition. Financial assets and financial liabilities which are required to be held at FVTPL include:
\u2013 Financial assets and financial liabilities held for trading.
\u2013 Debt instruments that do not have solely payments of principal and interest (SPPI) characteristics. Otherwise, such instruments are measured at amortised cost
or FVOCI, and
\u2013 Equity instruments that have not been designated as held at FVOCI.
Financial assets and financial liabilities are classified as held for trading if they are derivatives or if they are acquired or incurred principally for the purpose of selling
or repurchasing in the near-term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit
taking.
In certain circumstances, other financial assets and financial liabilities are designated at FVTPL where this results in more relevant information. This may arise
because it significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on
them on a different basis, where the assets and liabilities are managed and their performance evaluated on a fair value basis or, in the case of financial liabilities,
where it contains one or more embedded derivatives which are not closely related to the host contract.
The classification and measurement requirements for financial asset debt and equity instruments and financial liabilities are set out below.
Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer\u2019s perspective, such as loans and government and corporate
bonds. Classification and subsequent measurement of debt instruments depend on the Santander UK group\u2019s business model for managing the asset, and the cash
flow characteristics of the asset.
Business model
The business model reflects how the Santander UK group manages the assets in order to generate cash flows and, specifically, whether the Santander UK group\u2019s
objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of the
assets. If neither of these is applicable, such as where the financial assets are held for trading purposes, then the financial assets are classified as part of an \u2018other\u2019
business model and measured at FVTPL. Factors considered in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the assets\u2019 performance is evaluated and reported to key management personnel, and how risks are assessed and managed.
SPPI
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Santander UK group assesses whether
the assets\u2019 cash flows represent SPPI. In making this assessment, the Santander UK group considers whether the contractual cash flows are consistent with a basic
lending arrangement (i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement). Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
related asset is classified and measured at FVTPL.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
Based on these factors, the Santander UK group classifies its debt instruments into one of the following measurement categories:
\u2013 Amortised cost \u2013 Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are not designated at
FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any ECL recognised and measured as presented in Note 13. Interest
income from these financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method. When estimates of future cash flows are
revised, the carrying amount of the respective financial assets is adjusted to reflect the new estimate discounted using the original effective interest rate. Any
changes are recognised in the income statement.
\u2013 FVOCI \u2013 Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets\u2019 cash flows represent SPPI, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or
losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in \u2018Other operating income\u2019. Interest income from these
financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method.
\u2013 FVTPL \u2013 Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently
measured at FVTPL, including any debt instruments designated at fair value, is recognised in profit or loss and presented in the income statement in \u2018Other
operating income\u2019 in the period in which it arises.
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Financial assets: equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer\u2019s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer\u2019s net assets. All equity investments are subsequently measured at FVTPL; management may elect, at
initial recognition, to irrevocably designate an equity investment at FVOCI but has not currently done so. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. ECLs (and reversal of ECLs) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the right to
receive payments is established. Gains and losses on equity investments at FVTPL are included in \u2018Other operating income\u2019 in the income statement.
Financial liabilities
Financial liabilities, which include deposits by banks, deposits by customers, debt securities in issue and subordinated liabilities, are classified as subsequently
measured at amortised cost, except for:
\u2013 Financial liabilities at FVTPL (see Note 22): this classification is applied to derivatives and other financial liabilities designated as such at initial recognition. Gains or
losses on financial liabilities designated at FVTPL are presented partially in other comprehensive income (the amount of change in the fair value of the financial
liability that is attributable to changes in the credit risk of that liability) and partially in profit or loss (the remaining amount of change in the fair value of the
liability)
\u2013 Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the
consideration received for the transfer. In subsequent periods, the Santander UK group recognises any expense incurred on the financial liability, and
\u2013 Financial guarantee contracts and loan commitments.
Preference shares which carry a contractual obligation to transfer economic benefits are classified as financial liabilities and are presented in subordinated liabilities.
The coupon on these preference shares is recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted for as equity index-linked deposits. The principal products
are Capital Guaranteed/Protected Products which give the customers a limited participation in the upside growth of an equity index. In the event the index falls in
price, a cash principal element is guaranteed/protected. The equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment performance profile tailored to the return agreed in the contracts
with customers. The cash principal element is accounted for as deposits by customers at amortised cost. The embedded derivatives are separated from the host
instrument and are separately accounted for as derivatives.
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
Day One profit adjustments
The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
sometimes the fair value will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and currency rates. When such
evidence exists, the Santander UK group recognises a trading gain or loss at inception (Day One gain or loss), being the difference between the transaction price and
the fair value. When significant unobservable parameters are used, the entire Day One gain or loss is deferred and is recognised in the income statement over the
life of the transaction until the transaction matures, is closed out, the valuation inputs become observable, or an offsetting transaction is entered into.
ii) Impairment of debt instrument financial assets
The Santander UK group assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at amortised cost and FVOCI and with the
exposure arising from financial guarantee contracts and loan commitments. The Santander UK group recognises a loss allowance for such losses at each reporting
date. The measurement of ECL reflects:
\u2013 An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
\u2013 The time value of money, and
\u2013 Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of
future economic conditions.
Grouping of instruments for losses measured on a collective basis
We typically group instruments and assess them for impairment collectively where they share risk characteristics (as described in the Credit risk section of the Risk
review) using one or more statistical models. Where we have used internal capital or similar models as the basis for our ECL models, this typically results in a large
number of relatively small homogenous groups which are determined by the permutations of the underlying characteristics in the statistical models. We calculate
separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed, as described below.
Individually assessed impairments (IAIs)
We assess significant Stage 3 cases individually. We do this for Corporate & Commercial Banking cases, but not for Business Banking cases in Retail & Business
Banking which we assess collectively. To calculate the estimated loss, we estimate the future cash flows under several scenarios each of which uses case-specific
factors and circumstances. We then probability-weight the net present value of the cash flows under each scenario to arrive at a weighted average provision
requirement. We update our assessment process every quarter and more frequently if there are changes in circumstances that might affect the scenarios, cash
flows or probabilities we apply.
For more on how ECL is calculated, see the Credit risk section of the Risk review.
\u2013 Write-off
For secured loans, a write-off is only made when all collection procedures have been exhausted and the security has been sold and/or a claim made on any
mortgage indemnity guarantee or other insurance. In the corporate loan portfolio, there may be occasions where a write-off occurs for other reasons, such as
following a consensual restructure or refinancing of the debt or where the debt is sold for strategic reasons into the secondary market at a value lower than its
face value.
There is no threshold based on past due status beyond which all secured loans are written off as there can be significant variations in the time needed to enforce
possession and sale of the security, especially due to the different legal frameworks that apply in different regions of the UK. For unsecured loans, a write-off is
only made when all internal avenues of collecting the debt have been exhausted. Where appropriate the debt is passed over to external collection agencies. A
past due threshold is applied to unsecured debt where accounts that are 180 days past due are written off unless there is a dispute awaiting resolution. Contact is
made with customers with the aim to achieve a realistic and sustainable repayment arrangement. Litigation and/or enforcement of security is usually carried out
only when the steps described above have been undertaken without success.
All write-offs are assessed / made on a case-by-case basis, taking account of the exposure at the date of write-off, after accounting for the value from any
collateral or insurance held against the loan. The exception to this is in cases where fraud has occurred, where the exposure is written off once investigations have
been completed and the probability of recovery is minimal. The time span between discovery and write-off will be short and may not result in an impairment loss
allowance being raised. The write-off policy is regularly reviewed. Write-offs are charged against previously established loss allowances.
\u2013 Recoveries
Recoveries of credit impairment charges are not included in the impairment loss allowance but are taken to income and offset against credit impairment charges.
Recoveries of credit impairment charges are classified in the income statement as \u2018Credit impairment charges\u2019.
iii) Modifications of financial assets
The treatment of a renegotiation or modification of the contractual cash flows of a financial asset normally depends upon whether the renegotiation or modification
is due to financial difficulties of the borrower or for other commercial reasons.
\u2013 Contractual modifications due to financial difficulties of the borrower: where the Santander UK group modifies the contractual conditions to enable the borrower
to fulfil their payment obligations, the asset is not derecognised. The gross carrying amount of the financial asset is recalculated as the present value of the
renegotiated/modified contractual cash flows that are discounted at the financial asset\u2019s original EIR and any gain or loss arising from the modification is
recognised in the income statement.
\u2013 Contractual modifications for other commercial reasons: an assessment is performed to determine whether the terms of the new agreement are substantially
different from the terms of the existing agreement, after considering changes in the cash flows arising from the modified terms and the overall instrument risk
profile. Where terms are substantially different, such modifications are treated as a new transaction resulting in derecognition of the original financial asset, and
the recognition of a \u2018new\u2019 financial asset with any difference between the carrying amount of the derecognised asset and the fair value of the new asset is
recognised in the income statement as a gain or loss on derecognition. Where terms are not substantially different, the carrying value of the financial asset is
adjusted to reflect the present value of modified cash flows discounted at the original EIR with any gain or loss arising from modification recognised immediately
in the income statement.
Any other contractual modifications, such as where a regulatory authority imposes a change in certain contractual terms or due to legal reasons, are assessed on a
case-by-case basis to establish whether or not the financial asset should be derecognised. For IBOR reform see Note 41.
iv) Derecognition other than on a modification
Financial assets are derecognised when the rights to receive cash flows have expired or the Santander UK group has transferred its contractual right to receive the
cash flows from the assets and either: (1) substantially all the risks and rewards of ownership have been transferred; or (2) the Santander UK group has neither
retained nor transferred substantially all of the risks and rewards but has transferred control.
Financial liabilities are derecognised when extinguished, cancelled or expired.
c) Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor
fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and others
on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of the amount of the loss allowance, and the premium
received on initial recognition less income recognised in accordance with the principles of IFRS 15. Loan commitments are measured as the amount of the loss
allowance (determined in accordance with IFRS 9 as described in Credit risk section of the Risk review). The Santander UK group has not provided any commitment
to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument.
For financial guarantee contracts and loan commitments, the loss allowance is recognised as a provision and charged to credit impairment charges in the income
statement. The loss allowance in respect of revolving facilities is classified in loans and advances to customers to the extent of any drawn balances. The loss
allowance in respect of undrawn amounts is classified in provisions. When amounts are drawn, any related loss allowance is transferred from provisions to loans
and advances to customers.
Derivative financial instruments (derivatives)
Derivatives are contracts or agreements whose value is derived from one or more underlying indices or asset values inherent in the contract or agreement, which
require no or little initial net investment and are settled at a future date. Transactions are undertaken in interest rate, cross currency, equity, residential property and
other index-related swaps, forwards, caps, floors, swaptions, as well as credit default and total return swaps, equity index contracts and exchange traded interest
rate futures, and equity index options.
Derivatives are held for risk management purposes. Derivatives are classified as held for trading unless they are designated as being in a hedge accounting
relationship. The Santander UK group chooses to designate certain derivatives as in a hedging relationship if they meet specific criteria, as further described in
\u2018Hedge accounting\u2019 below.
Derivatives are recognised initially (on the date on which a derivative contract is entered into), and are subsequently remeasured, at their fair value. Fair values of
exchange-traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are estimated using valuation techniques,
including discounted cash flow and option pricing models.
Certain derivatives may be embedded in hybrid contracts. If the hybrid contract contains a host that is a financial asset, then the Santander UK group assesses the
entire contract as described in the financial asset section above for classification and measurement purposes. Otherwise, embedded derivatives are treated as
separate derivatives when their economic characteristics and risks are not closely related to those of the host contract; the terms of the embedded derivative would
meet the definition of a stand-alone derivative if they were contained in a separate contract; and the combined contract is not held for trading or designated at fair
value. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Contracts containing embedded
derivatives are not subsequently reassessed for separation unless either there has been a change in the terms of the contract which significantly modifies the cash
flows (in which case the contract is reassessed at the time of modification) or the contract has been reclassified (in which case the contract is reassessed at the time
of reclassification).
All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative, except where netting is permitted. The method
of recognising fair value gains and losses depends on whether derivatives are held for trading or are designated as hedging instruments and, if the latter, the nature
of the risks being hedged. Gains and losses from changes in the fair value of derivatives held for trading are recognised in the income statement and included in
Other operating income.
Offsetting financial assets and liabilities
Financial assets and liabilities including derivatives are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off
the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The Santander UK group is party
to a number of arrangements, including master netting arrangements under industry standard agreements which facilitate netting of transactions in jurisdictions
where netting agreements are recognised and have legal force. These netting arrangements do not generally result in an offset of balance sheet assets and
liabilities for accounting purposes, as transactions are usually settled on a gross basis.
Hedge accounting
The Santander UK group applies hedge accounting to represent, to the maximum possible extent permitted under accounting standards, the economic effects of its
risk management strategies. Derivatives are used to hedge exposures to interest rates and exchange rates.
At the time a financial instrument is designated as a hedge (i.e. at the inception of the hedge), the Santander UK group formally documents the relationship between
the hedging instrument(s) and hedged item(s), its risk management objective and strategy for undertaking the hedge. The documentation includes the identification
of each hedging instrument and respective hedged item, the nature of the risk being hedged (including the benchmark interest rate being hedged in a hedge of
interest rate risk) and how the hedging instrument\u2019s effectiveness in offsetting the exposure to changes in the hedged item\u2019s fair value attributable to the hedged
risk is to be assessed. Accordingly, the Santander UK group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging
derivatives have been and will be highly effective in offsetting changes in the fair value attributable to the hedged risk during the period that the hedge is
designated. A hedge is normally regarded as highly effective if, at inception and throughout its life, the Santander UK group can expect, and actual results indicate,
that changes in the fair value or cash flow of the hedged items are effectively offset by changes in the fair value or cash flow of the hedging instrument. If at any
point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued.
Where derivatives are held for risk management purposes, and when transactions meet the required criteria for documentation and hedge effectiveness, the
derivatives may be designated as either: (i) hedges of the change in fair value of recognised assets or liabilities or firm commitments (fair value hedges); (ii) hedges
of the variability in highly probable future cash flows attributable to a recognised asset or liability, or a forecast transaction (cash flow hedges); or (iii) a hedge of a
net investment in a foreign operation (net investment hedges). The Santander UK group applies fair value and cash flow hedge accounting, but not hedging of a net
investment in a foreign operation.
a) Fair value hedge accounting
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the
fair value of the hedged asset or liability that are attributable to the hedged risk. Where the hedged item is measured at amortised cost, the fair value changes due
to the hedged risk adjust the carrying amount of the hedged asset or liability. Changes in the fair value of portfolio hedged items are presented separately in the
consolidated balance sheet in macro hedge of interest rate risk and recognised in the income statement. If the hedge no longer meets the criteria for hedge
accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. For fair value hedges of
interest rate risk, the cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the
effective interest method over the period to maturity. For portfolio hedged items, the cumulative adjustment is amortised to the income statement using the
straight-line method over the period to maturity.
b) Cash flow hedge accounting
The effective portion of changes in the fair value of qualifying cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The
gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income
statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast
transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement. The Santander UK group is exposed to cash flow interest rate risk on its floating rate assets,
foreign currency risk on its fixed rate debt issuances denominated in foreign currency and equity price risk arises from the Santander UK group operating the
Employee Sharesave scheme. Cash flow hedging is used to hedge the variability in cash flows arising from these risks.
Securitisation transactions
The Santander UK group has entered into arrangements where undertakings have issued mortgage-backed and other asset-backed securities or have entered into
funding arrangements with lenders in order to finance specific loans and advances to customers. The Santander UK group has also entered into synthetic
securitisation arrangements, as part of significant risk transfer (SRT) transactions to reduce its risk-weighted assets, where undertakings have issued credit-linked
notes, and in some cases deposited the funds raised as collateral, for credit protection in respect of specific loans and advances to customers. As the Santander UK
group has retained substantially all the risks and rewards of the underlying assets, such financial instruments continue to be recognised on the balance sheet, and a
liability recognised for the proceeds of the funding transaction, or in the case of SRT transactions, collateral deposited.
Impairment of non-financial assets
At each balance sheet date, or more frequently when events or changes in circumstances dictate, property plant and equipment (including operating lease assets)
and intangible assets (including goodwill) are assessed for indicators of impairment. If indications are present, these assets are subject to an impairment review.
The impairment review comprises a comparison of the carrying value of the asset or cash generating unit with its recoverable amount: the higher of the asset\u2019s or
cash-generating unit\u2019s fair value less costs to sell and its value in use. The cash-generating unit represents the lowest level at which non-financial assets, including
goodwill, are monitored for internal management purposes and is not larger than an operating segment.
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Value in use is calculated by discounting management\u2019s expected future cash flows obtainable as a result of the asset\u2019s continued use (after
making allowance for increases in regulatory capital requirements), including those resulting from its ultimate disposal, at a market-based discount rate on a pre-
tax basis. The recoverable amounts of goodwill have been based on value in use calculations.
For conducting goodwill impairment reviews, cash generating units are the lowest level at which management monitors the return on investment on assets.
Leases (as lessor)
Operating lease assets are recorded at cost and the difference between cost and residual value (RV) is depreciated over the life of the asset. Operating lease rental
income and depreciation is recognised on a straight-line basis over the life of the asset. After initial recognition, residual values are reviewed regularly, and any
changes are recognised prospectively through remaining depreciation charges.
Amounts due from lessees under finance leases and hire purchase contracts are recorded as receivables at the amount of the Santander UK group\u2019s net investment
in the leases. Finance lease income is allocated to accounting periods to reflect a constant periodic rate of return on the Santander UK group\u2019s net investment
outstanding in respect of the leases and hire purchase contracts. A provision is recognised to reflect a reduction in any anticipated unguaranteed RV. A provision is
also recognised for voluntary termination of the contract by the customer, where appropriate.
Income taxes, including deferred taxes
The tax expense represents the sum of the income tax currently payable and deferred income tax.
A current tax liability for the current or prior period is measured at the amount expected to be paid to the tax authorities. Where the amount of the final tax liability is
uncertain or where a position is challenged by a taxation authority, the liability recognised is the most likely outcome. Where a most likely outcome cannot be
determined, a weighted average basis is applied.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on rates enacted or
substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items recognised in other
comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.
Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the
intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition,
including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, reverse repurchase agreements
and short-term investments in securities. Balances with central banks represent amounts held at the Bank of England as part of the Santander UK group\u2019s liquidity
management activities. It includes certain minimum cash ratio deposits held for regulatory purposes and reserves collateralised accounts in respect of Santander
UK\u2019s participation in certain payments schemes which are required to be maintained with the Bank of England and are restricted balances.
Provisions and contingent liabilities (see 'Critical judgements and accounting estimates')
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer of economic benefits will be
necessary to settle the obligation, and it can be reliably estimated.
Customer remediation provisions are made for the estimated cost of making redress payments with respect to the past sales of products, using conclusions such as
the number of claims the number of those that will be upheld, the estimated average settlement per case and other related costs. Provision is made for the
anticipated cost of restructuring, including redundancy costs, when an obligation exists. An obligation exists when the Santander UK group has a detailed formal
plan for restructuring a business, has raised valid expectations in those affected by the restructuring, and has started to implement the plan or announce its main
features.
When a leasehold property ceases to be used in the business, provision is made where the unavoidable costs of the future obligations relating to the lease are
expected to exceed anticipated rental income. The net costs are discounted using market rates of interest to reflect the long-term nature of the cash flows.
Loan commitments are measured as the amount of the loss allowance, determined in line with IFRS 9 as set out in the Credit risk section of the Risk review.
Contingent liabilities are possible obligations whose existence will be confirmed only by certain future events or present obligations where the transfer of economic
benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.
Critical judgements and accounting estimates
The preparation of Santander UK's consolidated financial statements in accordance with IFRS requires management to make judgements and assumptions in
applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates,
actual results reported in future periods may be based on amounts which differ from those estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. There has been no change in the inherent sensitivity of the areas of judgement in the period. Management have considered the impact of
developments in principal risks and uncertainties, as set out in the Risk review, on critical judgements and accounting estimates.
The significant judgements, apart from those involving estimation, made by management in applying Santander UK's accounting policies in these financial
statements (key judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount
of assets and liabilities within the next financial year (key estimates), which together are considered critical to Santander UK's results and financial position, are as
follows:
a) Credit impairment charges
The application of the ECL impairment methodology for calculating credit impairment allowances is highly susceptible to change from period to period. The
methodology requires management to make judgmental assumptions in determining the estimates. Any significant difference between the estimated amounts and
actual amounts could have a material impact on the future financial results and financial condition. The impact of the cost of living crisis has increased the
uncertainty around ECL impairment calculations and has required management to make additional judgements and accounting estimates that affect the amount of
assets and liabilities at the reporting date and the amount of income and expenses in the reporting period. The key additional judgements due to the impact of the
cost of living crisis mainly reflect the increased uncertainty around forward-looking economic data and the need for additional judgemental adjustments.
Key judgements
\u2013 Determining an appropriate definition of default
\u2013 Establishing the criteria for a significant increase in credit risk (SICR) and, for corporate borrowers, internal credit risk rating
\u2013 Determining the need for any judgemental adjustments
\u2013 Determining the need to assess corporate Stage 3 exposures individually
Key estimates
\u2013 Forward-looking multiple economic scenario assumptions
\u2013 Probability weights assigned to multiple economic scenarios
For more on each of these key judgements and estimates, see 'Critical judgements and accounting estimates applied in calculating ECL' in the \u2018Credit risk \u2013 credit
risk management\u2019 section of the Risk review.
Sensitivity of ECL allowance
For detailed disclosures, see 'Sensitivity of ECL allowance' in the \u2018Credit risk \u2013 credit risk management\u2019 section of the Risk review.
b) Provisions and contingent liabilities
Key judgements
\u2013 Determining whether a present obligation exists
\u2013 Determining the likely outcome of future legal decisions
Key estimates
\u2013 Probability, timing, nature and amount of any outflows that may arise from past events
Included in Litigation and other regulatory provisions in Note 29 are amounts in respect of management\u2019s best estimates of liability relating to a legal dispute
regarding allocation of responsibility for a specific PPI portfolio of complaints. Note 31 provides disclosure relating to ongoing factual issues and reviews that could
impact the timing and amount of any outflows.
Note 31 includes disclosure relating to an investigation in relation to the historical involvement of Santander UK plc, Santander Financial Services plc and Cater Allen
International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax arbitrage transactions. It also includes disclosure relating to the
historical use of discretionary commission arrangements in Santander Consumer (UK) plc.
These judgements are based on the specific facts available and often require specialist professional advice. There can be a wide range of possible outcomes and
uncertainties, particularly in relation to legal actions, and regulatory and consumer credit matters. As a result, it is often not possible to make reliable estimates of
the likelihood and amount of any potential outflows, or to calculate any resulting sensitivities. For more on these key judgements and estimates, see Notes 29 and
31.
c) Pensions
The Santander UK group operates a number of defined benefit pension schemes as described in Note 30 and estimates their position as described in the accounting
policy \u2018Pensions and other post retirement benefits\u2019.
Key judgements
\u2013 Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate
\u2013 Determining the methodology for setting the inflation assumption
Key estimates
\u2013 Discount rate applied to future cash flows
\u2013 Rate of price inflation
\u2013 Expected lifetime of the schemes' members
\u2013 Valuation of pension fund assets whose values are not based on market observable data
For more on each of these key judgements and estimates, see Note 30 .
Sensitivity of defined benefit pension scheme estimates
For detailed disclosures, see \u2018Actuarial assumption sensitivities\u2019 in Note 30 . The Scheme is invested in certain assets whose values are not based on market
observable data, such as investments in private equity funds and property. Due diligence has been conducted to support the values obtained in respect of these
assets are appropriate and represent fair value. Given the nature of these investments, we are unable to prepare sensitivities on how their values could vary as
market conditions or other variables change.
d) Goodwill
The carrying amount of goodwill is based on the application of judgements including the basis of goodwill impairment calculation assumptions. Santander UK
undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more frequently if reviews identify
indicators of impairment or when events or changes in circumstances dictate.
Key judgements:
\u2013 Determining the basis of goodwill impairment testing and the methodology for determining the carrying value of CGUs, including the need for
planning assumptions and internal capital allocations
Key estimates:
\u2013 Forecast cash flows for cash generating units, including estimated allocations of regulatory capital
\u2013 Growth rate beyond initial cash flow projections
\u2013 Discount rates which factor in risk-free rates and applicable risk premiums
All of these variables are subject to fluctuations in external market rates and economic conditions beyond management\u2019s control
Santander UK Group undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more
frequently if reviews identify indicators of impairment or when events or changes in circumstances dictate.
The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement and is subject to potential
change over time.
For more on each of these key judgements and estimates, see Note 20 .
Sensitivity of goodwill
For detailed disclosures, see \u2018Sensitivities of key assumptions in calculating VIU\u2019 in Note 20.
The segmental data is prepared on a statutory basis of accounting, in line with the accounting policies set out in Note 1. Transactions between segments are on
normal commercial terms and conditions. Internal charges and internal UK transfer pricing adjustments are reflected in the results of each segment, and eliminate
on consolidation. Revenue sharing agreements are used to allocate external customer revenues to a segment on a reasonable basis. Funds are ordinarily
reallocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on Santander UK\u2019s cost
of wholesale funding. Interest income and interest expense have not been reported separately. The majority of segment revenues are interest income in nature and
net interest income is relied on primarily to assess segment performance and to make decisions on the allocation of segment resources.
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
", "dimensions": { "concept": "ifrs-full:DisclosureOfMaterialAccountingPolicyInformationExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-524": { "value": "
These financial statements are prepared for Santander UK plc (the Company) and the Santander UK plc group (the Santander UK group) under the UK Companies Act
2006. The principal activity of the Santander UK group is the provision of a wide range of banking and financial services to personal, business and corporate
customers. Santander UK plc is a public company, limited by shares and incorporated in England and Wales having a registered office at 2 Triton Square, Regent\u2019s
Place, London, NW1 3AN. It is an operating company undertaking banking and financial services transactions.
Basis of preparation
These financial statements incorporate the financial statements of the Company and entities it controls (its subsidiaries) made up to 31 December each year.", "dimensions": { "concept": "ifrs-full:DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-525": { "value": "Santander UK plc", "dimensions": { "concept": "ifrs-full:NameOfReportingEntityOrOtherMeansOfIdentification", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-526": { "value": "The principal activity of the Santander UK group is the provision of a wide range of banking and financial services to personal, business and corporate customers.", "dimensions": { "concept": "ifrs-full:DescriptionOfNatureOfEntitysOperationsAndPrincipalActivities", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-527": { "value": "public company, limited by shares", "dimensions": { "concept": "ifrs-full:LegalFormOfEntity", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-528": { "value": "England and Wales", "dimensions": { "concept": "ifrs-full:CountryOfIncorporation", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-529": { "value": "2 Triton Square, Regent\u2019s Place, London, NW1 3AN", "dimensions": { "concept": "ifrs-full:AddressOfRegisteredOfficeOfEntity", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-530": { "value": "
Basis of preparation
These financial statements incorporate the financial statements of the Company and entities it controls (its subsidiaries) made up to 31 December each year. The
consolidated financial statements have been prepared on the going concern basis using the historical cost convention, except for financial assets and liabilities that
have been measured at fair value. An assessment of the appropriateness of the adoption of the going concern basis of accounting is disclosed in the statement of
going concern in the Directors\u2019 report.
Compliance with International Financial Reporting Standards (IFRS)
The consolidated financial statements of the Santander UK group and the separate financial statements of the Company comply with UK-adopted International
Accounting Standards (IAS). The financial statements are also prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB),
including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRS as issued by the IASB for the periods
presented.
Disclosures required by IFRS 7 \u2018Financial Instruments: Disclosure\u2019 relating to the nature and extent of risks arising from financial instruments, and IAS 1
\u2018Presentation of Financial Statements\u2019 relating to objectives, policies and processes for managing capital, have been included in the Risk review section of this
Annual Report. This information forms an integral part of these financial statements by this cross reference, is marked as audited, and is covered by the Independent
auditors' report.
Climate change
Santander UK continues to develop its assessment of the potential impacts that climate change and the transition to a low carbon economy may have on the assets
and liabilities recognised and presented in its financial statements.
Santander UK is mindful of its responsibilities as a responsible lender and is focused on ways to meet the objectives of the Paris Agreement on climate change and
to support the UK\u2019s transition to a climate-resilient, net zero economy.
Santander UK's current climate change strategy focuses on three main areas to achieve Banco Santander's ambition to reach net zero emissions by 2050:
1. Managing climate risks by integrating climate considerations into risk management frameworks, screening and stress testing our portfolio for climate related
financial risks, and setting risk appetites to help steer our portfolio in line with the Paris Agreement,
2. Supporting our customers\u2019 transition by developing products and services that promote a reduction in CO 2 emissions, and
3. Reducing emissions in our operations and supply chain by focusing on continuous improvement in our operations, and environmental and energy management
systems in accordance with ISO14001 and 15001, promoting responsible procurement practices and employee engagement.
Santander UK's current climate change strategy and its view of the risks associated with climate change and the transition to a low carbon economy are reflected in
its critical judgements and accounting estimates, although climate change risk did not have a material impact at 31 December 2023 and 2022, consistent with
management's assessment that climate change and the transition to a low carbon economy are not currently expected to have a meaningful impact on the viability
of the Santander UK group in the medium term.
At 31 December 2023 and 2022, management specifically considered the potential impact of climate change and the transition to a low carbon economy on:
\u2013 Loans and advances to customers ( see Note 13 and the credit risk section of the Risk review). Some climate change risks arise due to the requirements of IFRS 9
and others relate to specific portfolios and sectors:
\u2013 ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of 5 years, during which timeframe
climate change risks may crystallise;
\u2013 For mortgages in Retail & Business Banking and commercial real estate lending in Corporate & Commercial Banking, the value of property collateral might be
affected by physical impacts related to the frequency and scale of extreme weather events, such as flood and subsidence risk, or changing environmental
performance standards for property.
\u2013 For automotive loans in Consumer Finance, the residual value of automotive vehicles might be impacted by diesel obsolescence and the transition to electric
vehicles.
\u2013 For corporate lending in Corporate & Commercial Banking, certain sectors give rise to fossil fuel exposures, such as Oil & Gas, Mining & Extraction and Power
Generation.
\u2013 Goodwill impairment assessment (see Note 20). Estimates underpinning the determination of whether or not goodwill balances are impaired are partly based on
forecast business performance beyond the time horizon for management's detailed plans.
Future changes to Santander UK's climate change strategy may impact Santander UK's critical judgements and accounting estimates and result in material changes
to financial results and the carrying values of certain assets and liabilities in future reporting periods.", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfPreparationOfFinancialStatementsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-531": { "value": "The
consolidated financial statements have been prepared on the going concern basis using the historical cost convention, except for financial assets and liabilities that
have been measured at fair value. An assessment of the appropriateness of the adoption of the going concern basis of accounting is disclosed in the statement of
going concern in the Directors\u2019 report.
", "dimensions": { "concept": "ifrs-full:DisclosureOfGoingConcernExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-532": { "value": "
Compliance with International Financial Reporting Standards (IFRS)
The consolidated financial statements of the Santander UK group and the separate financial statements of the Company comply with UK-adopted International
Accounting Standards (IAS). The financial statements are also prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB),
including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRS as issued by the IASB for the periods
presented.
Disclosures required by IFRS 7 \u2018Financial Instruments: Disclosure\u2019 relating to the nature and extent of risks arising from financial instruments, and IAS 1
\u2018Presentation of Financial Statements\u2019 relating to objectives, policies and processes for managing capital, have been included in the Risk review section of this
Annual Report. This information forms an integral part of these financial statements by this cross reference, is marked as audited, and is covered by the Independent
auditors' report.
", "dimensions": { "concept": "ifrs-full:StatementOfIFRSCompliance", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-533": { "value": "
Climate change
Santander UK continues to develop its assessment of the potential impacts that climate change and the transition to a low carbon economy may have on the assets
and liabilities recognised and presented in its financial statements.
Santander UK is mindful of its responsibilities as a responsible lender and is focused on ways to meet the objectives of the Paris Agreement on climate change and
to support the UK\u2019s transition to a climate-resilient, net zero economy.
Santander UK's current climate change strategy focuses on three main areas to achieve Banco Santander's ambition to reach net zero emissions by 2050:
1. Managing climate risks by integrating climate considerations into risk management frameworks, screening and stress testing our portfolio for climate related
financial risks, and setting risk appetites to help steer our portfolio in line with the Paris Agreement,
2. Supporting our customers\u2019 transition by developing products and services that promote a reduction in CO 2 emissions, and
3. Reducing emissions in our operations and supply chain by focusing on continuous improvement in our operations, and environmental and energy management
systems in accordance with ISO14001 and 15001, promoting responsible procurement practices and employee engagement.
Santander UK's current climate change strategy and its view of the risks associated with climate change and the transition to a low carbon economy are reflected in
its critical judgements and accounting estimates, although climate change risk did not have a material impact at 31 December 2023 and 2022, consistent with
management's assessment that climate change and the transition to a low carbon economy are not currently expected to have a meaningful impact on the viability
of the Santander UK group in the medium term.
At 31 December 2023 and 2022, management specifically considered the potential impact of climate change and the transition to a low carbon economy on:
\u2013 Loans and advances to customers ( see Note 13 and the credit risk section of the Risk review). Some climate change risks arise due to the requirements of IFRS 9
and others relate to specific portfolios and sectors:
\u2013 ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of 5 years, during which timeframe
climate change risks may crystallise;
\u2013 For mortgages in Retail & Business Banking and commercial real estate lending in Corporate & Commercial Banking, the value of property collateral might be
affected by physical impacts related to the frequency and scale of extreme weather events, such as flood and subsidence risk, or changing environmental
performance standards for property.
\u2013 For automotive loans in Consumer Finance, the residual value of automotive vehicles might be impacted by diesel obsolescence and the transition to electric
vehicles.
\u2013 For corporate lending in Corporate & Commercial Banking, certain sectors give rise to fossil fuel exposures, such as Oil & Gas, Mining & Extraction and Power
Generation.
\u2013 Goodwill impairment assessment (see Note 20). Estimates underpinning the determination of whether or not goodwill balances are impaired are partly based on
forecast business performance beyond the time horizon for management's detailed plans.
Future changes to Santander UK's climate change strategy may impact Santander UK's critical judgements and accounting estimates and result in material changes
to financial results and the carrying values of certain assets and liabilities in future reporting periods.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEnvironmentRelatedExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-535": { "value": "
Future accounting developments
At 31 December 2023, for the Santander UK group, there were no significant new or revised standards and interpretations, and amendments thereto, which have
been issued but which are not yet effective, or which have otherwise not been early adopted where permitted.
", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-534": { "value": "
Future accounting developments
At 31 December 2023, for the Santander UK group, there were no significant new or revised standards and interpretations, and amendments thereto, which have
been issued but which are not yet effective, or which have otherwise not been early adopted where permitted.
", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesAccountingEstimatesAndErrorsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-536": { "value": "
Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by it and its
subsidiaries. The acquisition method of accounting is used to account for the acquisition of subsidiaries which meet the definition of a business.
Business combinations between entities under common control (i.e. fellow subsidiaries of Banco Santander SA, the ultimate parent) are outside the scope of IFRS 3
\u2013 \u2018Business Combinations\u2019, and there is no other guidance for such transactions under IFRS. The Santander UK group elects to account for business combinations
between entities under common control at their book values in the acquired entity by including the acquired entity\u2019s results from the date of the business
combination and not restating comparatives. Reorganisations of entities within the Santander UK group are also accounted for at their book values.
Credit protection entities established as part of significant risk transfer (SRT) transactions are not consolidated by the Santander UK group in cases where third party
investors have the exposure, or rights, to all of the variability of returns from the performance of the entities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfConsolidationExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-539": { "value": "
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by it and its
subsidiaries. The acquisition method of accounting is used to account for the acquisition of subsidiaries which meet the definition of a business.
Business combinations between entities under common control (i.e. fellow subsidiaries of Banco Santander SA, the ultimate parent) are outside the scope of IFRS 3
\u2013 \u2018Business Combinations\u2019, and there is no other guidance for such transactions under IFRS. The Santander UK group elects to account for business combinations
between entities under common control at their book values in the acquired entity by including the acquired entity\u2019s results from the date of the business
combination and not restating comparatives. Reorganisations of entities within the Santander UK group are also accounted for at their book values.
Credit protection entities established as part of significant risk transfer (SRT) transactions are not consolidated by the Santander UK group in cases where third party
investors have the exposure, or rights, to all of the variability of returns from the performance of the entities.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-538": { "value": "
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by it and its
subsidiaries. The acquisition method of accounting is used to account for the acquisition of subsidiaries which meet the definition of a business.
Business combinations between entities under common control (i.e. fellow subsidiaries of Banco Santander SA, the ultimate parent) are outside the scope of IFRS 3
\u2013 \u2018Business Combinations\u2019, and there is no other guidance for such transactions under IFRS. The Santander UK group elects to account for business combinations
between entities under common control at their book values in the acquired entity by including the acquired entity\u2019s results from the date of the business
combination and not restating comparatives. Reorganisations of entities within the Santander UK group are also accounted for at their book values.
Credit protection entities established as part of significant risk transfer (SRT) transactions are not consolidated by the Santander UK group in cases where third party
investors have the exposure, or rights, to all of the variability of returns from the performance of the entities.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-537": { "value": "
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by it and its
subsidiaries. The acquisition method of accounting is used to account for the acquisition of subsidiaries which meet the definition of a business.
Business combinations between entities under common control (i.e. fellow subsidiaries of Banco Santander SA, the ultimate parent) are outside the scope of IFRS 3
\u2013 \u2018Business Combinations\u2019, and there is no other guidance for such transactions under IFRS. The Santander UK group elects to account for business combinations
between entities under common control at their book values in the acquired entity by including the acquired entity\u2019s results from the date of the business
combination and not restating comparatives. Reorganisations of entities within the Santander UK group are also accounted for at their book values.
Credit protection entities established as part of significant risk transfer (SRT) transactions are not consolidated by the Santander UK group in cases where third party
investors have the exposure, or rights, to all of the variability of returns from the performance of the entities.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSubsidiariesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-540": { "value": "
Revenue recognition
a) Interest income and expense
Interest and similar income and expense are recognised in the income statement using the effective interest rate method for: all financial instruments measured at
amortised cost; debt instruments measured at FVOCI; and the effective part of any related accounting hedging instruments.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have
subsequently become credit-impaired (i.e. Stage 3), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of
the ECL provision). For more information on stage allocations of credit risk exposures, see \u2018Significant increase in credit risk\u2019 in the \u2018Santander UK group level \u2013 credit
risk management\u2019 section of the Risk review.
b) Fee and commission income and expense
Fees and commissions that are not an integral part of the effective interest rate are recognised when the service is performed. Most fee and commission income is
recognised at a point in time. Certain commitment, upfront and management fees are recognised over time but are not material. For retail and corporate products,
fee and commission income consists principally of collection services fees, commission on foreign currencies, commission and other fees received from retailers for
processing credit card transactions, fees received from other credit card issuers for providing cash advances for their customers through the Santander UK group\u2019s
branch and ATM networks, annual fees payable by credit card holders and fees for non-banking financial products.
For insurance products, fee and commission income consists principally of commissions and profit share arising from the sale of building and contents insurance
and life protection insurance. Commissions arising from the sale of buildings and contents insurance are recognised over the period of insurance cover, adjusted to
take account of cancelled policies. Profit share income from the sale of buildings and contents insurance which is not subject to any adjustment is recognised when
the profit share income is earned. Commissions and profit share arising from the sale of life protection insurance is subject to adjustment for cancellations of
policies within 3 years from inception.
Fee and commission income which forms an integral part of the effective interest rate of a financial instrument (for example certain loan commitment fees) is
recognised as an adjustment to the effective interest rate and recorded in \u2018Interest income\u2019.
c) Other operating income
Other operating income includes all gains and losses from changes in the fair value of financial assets and liabilities held at fair value through profit or loss
(comprising financial assets and liabilities held for trading, trading derivatives and other financial assets and liabilities at fair value through profit or loss), together
with related interest income, expense, dividends, and changes in fair value of any derivatives managed in conjunction with these assets and liabilities. Other
operating income also includes hedge ineffectiveness arising from fair value and cash flow hedging, income from operating lease assets, and profits and losses
arising on the sales of property, plant and equipment and subsidiary undertakings.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-541": { "value": "
a) Interest income and expense
Interest and similar income and expense are recognised in the income statement using the effective interest rate method for: all financial instruments measured at
amortised cost; debt instruments measured at FVOCI; and the effective part of any related accounting hedging instruments.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have
subsequently become credit-impaired (i.e. Stage 3), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of
the ECL provision). For more information on stage allocations of credit risk exposures, see \u2018Significant increase in credit risk\u2019 in the \u2018Santander UK group level \u2013 credit
risk management\u2019 section of the Risk review.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInterestIncomeAndExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-542": { "value": "
b) Fee and commission income and expense
Fees and commissions that are not an integral part of the effective interest rate are recognised when the service is performed. Most fee and commission income is
recognised at a point in time. Certain commitment, upfront and management fees are recognised over time but are not material. For retail and corporate products,
fee and commission income consists principally of collection services fees, commission on foreign currencies, commission and other fees received from retailers for
processing credit card transactions, fees received from other credit card issuers for providing cash advances for their customers through the Santander UK group\u2019s
branch and ATM networks, annual fees payable by credit card holders and fees for non-banking financial products.
For insurance products, fee and commission income consists principally of commissions and profit share arising from the sale of building and contents insurance
and life protection insurance. Commissions arising from the sale of buildings and contents insurance are recognised over the period of insurance cover, adjusted to
take account of cancelled policies. Profit share income from the sale of buildings and contents insurance which is not subject to any adjustment is recognised when
the profit share income is earned. Commissions and profit share arising from the sale of life protection insurance is subject to adjustment for cancellations of
policies within 3 years from inception.
Fee and commission income which forms an integral part of the effective interest rate of a financial instrument (for example certain loan commitment fees) is
recognised as an adjustment to the effective interest rate and recorded in \u2018Interest income\u2019.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFeeAndCommissionIncomeAndExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-543": { "value": "
For insurance products, fee and commission income consists principally of commissions and profit share arising from the sale of building and contents insurance
and life protection insurance. Commissions arising from the sale of buildings and contents insurance are recognised over the period of insurance cover, adjusted to
take account of cancelled policies. Profit share income from the sale of buildings and contents insurance which is not subject to any adjustment is recognised when
the profit share income is earned. Commissions and profit share arising from the sale of life protection insurance is subject to adjustment for cancellations of
policies within 3 years from inception.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInsuranceContracts", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-544": { "value": "
Defined benefit pension schemes (see 'Critical judgements and accounting estimates')
A defined benefit scheme is a pension scheme that guarantees an amount of pension benefit to be provided, usually as a function of one or more factors such as
age, years of service or compensation. Pension costs are charged to \u2018Administration expenses\u2019, within the line item \u2018Operating expenses before impairment losses,
provisions and charges\u2019 with the net interest on the defined benefit asset or liability included within \u2018Net interest income\u2019 in the income statement. The asset or
liability recognised in respect of defined benefit pension schemes is the present value of the defined benefit obligation at the balance sheet date, less the fair value
of scheme assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The assets of the schemes
are measured at their fair values at the balance sheet date.
The present value of the defined benefit obligation is estimated by projecting forward the growth in current accrued pension benefits to reflect inflation and salary
growth to the date of pension payment, then discounted to present value using the yield applicable to high-quality AA rated corporate bonds of the same currency
and which have terms to maturity closest to the terms of the scheme liabilities, adjusted where necessary to match those terms. In determining the value of
scheme liabilities, demographic and financial assumptions are made by management about life expectancy, inflation, discount rates, pension increases and
earnings growth, based on past experience and future expectations. Financial assumptions are based on market conditions at the balance sheet date and can
generally be derived objectively.
Demographic assumptions require a greater degree of estimation and judgement to be applied to externally derived data. Any surplus or deficit of scheme assets
over liabilities is recognised in the balance sheet as an asset (surplus) or liability (deficit). An asset is only recognised to the extent that the surplus can be recovered
through reduced contributions in the future or through refunds from the scheme.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-545": { "value": "
Share-based payments
The Santander UK group engages in cash-settled and equity-settled share-based payment transactions in respect of services received from certain of its employees.
Shares of the Santander UK group\u2019s parent, Banco Santander SA are purchased in the open market by the Santander UK group (for the Employee Sharesave scheme)
or are purchased by Banco Santander SA or another Banco Santander subsidiary (including awards granted under the Long-Term Incentive Plan and the Deferred
Shares Bonus Plan) to satisfy share options or awards as they vest.
Options granted under the Employee Sharesave scheme and awards granted under the Transformation Incentive Plan are accounted for as cash-settled share-
based payment transactions. Awards granted under the Long-Term Incentive Plan and Deferred Shares Bonus Plan are accounted for as equity-settled share-based
payment transactions.
The fair value of the options granted under the Employee Sharesave scheme is determined using an option pricing model, which takes into account the exercise
price of the option, the current share price, the risk-free interest rate, the expected volatility of the Banco Santander SA share price over the life of the option and the
dividend growth rate. The fair value of the awards granted for the Long-Term Incentive Plan was determined at the grant date using an option pricing model, which
takes into account the share price at grant date, the risk-free interest rate, the expected volatility of the Banco Santander SA share price over the life of the award
and the dividend growth rate.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-546": { "value": "
Goodwill and other intangible assets (for goodwill see 'Critical judgements and accounting estimates')
Goodwill represents the excess of the cost of an acquisition, as well as the fair value of any interest previously held, over the fair value of the share of the
identifiable net assets of the acquired subsidiary, or business at the date of acquisition. Goodwill on the acquisition of subsidiaries and businesses is included in
intangible assets. Goodwill is tested for impairment annually, or more frequently when events or changes in circumstances dictate and carried at cost less
accumulated impairment losses. Gains and losses on the disposal of an entity or business include the carrying amount of goodwill relating to the entity or business
sold.
Other intangible assets are recognised if they arise from contractual or other legal rights or if they are capable of being separated or divided from Santander UK and
sold, transferred, licensed, rented or exchanged. The value of such intangible assets, where they are available for use, is amortised on a straight-line basis over their
useful economic life of three to seven years and the assets are reviewed annually for impairment indicators and tested for impairment where indicators are present.
Other intangible assets that are not yet available for use are tested for impairment annually or more frequently when events or changes in circumstances dictate.
Software development costs are capitalised when they are direct costs associated with identifiable and unique software products that are expected to provide
future economic benefits and the cost of those products can be measured reliably. These costs include payroll, materials, services and directly attributable
overheads. Internally developed software meeting these criteria and externally purchased software are classified in intangible assets on the balance sheet and
amortised on a straight-line basis over their useful life of three to seven years, unless the software is an integral part of the related computer hardware, in which
case it is treated as property, plant and equipment as described below. Capitalisation of costs ceases when the software is capable of operating as intended. Costs
of maintaining software are expensed as incurred.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-547": { "value": "
Goodwill represents the excess of the cost of an acquisition, as well as the fair value of any interest previously held, over the fair value of the share of the
identifiable net assets of the acquired subsidiary, or business at the date of acquisition. Goodwill on the acquisition of subsidiaries and businesses is included in
intangible assets. Goodwill is tested for impairment annually, or more frequently when events or changes in circumstances dictate and carried at cost less
accumulated impairment losses. Gains and losses on the disposal of an entity or business include the carrying amount of goodwill relating to the entity or business
sold.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForGoodwillExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-549": { "value": "
Other intangible assets are recognised if they arise from contractual or other legal rights or if they are capable of being separated or divided from Santander UK and
sold, transferred, licensed, rented or exchanged. The value of such intangible assets, where they are available for use, is amortised on a straight-line basis over their
useful economic life of three to seven years and the assets are reviewed annually for impairment indicators and tested for impairment where indicators are present.
Other intangible assets that are not yet available for use are tested for impairment annually or more frequently when events or changes in circumstances dictate.
Software development costs are capitalised when they are direct costs associated with identifiable and unique software products that are expected to provide
future economic benefits and the cost of those products can be measured reliably. These costs include payroll, materials, services and directly attributable
overheads. Internally developed software meeting these criteria and externally purchased software are classified in intangible assets on the balance sheet and
amortised on a straight-line basis over their useful life of three to seven years, unless the software is an integral part of the related computer hardware, in which
case it is treated as property, plant and equipment as described below. Capitalisation of costs ceases when the software is capable of operating as intended. Costs
of maintaining software are expensed as incurred.
Owner-occupied properties
Not exceeding 50 years
Office fixtures and equipment
3 to 15 years
Computer software
3 to 7 years
Right-of-use assets
Shorter of the lease term or the useful life of the underlying asset
Operating lease assets - vehicles
1 to 4 years
Depreciation is not charged on freehold land. Depreciation of operating lease assets where the Santander UK group is the lessor is described in 'Leases' below.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDepreciationExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-548": { "value": "
Other intangible assets are recognised if they arise from contractual or other legal rights or if they are capable of being separated or divided from Santander UK and
sold, transferred, licensed, rented or exchanged. The value of such intangible assets, where they are available for use, is amortised on a straight-line basis over their
useful economic life of three to seven years and the assets are reviewed annually for impairment indicators and tested for impairment where indicators are present.
Other intangible assets that are not yet available for use are tested for impairment annually or more frequently when events or changes in circumstances dictate.
Software development costs are capitalised when they are direct costs associated with identifiable and unique software products that are expected to provide
future economic benefits and the cost of those products can be measured reliably. These costs include payroll, materials, services and directly attributable
overheads. Internally developed software meeting these criteria and externally purchased software are classified in intangible assets on the balance sheet and
amortised on a straight-line basis over their useful life of three to seven years, unless the software is an integral part of the related computer hardware, in which
case it is treated as property, plant and equipment as described below. Capitalisation of costs ceases when the software is capable of operating as intended. Costs
of maintaining software are expensed as incurred.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-550": { "value": "
Property, plant and equipment
Property, plant and equipment include owner-occupied properties (including leasehold properties), office fixtures and equipment and computer software. Property,
plant and equipment also includes operating leases where the Santander UK group is the lessor and right-of-use assets where the Santander UK group is the lessee.
Internally developed software meeting the criteria set out in \u2018Goodwill and other intangible assets\u2019 above and externally purchased software are classified in
property, plant and equipment where the software is an integral part of the related computer hardware (for example, the operating system of a computer). Classes
of property, plant and equipment are depreciated on a straight-line basis over their useful life, as follows:
Owner-occupied properties
Not exceeding 50 years
Office fixtures and equipment
3 to 15 years
Computer software
3 to 7 years
Right-of-use assets
Shorter of the lease term or the useful life of the underlying asset
Operating lease assets - vehicles
1 to 4 years
Depreciation is not charged on freehold land. Depreciation of operating lease assets where the Santander UK group is the lessor is described in 'Leases' below.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-551": { "value": "
Financial instruments (for impairment of debt instrument financial assets see 'Critical judgements and accounting estimates: Credit impairment losses')
a) Initial recognition and measurement
Financial assets and liabilities are initially recognised when the Santander UK group becomes a party to the contractual terms of the instrument. The Santander UK
group determines the classification of its financial assets and liabilities at initial recognition and measures a financial asset or financial liability at its fair value plus or
minus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are incremental and directly attributable to the acquisition or issue of
the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss. Immediately after
initial recognition, an expected credit loss (ECL) allowance is recognised for financial assets measured at amortised cost and investments in debt instruments
measured at FVOCI.
A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the timeframe established
generally by regulation or convention in the marketplace concerned. Regular way purchases and sales of financial assets measured at amortised cost are recognised
on settlement date; all other regular way purchases and sales of financial assets are recognised on trade date.
b) Financial assets and liabilities
i) Classification and subsequent measurement
The Santander UK group classifies its financial assets in the measurement categories of amortised cost, FVOCI and FVTPL.
Financial assets and financial liabilities are classified as FVTPL where there is a requirement to do so or where they are otherwise designated at FVTPL on initial
recognition. Financial assets and financial liabilities which are required to be held at FVTPL include:
\u2013 Financial assets and financial liabilities held for trading.
\u2013 Debt instruments that do not have solely payments of principal and interest (SPPI) characteristics. Otherwise, such instruments are measured at amortised cost
or FVOCI, and
\u2013 Equity instruments that have not been designated as held at FVOCI.
Financial assets and financial liabilities are classified as held for trading if they are derivatives or if they are acquired or incurred principally for the purpose of selling
or repurchasing in the near-term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit
taking.
In certain circumstances, other financial assets and financial liabilities are designated at FVTPL where this results in more relevant information. This may arise
because it significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on
them on a different basis, where the assets and liabilities are managed and their performance evaluated on a fair value basis or, in the case of financial liabilities,
where it contains one or more embedded derivatives which are not closely related to the host contract.
The classification and measurement requirements for financial asset debt and equity instruments and financial liabilities are set out below.
Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer\u2019s perspective, such as loans and government and corporate
bonds. Classification and subsequent measurement of debt instruments depend on the Santander UK group\u2019s business model for managing the asset, and the cash
flow characteristics of the asset.
Business model
The business model reflects how the Santander UK group manages the assets in order to generate cash flows and, specifically, whether the Santander UK group\u2019s
objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of the
assets. If neither of these is applicable, such as where the financial assets are held for trading purposes, then the financial assets are classified as part of an \u2018other\u2019
business model and measured at FVTPL. Factors considered in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the assets\u2019 performance is evaluated and reported to key management personnel, and how risks are assessed and managed.
SPPI
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Santander UK group assesses whether
the assets\u2019 cash flows represent SPPI. In making this assessment, the Santander UK group considers whether the contractual cash flows are consistent with a basic
lending arrangement (i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement). Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
related asset is classified and measured at FVTPL.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
Based on these factors, the Santander UK group classifies its debt instruments into one of the following measurement categories:
\u2013 Amortised cost \u2013 Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are not designated at
FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any ECL recognised and measured as presented in Note 13. Interest
income from these financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method. When estimates of future cash flows are
revised, the carrying amount of the respective financial assets is adjusted to reflect the new estimate discounted using the original effective interest rate. Any
changes are recognised in the income statement.
\u2013 FVOCI \u2013 Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets\u2019 cash flows represent SPPI, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or
losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in \u2018Other operating income\u2019. Interest income from these
financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method.
\u2013 FVTPL \u2013 Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently
measured at FVTPL, including any debt instruments designated at fair value, is recognised in profit or loss and presented in the income statement in \u2018Other
operating income\u2019 in the period in which it arises.
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Financial assets: equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer\u2019s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer\u2019s net assets. All equity investments are subsequently measured at FVTPL; management may elect, at
initial recognition, to irrevocably designate an equity investment at FVOCI but has not currently done so. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. ECLs (and reversal of ECLs) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the right to
receive payments is established. Gains and losses on equity investments at FVTPL are included in \u2018Other operating income\u2019 in the income statement.
Financial liabilities
Financial liabilities, which include deposits by banks, deposits by customers, debt securities in issue and subordinated liabilities, are classified as subsequently
measured at amortised cost, except for:
\u2013 Financial liabilities at FVTPL (see Note 22): this classification is applied to derivatives and other financial liabilities designated as such at initial recognition. Gains or
losses on financial liabilities designated at FVTPL are presented partially in other comprehensive income (the amount of change in the fair value of the financial
liability that is attributable to changes in the credit risk of that liability) and partially in profit or loss (the remaining amount of change in the fair value of the
liability)
\u2013 Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the
consideration received for the transfer. In subsequent periods, the Santander UK group recognises any expense incurred on the financial liability, and
\u2013 Financial guarantee contracts and loan commitments.
Preference shares which carry a contractual obligation to transfer economic benefits are classified as financial liabilities and are presented in subordinated liabilities.
The coupon on these preference shares is recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted for as equity index-linked deposits. The principal products
are Capital Guaranteed/Protected Products which give the customers a limited participation in the upside growth of an equity index. In the event the index falls in
price, a cash principal element is guaranteed/protected. The equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment performance profile tailored to the return agreed in the contracts
with customers. The cash principal element is accounted for as deposits by customers at amortised cost. The embedded derivatives are separated from the host
instrument and are separately accounted for as derivatives.
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
Day One profit adjustments
The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
sometimes the fair value will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and currency rates. When such
evidence exists, the Santander UK group recognises a trading gain or loss at inception (Day One gain or loss), being the difference between the transaction price and
the fair value. When significant unobservable parameters are used, the entire Day One gain or loss is deferred and is recognised in the income statement over the
life of the transaction until the transaction matures, is closed out, the valuation inputs become observable, or an offsetting transaction is entered into.
ii) Impairment of debt instrument financial assets
The Santander UK group assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at amortised cost and FVOCI and with the
exposure arising from financial guarantee contracts and loan commitments. The Santander UK group recognises a loss allowance for such losses at each reporting
date. The measurement of ECL reflects:
\u2013 An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
\u2013 The time value of money, and
\u2013 Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of
future economic conditions.
Grouping of instruments for losses measured on a collective basis
We typically group instruments and assess them for impairment collectively where they share risk characteristics (as described in the Credit risk section of the Risk
review) using one or more statistical models. Where we have used internal capital or similar models as the basis for our ECL models, this typically results in a large
number of relatively small homogenous groups which are determined by the permutations of the underlying characteristics in the statistical models. We calculate
separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed, as described below.
Individually assessed impairments (IAIs)
We assess significant Stage 3 cases individually. We do this for Corporate & Commercial Banking cases, but not for Business Banking cases in Retail & Business
Banking which we assess collectively. To calculate the estimated loss, we estimate the future cash flows under several scenarios each of which uses case-specific
factors and circumstances. We then probability-weight the net present value of the cash flows under each scenario to arrive at a weighted average provision
requirement. We update our assessment process every quarter and more frequently if there are changes in circumstances that might affect the scenarios, cash
flows or probabilities we apply.
For more on how ECL is calculated, see the Credit risk section of the Risk review.
\u2013 Write-off
For secured loans, a write-off is only made when all collection procedures have been exhausted and the security has been sold and/or a claim made on any
mortgage indemnity guarantee or other insurance. In the corporate loan portfolio, there may be occasions where a write-off occurs for other reasons, such as
following a consensual restructure or refinancing of the debt or where the debt is sold for strategic reasons into the secondary market at a value lower than its
face value.
There is no threshold based on past due status beyond which all secured loans are written off as there can be significant variations in the time needed to enforce
possession and sale of the security, especially due to the different legal frameworks that apply in different regions of the UK. For unsecured loans, a write-off is
only made when all internal avenues of collecting the debt have been exhausted. Where appropriate the debt is passed over to external collection agencies. A
past due threshold is applied to unsecured debt where accounts that are 180 days past due are written off unless there is a dispute awaiting resolution. Contact is
made with customers with the aim to achieve a realistic and sustainable repayment arrangement. Litigation and/or enforcement of security is usually carried out
only when the steps described above have been undertaken without success.
All write-offs are assessed / made on a case-by-case basis, taking account of the exposure at the date of write-off, after accounting for the value from any
collateral or insurance held against the loan. The exception to this is in cases where fraud has occurred, where the exposure is written off once investigations have
been completed and the probability of recovery is minimal. The time span between discovery and write-off will be short and may not result in an impairment loss
allowance being raised. The write-off policy is regularly reviewed. Write-offs are charged against previously established loss allowances.
\u2013 Recoveries
Recoveries of credit impairment charges are not included in the impairment loss allowance but are taken to income and offset against credit impairment charges.
Recoveries of credit impairment charges are classified in the income statement as \u2018Credit impairment charges\u2019.
iii) Modifications of financial assets
The treatment of a renegotiation or modification of the contractual cash flows of a financial asset normally depends upon whether the renegotiation or modification
is due to financial difficulties of the borrower or for other commercial reasons.
\u2013 Contractual modifications due to financial difficulties of the borrower: where the Santander UK group modifies the contractual conditions to enable the borrower
to fulfil their payment obligations, the asset is not derecognised. The gross carrying amount of the financial asset is recalculated as the present value of the
renegotiated/modified contractual cash flows that are discounted at the financial asset\u2019s original EIR and any gain or loss arising from the modification is
recognised in the income statement.
\u2013 Contractual modifications for other commercial reasons: an assessment is performed to determine whether the terms of the new agreement are substantially
different from the terms of the existing agreement, after considering changes in the cash flows arising from the modified terms and the overall instrument risk
profile. Where terms are substantially different, such modifications are treated as a new transaction resulting in derecognition of the original financial asset, and
the recognition of a \u2018new\u2019 financial asset with any difference between the carrying amount of the derecognised asset and the fair value of the new asset is
recognised in the income statement as a gain or loss on derecognition. Where terms are not substantially different, the carrying value of the financial asset is
adjusted to reflect the present value of modified cash flows discounted at the original EIR with any gain or loss arising from modification recognised immediately
in the income statement.
Any other contractual modifications, such as where a regulatory authority imposes a change in certain contractual terms or due to legal reasons, are assessed on a
case-by-case basis to establish whether or not the financial asset should be derecognised. For IBOR reform see Note 41.
iv) Derecognition other than on a modification
Financial assets are derecognised when the rights to receive cash flows have expired or the Santander UK group has transferred its contractual right to receive the
cash flows from the assets and either: (1) substantially all the risks and rewards of ownership have been transferred; or (2) the Santander UK group has neither
retained nor transferred substantially all of the risks and rewards but has transferred control.
Financial liabilities are derecognised when extinguished, cancelled or expired.
c) Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor
fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and others
on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of the amount of the loss allowance, and the premium
received on initial recognition less income recognised in accordance with the principles of IFRS 15. Loan commitments are measured as the amount of the loss
allowance (determined in accordance with IFRS 9 as described in Credit risk section of the Risk review). The Santander UK group has not provided any commitment
to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument.
For financial guarantee contracts and loan commitments, the loss allowance is recognised as a provision and charged to credit impairment charges in the income
statement. The loss allowance in respect of revolving facilities is classified in loans and advances to customers to the extent of any drawn balances. The loss
allowance in respect of undrawn amounts is classified in provisions. When amounts are drawn, any related loss allowance is transferred from provisions to loans
and advances to customers.
Derivative financial instruments (derivatives)
Derivatives are contracts or agreements whose value is derived from one or more underlying indices or asset values inherent in the contract or agreement, which
require no or little initial net investment and are settled at a future date. Transactions are undertaken in interest rate, cross currency, equity, residential property and
other index-related swaps, forwards, caps, floors, swaptions, as well as credit default and total return swaps, equity index contracts and exchange traded interest
rate futures, and equity index options.
Derivatives are held for risk management purposes. Derivatives are classified as held for trading unless they are designated as being in a hedge accounting
relationship. The Santander UK group chooses to designate certain derivatives as in a hedging relationship if they meet specific criteria, as further described in
\u2018Hedge accounting\u2019 below.
Derivatives are recognised initially (on the date on which a derivative contract is entered into), and are subsequently remeasured, at their fair value. Fair values of
exchange-traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are estimated using valuation techniques,
including discounted cash flow and option pricing models.
Certain derivatives may be embedded in hybrid contracts. If the hybrid contract contains a host that is a financial asset, then the Santander UK group assesses the
entire contract as described in the financial asset section above for classification and measurement purposes. Otherwise, embedded derivatives are treated as
separate derivatives when their economic characteristics and risks are not closely related to those of the host contract; the terms of the embedded derivative would
meet the definition of a stand-alone derivative if they were contained in a separate contract; and the combined contract is not held for trading or designated at fair
value. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Contracts containing embedded
derivatives are not subsequently reassessed for separation unless either there has been a change in the terms of the contract which significantly modifies the cash
flows (in which case the contract is reassessed at the time of modification) or the contract has been reclassified (in which case the contract is reassessed at the time
of reclassification).
All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative, except where netting is permitted. The method
of recognising fair value gains and losses depends on whether derivatives are held for trading or are designated as hedging instruments and, if the latter, the nature
of the risks being hedged. Gains and losses from changes in the fair value of derivatives held for trading are recognised in the income statement and included in
Other operating income.
Offsetting financial assets and liabilities
Financial assets and liabilities including derivatives are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off
the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The Santander UK group is party
to a number of arrangements, including master netting arrangements under industry standard agreements which facilitate netting of transactions in jurisdictions
where netting agreements are recognised and have legal force. These netting arrangements do not generally result in an offset of balance sheet assets and
liabilities for accounting purposes, as transactions are usually settled on a gross basis.
Hedge accounting
The Santander UK group applies hedge accounting to represent, to the maximum possible extent permitted under accounting standards, the economic effects of its
risk management strategies. Derivatives are used to hedge exposures to interest rates and exchange rates.
At the time a financial instrument is designated as a hedge (i.e. at the inception of the hedge), the Santander UK group formally documents the relationship between
the hedging instrument(s) and hedged item(s), its risk management objective and strategy for undertaking the hedge. The documentation includes the identification
of each hedging instrument and respective hedged item, the nature of the risk being hedged (including the benchmark interest rate being hedged in a hedge of
interest rate risk) and how the hedging instrument\u2019s effectiveness in offsetting the exposure to changes in the hedged item\u2019s fair value attributable to the hedged
risk is to be assessed. Accordingly, the Santander UK group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging
derivatives have been and will be highly effective in offsetting changes in the fair value attributable to the hedged risk during the period that the hedge is
designated. A hedge is normally regarded as highly effective if, at inception and throughout its life, the Santander UK group can expect, and actual results indicate,
that changes in the fair value or cash flow of the hedged items are effectively offset by changes in the fair value or cash flow of the hedging instrument. If at any
point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued.
Where derivatives are held for risk management purposes, and when transactions meet the required criteria for documentation and hedge effectiveness, the
derivatives may be designated as either: (i) hedges of the change in fair value of recognised assets or liabilities or firm commitments (fair value hedges); (ii) hedges
of the variability in highly probable future cash flows attributable to a recognised asset or liability, or a forecast transaction (cash flow hedges); or (iii) a hedge of a
net investment in a foreign operation (net investment hedges). The Santander UK group applies fair value and cash flow hedge accounting, but not hedging of a net
investment in a foreign operation.
a) Fair value hedge accounting
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the
fair value of the hedged asset or liability that are attributable to the hedged risk. Where the hedged item is measured at amortised cost, the fair value changes due
to the hedged risk adjust the carrying amount of the hedged asset or liability. Changes in the fair value of portfolio hedged items are presented separately in the
consolidated balance sheet in macro hedge of interest rate risk and recognised in the income statement. If the hedge no longer meets the criteria for hedge
accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. For fair value hedges of
interest rate risk, the cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the
effective interest method over the period to maturity. For portfolio hedged items, the cumulative adjustment is amortised to the income statement using the
straight-line method over the period to maturity.
b) Cash flow hedge accounting
The effective portion of changes in the fair value of qualifying cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The
gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income
statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast
transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement. The Santander UK group is exposed to cash flow interest rate risk on its floating rate assets,
foreign currency risk on its fixed rate debt issuances denominated in foreign currency and equity price risk arises from the Santander UK group operating the
Employee Sharesave scheme. Cash flow hedging is used to hedge the variability in cash flows arising from these risks.
Securitisation transactions
The Santander UK group has entered into arrangements where undertakings have issued mortgage-backed and other asset-backed securities or have entered into
funding arrangements with lenders in order to finance specific loans and advances to customers. The Santander UK group has also entered into synthetic
securitisation arrangements, as part of significant risk transfer (SRT) transactions to reduce its risk-weighted assets, where undertakings have issued credit-linked
notes, and in some cases deposited the funds raised as collateral, for credit protection in respect of specific loans and advances to customers. As the Santander UK
group has retained substantially all the risks and rewards of the underlying assets, such financial instruments continue to be recognised on the balance sheet, and a
liability recognised for the proceeds of the funding transaction, or in the case of SRT transactions, collateral deposited.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-553": { "value": "
a) Initial recognition and measurement
Financial assets and liabilities are initially recognised when the Santander UK group becomes a party to the contractual terms of the instrument. The Santander UK
group determines the classification of its financial assets and liabilities at initial recognition and measures a financial asset or financial liability at its fair value plus or
minus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are incremental and directly attributable to the acquisition or issue of
the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss. Immediately after
initial recognition, an expected credit loss (ECL) allowance is recognised for financial assets measured at amortised cost and investments in debt instruments
measured at FVOCI.
A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the timeframe established
generally by regulation or convention in the marketplace concerned. Regular way purchases and sales of financial assets measured at amortised cost are recognised
on settlement date; all other regular way purchases and sales of financial assets are recognised on trade date.
b) Financial assets and liabilities
i) Classification and subsequent measurement
The Santander UK group classifies its financial assets in the measurement categories of amortised cost, FVOCI and FVTPL.
Financial assets and financial liabilities are classified as FVTPL where there is a requirement to do so or where they are otherwise designated at FVTPL on initial
recognition. Financial assets and financial liabilities which are required to be held at FVTPL include:
\u2013 Financial assets and financial liabilities held for trading.
\u2013 Debt instruments that do not have solely payments of principal and interest (SPPI) characteristics. Otherwise, such instruments are measured at amortised cost
or FVOCI, and
\u2013 Equity instruments that have not been designated as held at FVOCI.
Financial assets and financial liabilities are classified as held for trading if they are derivatives or if they are acquired or incurred principally for the purpose of selling
or repurchasing in the near-term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit
taking.
In certain circumstances, other financial assets and financial liabilities are designated at FVTPL where this results in more relevant information. This may arise
because it significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on
them on a different basis, where the assets and liabilities are managed and their performance evaluated on a fair value basis or, in the case of financial liabilities,
where it contains one or more embedded derivatives which are not closely related to the host contract.
The classification and measurement requirements for financial asset debt and equity instruments and financial liabilities are set out below.
Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer\u2019s perspective, such as loans and government and corporate
bonds. Classification and subsequent measurement of debt instruments depend on the Santander UK group\u2019s business model for managing the asset, and the cash
flow characteristics of the asset.
Business model
The business model reflects how the Santander UK group manages the assets in order to generate cash flows and, specifically, whether the Santander UK group\u2019s
objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of the
assets. If neither of these is applicable, such as where the financial assets are held for trading purposes, then the financial assets are classified as part of an \u2018other\u2019
business model and measured at FVTPL. Factors considered in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the assets\u2019 performance is evaluated and reported to key management personnel, and how risks are assessed and managed.
SPPI
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Santander UK group assesses whether
the assets\u2019 cash flows represent SPPI. In making this assessment, the Santander UK group considers whether the contractual cash flows are consistent with a basic
lending arrangement (i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement). Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
related asset is classified and measured at FVTPL.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
Based on these factors, the Santander UK group classifies its debt instruments into one of the following measurement categories:
\u2013 Amortised cost \u2013 Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are not designated at
FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any ECL recognised and measured as presented in Note 13. Interest
income from these financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method. When estimates of future cash flows are
revised, the carrying amount of the respective financial assets is adjusted to reflect the new estimate discounted using the original effective interest rate. Any
changes are recognised in the income statement.
\u2013 FVOCI \u2013 Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets\u2019 cash flows represent SPPI, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or
losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in \u2018Other operating income\u2019. Interest income from these
financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method.
\u2013 FVTPL \u2013 Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently
measured at FVTPL, including any debt instruments designated at fair value, is recognised in profit or loss and presented in the income statement in \u2018Other
operating income\u2019 in the period in which it arises.
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Financial assets: equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer\u2019s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer\u2019s net assets. All equity investments are subsequently measured at FVTPL; management may elect, at
initial recognition, to irrevocably designate an equity investment at FVOCI but has not currently done so. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. ECLs (and reversal of ECLs) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the right to
receive payments is established. Gains and losses on equity investments at FVTPL are included in \u2018Other operating income\u2019 in the income statement.
Financial liabilities
Financial liabilities, which include deposits by banks, deposits by customers, debt securities in issue and subordinated liabilities, are classified as subsequently
measured at amortised cost, except for:
\u2013 Financial liabilities at FVTPL (see Note 22): this classification is applied to derivatives and other financial liabilities designated as such at initial recognition. Gains or
losses on financial liabilities designated at FVTPL are presented partially in other comprehensive income (the amount of change in the fair value of the financial
liability that is attributable to changes in the credit risk of that liability) and partially in profit or loss (the remaining amount of change in the fair value of the
liability)
\u2013 Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the
consideration received for the transfer. In subsequent periods, the Santander UK group recognises any expense incurred on the financial liability, and
\u2013 Financial guarantee contracts and loan commitments.
Preference shares which carry a contractual obligation to transfer economic benefits are classified as financial liabilities and are presented in subordinated liabilities.
The coupon on these preference shares is recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted for as equity index-linked deposits. The principal products
are Capital Guaranteed/Protected Products which give the customers a limited participation in the upside growth of an equity index. In the event the index falls in
price, a cash principal element is guaranteed/protected. The equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment performance profile tailored to the return agreed in the contracts
with customers. The cash principal element is accounted for as deposits by customers at amortised cost. The embedded derivatives are separated from the host
instrument and are separately accounted for as derivatives.
Day One profit adjustments
The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
sometimes the fair value will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and currency rates. When such
evidence exists, the Santander UK group recognises a trading gain or loss at inception (Day One gain or loss), being the difference between the transaction price and
the fair value. When significant unobservable parameters are used, the entire Day One gain or loss is deferred and is recognised in the income statement over the
life of the transaction until the transaction matures, is closed out, the valuation inputs become observable, or an offsetting transaction is entered into.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-552": { "value": "
a) Initial recognition and measurement
Financial assets and liabilities are initially recognised when the Santander UK group becomes a party to the contractual terms of the instrument. The Santander UK
group determines the classification of its financial assets and liabilities at initial recognition and measures a financial asset or financial liability at its fair value plus or
minus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are incremental and directly attributable to the acquisition or issue of
the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss. Immediately after
initial recognition, an expected credit loss (ECL) allowance is recognised for financial assets measured at amortised cost and investments in debt instruments
measured at FVOCI.
A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the timeframe established
generally by regulation or convention in the marketplace concerned. Regular way purchases and sales of financial assets measured at amortised cost are recognised
on settlement date; all other regular way purchases and sales of financial assets are recognised on trade date.
b) Financial assets and liabilities
i) Classification and subsequent measurement
The Santander UK group classifies its financial assets in the measurement categories of amortised cost, FVOCI and FVTPL.
Financial assets and financial liabilities are classified as FVTPL where there is a requirement to do so or where they are otherwise designated at FVTPL on initial
recognition. Financial assets and financial liabilities which are required to be held at FVTPL include:
\u2013 Financial assets and financial liabilities held for trading.
\u2013 Debt instruments that do not have solely payments of principal and interest (SPPI) characteristics. Otherwise, such instruments are measured at amortised cost
or FVOCI, and
\u2013 Equity instruments that have not been designated as held at FVOCI.
Financial assets and financial liabilities are classified as held for trading if they are derivatives or if they are acquired or incurred principally for the purpose of selling
or repurchasing in the near-term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit
taking.
In certain circumstances, other financial assets and financial liabilities are designated at FVTPL where this results in more relevant information. This may arise
because it significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on
them on a different basis, where the assets and liabilities are managed and their performance evaluated on a fair value basis or, in the case of financial liabilities,
where it contains one or more embedded derivatives which are not closely related to the host contract.
The classification and measurement requirements for financial asset debt and equity instruments and financial liabilities are set out below.
Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer\u2019s perspective, such as loans and government and corporate
bonds. Classification and subsequent measurement of debt instruments depend on the Santander UK group\u2019s business model for managing the asset, and the cash
flow characteristics of the asset.
Business model
The business model reflects how the Santander UK group manages the assets in order to generate cash flows and, specifically, whether the Santander UK group\u2019s
objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of the
assets. If neither of these is applicable, such as where the financial assets are held for trading purposes, then the financial assets are classified as part of an \u2018other\u2019
business model and measured at FVTPL. Factors considered in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the assets\u2019 performance is evaluated and reported to key management personnel, and how risks are assessed and managed.
SPPI
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Santander UK group assesses whether
the assets\u2019 cash flows represent SPPI. In making this assessment, the Santander UK group considers whether the contractual cash flows are consistent with a basic
lending arrangement (i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement). Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
related asset is classified and measured at FVTPL.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
Based on these factors, the Santander UK group classifies its debt instruments into one of the following measurement categories:
\u2013 Amortised cost \u2013 Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are not designated at
FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any ECL recognised and measured as presented in Note 13. Interest
income from these financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method. When estimates of future cash flows are
revised, the carrying amount of the respective financial assets is adjusted to reflect the new estimate discounted using the original effective interest rate. Any
changes are recognised in the income statement.
\u2013 FVOCI \u2013 Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets\u2019 cash flows represent SPPI, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or
losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in \u2018Other operating income\u2019. Interest income from these
financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method.
\u2013 FVTPL \u2013 Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently
measured at FVTPL, including any debt instruments designated at fair value, is recognised in profit or loss and presented in the income statement in \u2018Other
operating income\u2019 in the period in which it arises.
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Financial assets: equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer\u2019s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer\u2019s net assets. All equity investments are subsequently measured at FVTPL; management may elect, at
initial recognition, to irrevocably designate an equity investment at FVOCI but has not currently done so. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. ECLs (and reversal of ECLs) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the right to
receive payments is established. Gains and losses on equity investments at FVTPL are included in \u2018Other operating income\u2019 in the income statement.
Financial liabilities
Financial liabilities, which include deposits by banks, deposits by customers, debt securities in issue and subordinated liabilities, are classified as subsequently
measured at amortised cost, except for:
\u2013 Financial liabilities at FVTPL (see Note 22): this classification is applied to derivatives and other financial liabilities designated as such at initial recognition. Gains or
losses on financial liabilities designated at FVTPL are presented partially in other comprehensive income (the amount of change in the fair value of the financial
liability that is attributable to changes in the credit risk of that liability) and partially in profit or loss (the remaining amount of change in the fair value of the
liability)
\u2013 Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the
consideration received for the transfer. In subsequent periods, the Santander UK group recognises any expense incurred on the financial liability, and
\u2013 Financial guarantee contracts and loan commitments.
Preference shares which carry a contractual obligation to transfer economic benefits are classified as financial liabilities and are presented in subordinated liabilities.
The coupon on these preference shares is recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted for as equity index-linked deposits. The principal products
are Capital Guaranteed/Protected Products which give the customers a limited participation in the upside growth of an equity index. In the event the index falls in
price, a cash principal element is guaranteed/protected. The equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment performance profile tailored to the return agreed in the contracts
with customers. The cash principal element is accounted for as deposits by customers at amortised cost. The embedded derivatives are separated from the host
instrument and are separately accounted for as derivatives.
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
Day One profit adjustments
The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
sometimes the fair value will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and currency rates. When such
evidence exists, the Santander UK group recognises a trading gain or loss at inception (Day One gain or loss), being the difference between the transaction price and
the fair value. When significant unobservable parameters are used, the entire Day One gain or loss is deferred and is recognised in the income statement over the
life of the transaction until the transaction matures, is closed out, the valuation inputs become observable, or an offsetting transaction is entered into.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-554": { "value": "
a) Initial recognition and measurement
Financial assets and liabilities are initially recognised when the Santander UK group becomes a party to the contractual terms of the instrument. The Santander UK
group determines the classification of its financial assets and liabilities at initial recognition and measures a financial asset or financial liability at its fair value plus or
minus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are incremental and directly attributable to the acquisition or issue of
the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss. Immediately after
initial recognition, an expected credit loss (ECL) allowance is recognised for financial assets measured at amortised cost and investments in debt instruments
measured at FVOCI.
A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the timeframe established
generally by regulation or convention in the marketplace concerned. Regular way purchases and sales of financial assets measured at amortised cost are recognised
on settlement date; all other regular way purchases and sales of financial assets are recognised on trade date.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognisingDifferenceBetweenFairValueAtInitialRecognitionAndAmountDeterminedUsingValuationTechniqueExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-556": { "value": "
b) Financial assets and liabilities
i) Classification and subsequent measurement
The Santander UK group classifies its financial assets in the measurement categories of amortised cost, FVOCI and FVTPL.
Financial assets and financial liabilities are classified as FVTPL where there is a requirement to do so or where they are otherwise designated at FVTPL on initial
recognition. Financial assets and financial liabilities which are required to be held at FVTPL include:
\u2013 Financial assets and financial liabilities held for trading.
\u2013 Debt instruments that do not have solely payments of principal and interest (SPPI) characteristics. Otherwise, such instruments are measured at amortised cost
or FVOCI, and
\u2013 Equity instruments that have not been designated as held at FVOCI.
Financial assets and financial liabilities are classified as held for trading if they are derivatives or if they are acquired or incurred principally for the purpose of selling
or repurchasing in the near-term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit
taking.
In certain circumstances, other financial assets and financial liabilities are designated at FVTPL where this results in more relevant information. This may arise
because it significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on
them on a different basis, where the assets and liabilities are managed and their performance evaluated on a fair value basis or, in the case of financial liabilities,
where it contains one or more embedded derivatives which are not closely related to the host contract.
The classification and measurement requirements for financial asset debt and equity instruments and financial liabilities are set out below.
Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer\u2019s perspective, such as loans and government and corporate
bonds. Classification and subsequent measurement of debt instruments depend on the Santander UK group\u2019s business model for managing the asset, and the cash
flow characteristics of the asset.
Business model
The business model reflects how the Santander UK group manages the assets in order to generate cash flows and, specifically, whether the Santander UK group\u2019s
objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of the
assets. If neither of these is applicable, such as where the financial assets are held for trading purposes, then the financial assets are classified as part of an \u2018other\u2019
business model and measured at FVTPL. Factors considered in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the assets\u2019 performance is evaluated and reported to key management personnel, and how risks are assessed and managed.
SPPI
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Santander UK group assesses whether
the assets\u2019 cash flows represent SPPI. In making this assessment, the Santander UK group considers whether the contractual cash flows are consistent with a basic
lending arrangement (i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement). Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
related asset is classified and measured at FVTPL.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
Based on these factors, the Santander UK group classifies its debt instruments into one of the following measurement categories:
\u2013 Amortised cost \u2013 Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are not designated at
FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any ECL recognised and measured as presented in Note 13. Interest
income from these financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method. When estimates of future cash flows are
revised, the carrying amount of the respective financial assets is adjusted to reflect the new estimate discounted using the original effective interest rate. Any
changes are recognised in the income statement.
\u2013 FVOCI \u2013 Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets\u2019 cash flows represent SPPI, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or
losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in \u2018Other operating income\u2019. Interest income from these
financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method.
\u2013 FVTPL \u2013 Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently
measured at FVTPL, including any debt instruments designated at fair value, is recognised in profit or loss and presented in the income statement in \u2018Other
operating income\u2019 in the period in which it arises.
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Financial assets: equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer\u2019s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer\u2019s net assets. All equity investments are subsequently measured at FVTPL; management may elect, at
initial recognition, to irrevocably designate an equity investment at FVOCI but has not currently done so. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. ECLs (and reversal of ECLs) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the right to
receive payments is established. Gains and losses on equity investments at FVTPL are included in \u2018Other operating income\u2019 in the income statement.
Financial liabilities
Financial liabilities, which include deposits by banks, deposits by customers, debt securities in issue and subordinated liabilities, are classified as subsequently
measured at amortised cost, except for:
\u2013 Financial liabilities at FVTPL (see Note 22): this classification is applied to derivatives and other financial liabilities designated as such at initial recognition. Gains or
losses on financial liabilities designated at FVTPL are presented partially in other comprehensive income (the amount of change in the fair value of the financial
liability that is attributable to changes in the credit risk of that liability) and partially in profit or loss (the remaining amount of change in the fair value of the
liability)
\u2013 Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the
consideration received for the transfer. In subsequent periods, the Santander UK group recognises any expense incurred on the financial liability, and
\u2013 Financial guarantee contracts and loan commitments.
Preference shares which carry a contractual obligation to transfer economic benefits are classified as financial liabilities and are presented in subordinated liabilities.
The coupon on these preference shares is recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted for as equity index-linked deposits. The principal products
are Capital Guaranteed/Protected Products which give the customers a limited participation in the upside growth of an equity index. In the event the index falls in
price, a cash principal element is guaranteed/protected. The equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment performance profile tailored to the return agreed in the contracts
with customers. The cash principal element is accounted for as deposits by customers at amortised cost. The embedded derivatives are separated from the host
instrument and are separately accounted for as derivatives.
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
Day One profit adjustments
The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
sometimes the fair value will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and currency rates. When such
evidence exists, the Santander UK group recognises a trading gain or loss at inception (Day One gain or loss), being the difference between the transaction price and
the fair value. When significant unobservable parameters are used, the entire Day One gain or loss is deferred and is recognised in the income statement over the
life of the transaction until the transaction matures, is closed out, the valuation inputs become observable, or an offsetting transaction is entered into.
ii) Impairment of debt instrument financial assets
The Santander UK group assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at amortised cost and FVOCI and with the
exposure arising from financial guarantee contracts and loan commitments. The Santander UK group recognises a loss allowance for such losses at each reporting
date. The measurement of ECL reflects:
\u2013 An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
\u2013 The time value of money, and
\u2013 Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of
future economic conditions.
Grouping of instruments for losses measured on a collective basis
We typically group instruments and assess them for impairment collectively where they share risk characteristics (as described in the Credit risk section of the Risk
review) using one or more statistical models. Where we have used internal capital or similar models as the basis for our ECL models, this typically results in a large
number of relatively small homogenous groups which are determined by the permutations of the underlying characteristics in the statistical models. We calculate
separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed, as described below.
Individually assessed impairments (IAIs)
We assess significant Stage 3 cases individually. We do this for Corporate & Commercial Banking cases, but not for Business Banking cases in Retail & Business
Banking which we assess collectively. To calculate the estimated loss, we estimate the future cash flows under several scenarios each of which uses case-specific
factors and circumstances. We then probability-weight the net present value of the cash flows under each scenario to arrive at a weighted average provision
requirement. We update our assessment process every quarter and more frequently if there are changes in circumstances that might affect the scenarios, cash
flows or probabilities we apply.
For more on how ECL is calculated, see the Credit risk section of the Risk review.
\u2013 Write-off
For secured loans, a write-off is only made when all collection procedures have been exhausted and the security has been sold and/or a claim made on any
mortgage indemnity guarantee or other insurance. In the corporate loan portfolio, there may be occasions where a write-off occurs for other reasons, such as
following a consensual restructure or refinancing of the debt or where the debt is sold for strategic reasons into the secondary market at a value lower than its
face value.
There is no threshold based on past due status beyond which all secured loans are written off as there can be significant variations in the time needed to enforce
possession and sale of the security, especially due to the different legal frameworks that apply in different regions of the UK. For unsecured loans, a write-off is
only made when all internal avenues of collecting the debt have been exhausted. Where appropriate the debt is passed over to external collection agencies. A
past due threshold is applied to unsecured debt where accounts that are 180 days past due are written off unless there is a dispute awaiting resolution. Contact is
made with customers with the aim to achieve a realistic and sustainable repayment arrangement. Litigation and/or enforcement of security is usually carried out
only when the steps described above have been undertaken without success.
All write-offs are assessed / made on a case-by-case basis, taking account of the exposure at the date of write-off, after accounting for the value from any
collateral or insurance held against the loan. The exception to this is in cases where fraud has occurred, where the exposure is written off once investigations have
been completed and the probability of recovery is minimal. The time span between discovery and write-off will be short and may not result in an impairment loss
allowance being raised. The write-off policy is regularly reviewed. Write-offs are charged against previously established loss allowances.
\u2013 Recoveries
Recoveries of credit impairment charges are not included in the impairment loss allowance but are taken to income and offset against credit impairment charges.
Recoveries of credit impairment charges are classified in the income statement as \u2018Credit impairment charges\u2019.
iii) Modifications of financial assets
The treatment of a renegotiation or modification of the contractual cash flows of a financial asset normally depends upon whether the renegotiation or modification
is due to financial difficulties of the borrower or for other commercial reasons.
\u2013 Contractual modifications due to financial difficulties of the borrower: where the Santander UK group modifies the contractual conditions to enable the borrower
to fulfil their payment obligations, the asset is not derecognised. The gross carrying amount of the financial asset is recalculated as the present value of the
renegotiated/modified contractual cash flows that are discounted at the financial asset\u2019s original EIR and any gain or loss arising from the modification is
recognised in the income statement.
\u2013 Contractual modifications for other commercial reasons: an assessment is performed to determine whether the terms of the new agreement are substantially
different from the terms of the existing agreement, after considering changes in the cash flows arising from the modified terms and the overall instrument risk
profile. Where terms are substantially different, such modifications are treated as a new transaction resulting in derecognition of the original financial asset, and
the recognition of a \u2018new\u2019 financial asset with any difference between the carrying amount of the derecognised asset and the fair value of the new asset is
recognised in the income statement as a gain or loss on derecognition. Where terms are not substantially different, the carrying value of the financial asset is
adjusted to reflect the present value of modified cash flows discounted at the original EIR with any gain or loss arising from modification recognised immediately
in the income statement.
Any other contractual modifications, such as where a regulatory authority imposes a change in certain contractual terms or due to legal reasons, are assessed on a
case-by-case basis to establish whether or not the financial asset should be derecognised. For IBOR reform see Note 41.
iv) Derecognition other than on a modification
Financial assets are derecognised when the rights to receive cash flows have expired or the Santander UK group has transferred its contractual right to receive the
cash flows from the assets and either: (1) substantially all the risks and rewards of ownership have been transferred; or (2) the Santander UK group has neither
retained nor transferred substantially all of the risks and rewards but has transferred control.
Financial liabilities are derecognised when extinguished, cancelled or expired.
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-555": { "value": "
b) Financial assets and liabilities
i) Classification and subsequent measurement
The Santander UK group classifies its financial assets in the measurement categories of amortised cost, FVOCI and FVTPL.
Financial assets and financial liabilities are classified as FVTPL where there is a requirement to do so or where they are otherwise designated at FVTPL on initial
recognition. Financial assets and financial liabilities which are required to be held at FVTPL include:
\u2013 Financial assets and financial liabilities held for trading.
\u2013 Debt instruments that do not have solely payments of principal and interest (SPPI) characteristics. Otherwise, such instruments are measured at amortised cost
or FVOCI, and
\u2013 Equity instruments that have not been designated as held at FVOCI.
Financial assets and financial liabilities are classified as held for trading if they are derivatives or if they are acquired or incurred principally for the purpose of selling
or repurchasing in the near-term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit
taking.
In certain circumstances, other financial assets and financial liabilities are designated at FVTPL where this results in more relevant information. This may arise
because it significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on
them on a different basis, where the assets and liabilities are managed and their performance evaluated on a fair value basis or, in the case of financial liabilities,
where it contains one or more embedded derivatives which are not closely related to the host contract.
The classification and measurement requirements for financial asset debt and equity instruments and financial liabilities are set out below.
Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer\u2019s perspective, such as loans and government and corporate
bonds. Classification and subsequent measurement of debt instruments depend on the Santander UK group\u2019s business model for managing the asset, and the cash
flow characteristics of the asset.
Business model
The business model reflects how the Santander UK group manages the assets in order to generate cash flows and, specifically, whether the Santander UK group\u2019s
objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of the
assets. If neither of these is applicable, such as where the financial assets are held for trading purposes, then the financial assets are classified as part of an \u2018other\u2019
business model and measured at FVTPL. Factors considered in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the assets\u2019 performance is evaluated and reported to key management personnel, and how risks are assessed and managed.
SPPI
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Santander UK group assesses whether
the assets\u2019 cash flows represent SPPI. In making this assessment, the Santander UK group considers whether the contractual cash flows are consistent with a basic
lending arrangement (i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement). Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
related asset is classified and measured at FVTPL.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
Based on these factors, the Santander UK group classifies its debt instruments into one of the following measurement categories:
\u2013 Amortised cost \u2013 Financial assets that are held for collection of contractual cash flows where those cash flows represent SPPI, and that are not designated at
FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any ECL recognised and measured as presented in Note 13. Interest
income from these financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method. When estimates of future cash flows are
revised, the carrying amount of the respective financial assets is adjusted to reflect the new estimate discounted using the original effective interest rate. Any
changes are recognised in the income statement.
\u2013 FVOCI \u2013 Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets\u2019 cash flows represent SPPI, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or
losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in \u2018Other operating income\u2019. Interest income from these
financial assets is included in \u2018Interest and similar income\u2019 using the effective interest rate method.
\u2013 FVTPL \u2013 Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently
measured at FVTPL, including any debt instruments designated at fair value, is recognised in profit or loss and presented in the income statement in \u2018Other
operating income\u2019 in the period in which it arises.
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Financial assets: equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer\u2019s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer\u2019s net assets. All equity investments are subsequently measured at FVTPL; management may elect, at
initial recognition, to irrevocably designate an equity investment at FVOCI but has not currently done so. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. ECLs (and reversal of ECLs) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the right to
receive payments is established. Gains and losses on equity investments at FVTPL are included in \u2018Other operating income\u2019 in the income statement.
Financial liabilities
Financial liabilities, which include deposits by banks, deposits by customers, debt securities in issue and subordinated liabilities, are classified as subsequently
measured at amortised cost, except for:
\u2013 Financial liabilities at FVTPL (see Note 22): this classification is applied to derivatives and other financial liabilities designated as such at initial recognition. Gains or
losses on financial liabilities designated at FVTPL are presented partially in other comprehensive income (the amount of change in the fair value of the financial
liability that is attributable to changes in the credit risk of that liability) and partially in profit or loss (the remaining amount of change in the fair value of the
liability)
\u2013 Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the
consideration received for the transfer. In subsequent periods, the Santander UK group recognises any expense incurred on the financial liability, and
\u2013 Financial guarantee contracts and loan commitments.
Preference shares which carry a contractual obligation to transfer economic benefits are classified as financial liabilities and are presented in subordinated liabilities.
The coupon on these preference shares is recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted for as equity index-linked deposits. The principal products
are Capital Guaranteed/Protected Products which give the customers a limited participation in the upside growth of an equity index. In the event the index falls in
price, a cash principal element is guaranteed/protected. The equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment performance profile tailored to the return agreed in the contracts
with customers. The cash principal element is accounted for as deposits by customers at amortised cost. The embedded derivatives are separated from the host
instrument and are separately accounted for as derivatives.
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
Day One profit adjustments
The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
sometimes the fair value will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and currency rates. When such
evidence exists, the Santander UK group recognises a trading gain or loss at inception (Day One gain or loss), being the difference between the transaction price and
the fair value. When significant unobservable parameters are used, the entire Day One gain or loss is deferred and is recognised in the income statement over the
life of the transaction until the transaction matures, is closed out, the valuation inputs become observable, or an offsetting transaction is entered into.
ii) Impairment of debt instrument financial assets
The Santander UK group assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at amortised cost and FVOCI and with the
exposure arising from financial guarantee contracts and loan commitments. The Santander UK group recognises a loss allowance for such losses at each reporting
date. The measurement of ECL reflects:
\u2013 An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
\u2013 The time value of money, and
\u2013 Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of
future economic conditions.
Grouping of instruments for losses measured on a collective basis
We typically group instruments and assess them for impairment collectively where they share risk characteristics (as described in the Credit risk section of the Risk
review) using one or more statistical models. Where we have used internal capital or similar models as the basis for our ECL models, this typically results in a large
number of relatively small homogenous groups which are determined by the permutations of the underlying characteristics in the statistical models. We calculate
separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed, as described below.
Individually assessed impairments (IAIs)
We assess significant Stage 3 cases individually. We do this for Corporate & Commercial Banking cases, but not for Business Banking cases in Retail & Business
Banking which we assess collectively. To calculate the estimated loss, we estimate the future cash flows under several scenarios each of which uses case-specific
factors and circumstances. We then probability-weight the net present value of the cash flows under each scenario to arrive at a weighted average provision
requirement. We update our assessment process every quarter and more frequently if there are changes in circumstances that might affect the scenarios, cash
flows or probabilities we apply.
For more on how ECL is calculated, see the Credit risk section of the Risk review.
\u2013 Write-off
For secured loans, a write-off is only made when all collection procedures have been exhausted and the security has been sold and/or a claim made on any
mortgage indemnity guarantee or other insurance. In the corporate loan portfolio, there may be occasions where a write-off occurs for other reasons, such as
following a consensual restructure or refinancing of the debt or where the debt is sold for strategic reasons into the secondary market at a value lower than its
face value.
There is no threshold based on past due status beyond which all secured loans are written off as there can be significant variations in the time needed to enforce
possession and sale of the security, especially due to the different legal frameworks that apply in different regions of the UK. For unsecured loans, a write-off is
only made when all internal avenues of collecting the debt have been exhausted. Where appropriate the debt is passed over to external collection agencies. A
past due threshold is applied to unsecured debt where accounts that are 180 days past due are written off unless there is a dispute awaiting resolution. Contact is
made with customers with the aim to achieve a realistic and sustainable repayment arrangement. Litigation and/or enforcement of security is usually carried out
only when the steps described above have been undertaken without success.
All write-offs are assessed / made on a case-by-case basis, taking account of the exposure at the date of write-off, after accounting for the value from any
collateral or insurance held against the loan. The exception to this is in cases where fraud has occurred, where the exposure is written off once investigations have
been completed and the probability of recovery is minimal. The time span between discovery and write-off will be short and may not result in an impairment loss
allowance being raised. The write-off policy is regularly reviewed. Write-offs are charged against previously established loss allowances.
\u2013 Recoveries
Recoveries of credit impairment charges are not included in the impairment loss allowance but are taken to income and offset against credit impairment charges.
Recoveries of credit impairment charges are classified in the income statement as \u2018Credit impairment charges\u2019.
iii) Modifications of financial assets
The treatment of a renegotiation or modification of the contractual cash flows of a financial asset normally depends upon whether the renegotiation or modification
is due to financial difficulties of the borrower or for other commercial reasons.
\u2013 Contractual modifications due to financial difficulties of the borrower: where the Santander UK group modifies the contractual conditions to enable the borrower
to fulfil their payment obligations, the asset is not derecognised. The gross carrying amount of the financial asset is recalculated as the present value of the
renegotiated/modified contractual cash flows that are discounted at the financial asset\u2019s original EIR and any gain or loss arising from the modification is
recognised in the income statement.
\u2013 Contractual modifications for other commercial reasons: an assessment is performed to determine whether the terms of the new agreement are substantially
different from the terms of the existing agreement, after considering changes in the cash flows arising from the modified terms and the overall instrument risk
profile. Where terms are substantially different, such modifications are treated as a new transaction resulting in derecognition of the original financial asset, and
the recognition of a \u2018new\u2019 financial asset with any difference between the carrying amount of the derecognised asset and the fair value of the new asset is
recognised in the income statement as a gain or loss on derecognition. Where terms are not substantially different, the carrying value of the financial asset is
adjusted to reflect the present value of modified cash flows discounted at the original EIR with any gain or loss arising from modification recognised immediately
in the income statement.
Any other contractual modifications, such as where a regulatory authority imposes a change in certain contractual terms or due to legal reasons, are assessed on a
case-by-case basis to establish whether or not the financial asset should be derecognised. For IBOR reform see Note 41.
iv) Derecognition other than on a modification
Financial assets are derecognised when the rights to receive cash flows have expired or the Santander UK group has transferred its contractual right to receive the
cash flows from the assets and either: (1) substantially all the risks and rewards of ownership have been transferred; or (2) the Santander UK group has neither
retained nor transferred substantially all of the risks and rewards but has transferred control.
Financial liabilities are derecognised when extinguished, cancelled or expired.
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-557": { "value": "
The Santander UK group reclassifies financial assets when and only when its business model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such changes are expected to be very infrequent.
Certain derivatives may be embedded in hybrid contracts. If the hybrid contract contains a host that is a financial asset, then the Santander UK group assesses the
entire contract as described in the financial asset section above for classification and measurement purposes. Otherwise, embedded derivatives are treated as
separate derivatives when their economic characteristics and risks are not closely related to those of the host contract; the terms of the embedded derivative would
meet the definition of a stand-alone derivative if they were contained in a separate contract; and the combined contract is not held for trading or designated at fair
value. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Contracts containing embedded
derivatives are not subsequently reassessed for separation unless either there has been a change in the terms of the contract which significantly modifies the cash
flows (in which case the contract is reassessed at the time of modification) or the contract has been reclassified (in which case the contract is reassessed at the time
of reclassification).
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForReclassificationOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-560": { "value": "
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition,
including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, reverse repurchase agreements
and short-term investments in securities. Balances with central banks represent amounts held at the Bank of England as part of the Santander UK group\u2019s liquidity
management activities. It includes certain minimum cash ratio deposits held for regulatory purposes and reserves collateralised accounts in respect of Santander
UK\u2019s participation in certain payments schemes which are required to be maintained with the Bank of England and are restricted balances.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-559": { "value": "
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-558": { "value": "
Sale and repurchase agreements (including stock borrowing and lending)
Securities sold subject to a commitment to repurchase them at a predetermined price (repos) under which substantially all the risks and rewards of ownership are
retained by the Santander UK group remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under
commitments to resell (reverse repos) are not recognised on the balance sheet and the consideration paid is recorded as an asset. The difference between the sale
and repurchase price is treated as trading income in the income statement, except where the repo is not treated as part of the trading book, in which case the
difference is recorded in interest income or expense.
Securities lending and borrowing transactions are generally secured, with collateral in the form of securities or cash advanced or received. Securities borrowed are
not reflected on the balance sheet. Collateral in the form of cash received or advanced is recorded as a deposit or a loan. Collateral in the form of securities is not
recognised.
Securitisation transactions
The Santander UK group has entered into arrangements where undertakings have issued mortgage-backed and other asset-backed securities or have entered into
funding arrangements with lenders in order to finance specific loans and advances to customers. The Santander UK group has also entered into synthetic
securitisation arrangements, as part of significant risk transfer (SRT) transactions to reduce its risk-weighted assets, where undertakings have issued credit-linked
notes, and in some cases deposited the funds raised as collateral, for credit protection in respect of specific loans and advances to customers. As the Santander UK
group has retained substantially all the risks and rewards of the underlying assets, such financial instruments continue to be recognised on the balance sheet, and a
liability recognised for the proceeds of the funding transaction, or in the case of SRT transactions, collateral deposited.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForCollateralExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-562": { "value": "
ii) Impairment of debt instrument financial assets
The Santander UK group assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at amortised cost and FVOCI and with the
exposure arising from financial guarantee contracts and loan commitments. The Santander UK group recognises a loss allowance for such losses at each reporting
date. The measurement of ECL reflects:
\u2013 An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
\u2013 The time value of money, and
\u2013 Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of
future economic conditions.
Grouping of instruments for losses measured on a collective basis
We typically group instruments and assess them for impairment collectively where they share risk characteristics (as described in the Credit risk section of the Risk
review) using one or more statistical models. Where we have used internal capital or similar models as the basis for our ECL models, this typically results in a large
number of relatively small homogenous groups which are determined by the permutations of the underlying characteristics in the statistical models. We calculate
separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed, as described below.
Individually assessed impairments (IAIs)
We assess significant Stage 3 cases individually. We do this for Corporate & Commercial Banking cases, but not for Business Banking cases in Retail & Business
Banking which we assess collectively. To calculate the estimated loss, we estimate the future cash flows under several scenarios each of which uses case-specific
factors and circumstances. We then probability-weight the net present value of the cash flows under each scenario to arrive at a weighted average provision
requirement. We update our assessment process every quarter and more frequently if there are changes in circumstances that might affect the scenarios, cash
flows or probabilities we apply.
For more on how ECL is calculated, see the Credit risk section of the Risk review.
Impairment of non-financial assets
At each balance sheet date, or more frequently when events or changes in circumstances dictate, property plant and equipment (including operating lease assets)
and intangible assets (including goodwill) are assessed for indicators of impairment. If indications are present, these assets are subject to an impairment review.
The impairment review comprises a comparison of the carrying value of the asset or cash generating unit with its recoverable amount: the higher of the asset\u2019s or
cash-generating unit\u2019s fair value less costs to sell and its value in use. The cash-generating unit represents the lowest level at which non-financial assets, including
goodwill, are monitored for internal management purposes and is not larger than an operating segment.
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Value in use is calculated by discounting management\u2019s expected future cash flows obtainable as a result of the asset\u2019s continued use (after
making allowance for increases in regulatory capital requirements), including those resulting from its ultimate disposal, at a market-based discount rate on a pre-
tax basis. The recoverable amounts of goodwill have been based on value in use calculations.
For conducting goodwill impairment reviews, cash generating units are the lowest level at which management monitors the return on investment on assets.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-561": { "value": "
ii) Impairment of debt instrument financial assets
The Santander UK group assesses on a forward-looking basis the ECL associated with its debt instrument assets carried at amortised cost and FVOCI and with the
exposure arising from financial guarantee contracts and loan commitments. The Santander UK group recognises a loss allowance for such losses at each reporting
date. The measurement of ECL reflects:
\u2013 An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
\u2013 The time value of money, and
\u2013 Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of
future economic conditions.
Grouping of instruments for losses measured on a collective basis
We typically group instruments and assess them for impairment collectively where they share risk characteristics (as described in the Credit risk section of the Risk
review) using one or more statistical models. Where we have used internal capital or similar models as the basis for our ECL models, this typically results in a large
number of relatively small homogenous groups which are determined by the permutations of the underlying characteristics in the statistical models. We calculate
separate collective provisions for instruments in Stages 1, 2 and 3 where the instrument is not individually assessed, as described below.
Individually assessed impairments (IAIs)
We assess significant Stage 3 cases individually. We do this for Corporate & Commercial Banking cases, but not for Business Banking cases in Retail & Business
Banking which we assess collectively. To calculate the estimated loss, we estimate the future cash flows under several scenarios each of which uses case-specific
factors and circumstances. We then probability-weight the net present value of the cash flows under each scenario to arrive at a weighted average provision
requirement. We update our assessment process every quarter and more frequently if there are changes in circumstances that might affect the scenarios, cash
flows or probabilities we apply.
For more on how ECL is calculated, see the Credit risk section of the Risk review.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-563": { "value": "
iv) Derecognition other than on a modification
Financial assets are derecognised when the rights to receive cash flows have expired or the Santander UK group has transferred its contractual right to receive the
cash flows from the assets and either: (1) substantially all the risks and rewards of ownership have been transferred; or (2) the Santander UK group has neither
retained nor transferred substantially all of the risks and rewards but has transferred control.
Financial liabilities are derecognised when extinguished, cancelled or expired.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerecognitionOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-564": { "value": "
c) Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor
fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and others
on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of the amount of the loss allowance, and the premium
received on initial recognition less income recognised in accordance with the principles of IFRS 15. Loan commitments are measured as the amount of the loss
allowance (determined in accordance with IFRS 9 as described in Credit risk section of the Risk review). The Santander UK group has not provided any commitment
to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument.
For financial guarantee contracts and loan commitments, the loss allowance is recognised as a provision and charged to credit impairment charges in the income
statement. The loss allowance in respect of revolving facilities is classified in loans and advances to customers to the extent of any drawn balances. The loss
allowance in respect of undrawn amounts is classified in provisions. When amounts are drawn, any related loss allowance is transferred from provisions to loans
and advances to customers.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialGuaranteesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-566": { "value": "
Derivative financial instruments (derivatives)
Derivatives are contracts or agreements whose value is derived from one or more underlying indices or asset values inherent in the contract or agreement, which
require no or little initial net investment and are settled at a future date. Transactions are undertaken in interest rate, cross currency, equity, residential property and
other index-related swaps, forwards, caps, floors, swaptions, as well as credit default and total return swaps, equity index contracts and exchange traded interest
rate futures, and equity index options.
Derivatives are held for risk management purposes. Derivatives are classified as held for trading unless they are designated as being in a hedge accounting
relationship. The Santander UK group chooses to designate certain derivatives as in a hedging relationship if they meet specific criteria, as further described in
\u2018Hedge accounting\u2019 below.
Derivatives are recognised initially (on the date on which a derivative contract is entered into), and are subsequently remeasured, at their fair value. Fair values of
exchange-traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are estimated using valuation techniques,
including discounted cash flow and option pricing models.
Certain derivatives may be embedded in hybrid contracts. If the hybrid contract contains a host that is a financial asset, then the Santander UK group assesses the
entire contract as described in the financial asset section above for classification and measurement purposes. Otherwise, embedded derivatives are treated as
separate derivatives when their economic characteristics and risks are not closely related to those of the host contract; the terms of the embedded derivative would
meet the definition of a stand-alone derivative if they were contained in a separate contract; and the combined contract is not held for trading or designated at fair
value. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Contracts containing embedded
derivatives are not subsequently reassessed for separation unless either there has been a change in the terms of the contract which significantly modifies the cash
flows (in which case the contract is reassessed at the time of modification) or the contract has been reclassified (in which case the contract is reassessed at the time
of reclassification).
All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative, except where netting is permitted. The method
of recognising fair value gains and losses depends on whether derivatives are held for trading or are designated as hedging instruments and, if the latter, the nature
of the risks being hedged. Gains and losses from changes in the fair value of derivatives held for trading are recognised in the income statement and included in
Other operating income.
Hedge accounting
The Santander UK group applies hedge accounting to represent, to the maximum possible extent permitted under accounting standards, the economic effects of its
risk management strategies. Derivatives are used to hedge exposures to interest rates and exchange rates.
At the time a financial instrument is designated as a hedge (i.e. at the inception of the hedge), the Santander UK group formally documents the relationship between
the hedging instrument(s) and hedged item(s), its risk management objective and strategy for undertaking the hedge. The documentation includes the identification
of each hedging instrument and respective hedged item, the nature of the risk being hedged (including the benchmark interest rate being hedged in a hedge of
interest rate risk) and how the hedging instrument\u2019s effectiveness in offsetting the exposure to changes in the hedged item\u2019s fair value attributable to the hedged
risk is to be assessed. Accordingly, the Santander UK group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging
derivatives have been and will be highly effective in offsetting changes in the fair value attributable to the hedged risk during the period that the hedge is
designated. A hedge is normally regarded as highly effective if, at inception and throughout its life, the Santander UK group can expect, and actual results indicate,
that changes in the fair value or cash flow of the hedged items are effectively offset by changes in the fair value or cash flow of the hedging instrument. If at any
point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued.
Where derivatives are held for risk management purposes, and when transactions meet the required criteria for documentation and hedge effectiveness, the
derivatives may be designated as either: (i) hedges of the change in fair value of recognised assets or liabilities or firm commitments (fair value hedges); (ii) hedges
of the variability in highly probable future cash flows attributable to a recognised asset or liability, or a forecast transaction (cash flow hedges); or (iii) a hedge of a
net investment in a foreign operation (net investment hedges). The Santander UK group applies fair value and cash flow hedge accounting, but not hedging of a net
investment in a foreign operation.
a) Fair value hedge accounting
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the
fair value of the hedged asset or liability that are attributable to the hedged risk. Where the hedged item is measured at amortised cost, the fair value changes due
to the hedged risk adjust the carrying amount of the hedged asset or liability. Changes in the fair value of portfolio hedged items are presented separately in the
consolidated balance sheet in macro hedge of interest rate risk and recognised in the income statement. If the hedge no longer meets the criteria for hedge
accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. For fair value hedges of
interest rate risk, the cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the
effective interest method over the period to maturity. For portfolio hedged items, the cumulative adjustment is amortised to the income statement using the
straight-line method over the period to maturity.
b) Cash flow hedge accounting
The effective portion of changes in the fair value of qualifying cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The
gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income
statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast
transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement. The Santander UK group is exposed to cash flow interest rate risk on its floating rate assets,
foreign currency risk on its fixed rate debt issuances denominated in foreign currency and equity price risk arises from the Santander UK group operating the
Employee Sharesave scheme. Cash flow hedging is used to hedge the variability in cash flows arising from these risks.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-565": { "value": "
Derivative financial instruments (derivatives)
Derivatives are contracts or agreements whose value is derived from one or more underlying indices or asset values inherent in the contract or agreement, which
require no or little initial net investment and are settled at a future date. Transactions are undertaken in interest rate, cross currency, equity, residential property and
other index-related swaps, forwards, caps, floors, swaptions, as well as credit default and total return swaps, equity index contracts and exchange traded interest
rate futures, and equity index options.
Derivatives are held for risk management purposes. Derivatives are classified as held for trading unless they are designated as being in a hedge accounting
relationship. The Santander UK group chooses to designate certain derivatives as in a hedging relationship if they meet specific criteria, as further described in
\u2018Hedge accounting\u2019 below.
Derivatives are recognised initially (on the date on which a derivative contract is entered into), and are subsequently remeasured, at their fair value. Fair values of
exchange-traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are estimated using valuation techniques,
including discounted cash flow and option pricing models.
Certain derivatives may be embedded in hybrid contracts. If the hybrid contract contains a host that is a financial asset, then the Santander UK group assesses the
entire contract as described in the financial asset section above for classification and measurement purposes. Otherwise, embedded derivatives are treated as
separate derivatives when their economic characteristics and risks are not closely related to those of the host contract; the terms of the embedded derivative would
meet the definition of a stand-alone derivative if they were contained in a separate contract; and the combined contract is not held for trading or designated at fair
value. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Contracts containing embedded
derivatives are not subsequently reassessed for separation unless either there has been a change in the terms of the contract which significantly modifies the cash
flows (in which case the contract is reassessed at the time of modification) or the contract has been reclassified (in which case the contract is reassessed at the time
of reclassification).
All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative, except where netting is permitted. The method
of recognising fair value gains and losses depends on whether derivatives are held for trading or are designated as hedging instruments and, if the latter, the nature
of the risks being hedged. Gains and losses from changes in the fair value of derivatives held for trading are recognised in the income statement and included in
Other operating income.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-567": { "value": "
Offsetting financial assets and liabilities
Financial assets and liabilities including derivatives are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off
the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The Santander UK group is party
to a number of arrangements, including master netting arrangements under industry standard agreements which facilitate netting of transactions in jurisdictions
where netting agreements are recognised and have legal force. These netting arrangements do not generally result in an offset of balance sheet assets and
liabilities for accounting purposes, as transactions are usually settled on a gross basis.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForOffsettingOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-568": { "value": "
Hedge accounting
The Santander UK group applies hedge accounting to represent, to the maximum possible extent permitted under accounting standards, the economic effects of its
risk management strategies. Derivatives are used to hedge exposures to interest rates and exchange rates.
At the time a financial instrument is designated as a hedge (i.e. at the inception of the hedge), the Santander UK group formally documents the relationship between
the hedging instrument(s) and hedged item(s), its risk management objective and strategy for undertaking the hedge. The documentation includes the identification
of each hedging instrument and respective hedged item, the nature of the risk being hedged (including the benchmark interest rate being hedged in a hedge of
interest rate risk) and how the hedging instrument\u2019s effectiveness in offsetting the exposure to changes in the hedged item\u2019s fair value attributable to the hedged
risk is to be assessed. Accordingly, the Santander UK group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging
derivatives have been and will be highly effective in offsetting changes in the fair value attributable to the hedged risk during the period that the hedge is
designated. A hedge is normally regarded as highly effective if, at inception and throughout its life, the Santander UK group can expect, and actual results indicate,
that changes in the fair value or cash flow of the hedged items are effectively offset by changes in the fair value or cash flow of the hedging instrument. If at any
point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued.
Where derivatives are held for risk management purposes, and when transactions meet the required criteria for documentation and hedge effectiveness, the
derivatives may be designated as either: (i) hedges of the change in fair value of recognised assets or liabilities or firm commitments (fair value hedges); (ii) hedges
of the variability in highly probable future cash flows attributable to a recognised asset or liability, or a forecast transaction (cash flow hedges); or (iii) a hedge of a
net investment in a foreign operation (net investment hedges). The Santander UK group applies fair value and cash flow hedge accounting, but not hedging of a net
investment in a foreign operation.
a) Fair value hedge accounting
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the
fair value of the hedged asset or liability that are attributable to the hedged risk. Where the hedged item is measured at amortised cost, the fair value changes due
to the hedged risk adjust the carrying amount of the hedged asset or liability. Changes in the fair value of portfolio hedged items are presented separately in the
consolidated balance sheet in macro hedge of interest rate risk and recognised in the income statement. If the hedge no longer meets the criteria for hedge
accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. For fair value hedges of
interest rate risk, the cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the
effective interest method over the period to maturity. For portfolio hedged items, the cumulative adjustment is amortised to the income statement using the
straight-line method over the period to maturity.
b) Cash flow hedge accounting
The effective portion of changes in the fair value of qualifying cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The
gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income
statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast
transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement. The Santander UK group is exposed to cash flow interest rate risk on its floating rate assets,
foreign currency risk on its fixed rate debt issuances denominated in foreign currency and equity price risk arises from the Santander UK group operating the
Employee Sharesave scheme. Cash flow hedging is used to hedge the variability in cash flows arising from these risks.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-569": { "value": "
Impairment of non-financial assets
At each balance sheet date, or more frequently when events or changes in circumstances dictate, property plant and equipment (including operating lease assets)
and intangible assets (including goodwill) are assessed for indicators of impairment. If indications are present, these assets are subject to an impairment review.
The impairment review comprises a comparison of the carrying value of the asset or cash generating unit with its recoverable amount: the higher of the asset\u2019s or
cash-generating unit\u2019s fair value less costs to sell and its value in use. The cash-generating unit represents the lowest level at which non-financial assets, including
goodwill, are monitored for internal management purposes and is not larger than an operating segment.
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Value in use is calculated by discounting management\u2019s expected future cash flows obtainable as a result of the asset\u2019s continued use (after
making allowance for increases in regulatory capital requirements), including those resulting from its ultimate disposal, at a market-based discount rate on a pre-
tax basis. The recoverable amounts of goodwill have been based on value in use calculations.
For conducting goodwill impairment reviews, cash generating units are the lowest level at which management monitors the return on investment on assets.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-570": { "value": "
Leases (as lessor)
Operating lease assets are recorded at cost and the difference between cost and residual value (RV) is depreciated over the life of the asset. Operating lease rental
income and depreciation is recognised on a straight-line basis over the life of the asset. After initial recognition, residual values are reviewed regularly, and any
changes are recognised prospectively through remaining depreciation charges.
Amounts due from lessees under finance leases and hire purchase contracts are recorded as receivables at the amount of the Santander UK group\u2019s net investment
in the leases. Finance lease income is allocated to accounting periods to reflect a constant periodic rate of return on the Santander UK group\u2019s net investment
outstanding in respect of the leases and hire purchase contracts. A provision is recognised to reflect a reduction in any anticipated unguaranteed RV. A provision is
also recognised for voluntary termination of the contract by the customer, where appropriate.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForLeasesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-572": { "value": "
Income taxes, including deferred taxes
The tax expense represents the sum of the income tax currently payable and deferred income tax.
A current tax liability for the current or prior period is measured at the amount expected to be paid to the tax authorities. Where the amount of the final tax liability is
uncertain or where a position is challenged by a taxation authority, the liability recognised is the most likely outcome. Where a most likely outcome cannot be
determined, a weighted average basis is applied.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on rates enacted or
substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items recognised in other
comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.
Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the
intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDeferredIncomeTaxExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-571": { "value": "
Income taxes, including deferred taxes
The tax expense represents the sum of the income tax currently payable and deferred income tax.
A current tax liability for the current or prior period is measured at the amount expected to be paid to the tax authorities. Where the amount of the final tax liability is
uncertain or where a position is challenged by a taxation authority, the liability recognised is the most likely outcome. Where a most likely outcome cannot be
determined, a weighted average basis is applied.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on rates enacted or
substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items recognised in other
comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.
Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the
intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIncomeTaxExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-575": { "value": "
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition,
including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, reverse repurchase agreements
and short-term investments in securities. Balances with central banks represent amounts held at the Bank of England as part of the Santander UK group\u2019s liquidity
management activities. It includes certain minimum cash ratio deposits held for regulatory purposes and reserves collateralised accounts in respect of Santander
UK\u2019s participation in certain payments schemes which are required to be maintained with the Bank of England and are restricted balances.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyToDetermineComponentsOfCashAndCashEquivalents", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-574": { "value": "
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition,
including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, reverse repurchase agreements
and short-term investments in securities. Balances with central banks represent amounts held at the Bank of England as part of the Santander UK group\u2019s liquidity
management activities. It includes certain minimum cash ratio deposits held for regulatory purposes and reserves collateralised accounts in respect of Santander
UK\u2019s participation in certain payments schemes which are required to be maintained with the Bank of England and are restricted balances.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRestrictedCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-573": { "value": "
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition,
including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, reverse repurchase agreements
and short-term investments in securities. Balances with central banks represent amounts held at the Bank of England as part of the Santander UK group\u2019s liquidity
management activities. It includes certain minimum cash ratio deposits held for regulatory purposes and reserves collateralised accounts in respect of Santander
UK\u2019s participation in certain payments schemes which are required to be maintained with the Bank of England and are restricted balances.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForCashFlowsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-576": { "value": "
Provisions and contingent liabilities (see 'Critical judgements and accounting estimates')
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer of economic benefits will be
necessary to settle the obligation, and it can be reliably estimated.
Customer remediation provisions are made for the estimated cost of making redress payments with respect to the past sales of products, using conclusions such as
the number of claims the number of those that will be upheld, the estimated average settlement per case and other related costs. Provision is made for the
anticipated cost of restructuring, including redundancy costs, when an obligation exists. An obligation exists when the Santander UK group has a detailed formal
plan for restructuring a business, has raised valid expectations in those affected by the restructuring, and has started to implement the plan or announce its main
features.
When a leasehold property ceases to be used in the business, provision is made where the unavoidable costs of the future obligations relating to the lease are
expected to exceed anticipated rental income. The net costs are discounted using market rates of interest to reflect the long-term nature of the cash flows.
Loan commitments are measured as the amount of the loss allowance, determined in line with IFRS 9 as set out in the Credit risk section of the Risk review.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForProvisionsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-577": { "value": "
Contingent liabilities are possible obligations whose existence will be confirmed only by certain future events or present obligations where the transfer of economic
benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-580": { "value": "
Critical judgements and accounting estimates
The preparation of Santander UK's consolidated financial statements in accordance with IFRS requires management to make judgements and assumptions in
applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates,
actual results reported in future periods may be based on amounts which differ from those estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. There has been no change in the inherent sensitivity of the areas of judgement in the period. Management have considered the impact of
developments in principal risks and uncertainties, as set out in the Risk review, on critical judgements and accounting estimates.
The significant judgements, apart from those involving estimation, made by management in applying Santander UK's accounting policies in these financial
statements (key judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount
of assets and liabilities within the next financial year (key estimates), which together are considered critical to Santander UK's results and financial position, are as
follows:
a) Credit impairment charges
The application of the ECL impairment methodology for calculating credit impairment allowances is highly susceptible to change from period to period. The
methodology requires management to make judgmental assumptions in determining the estimates. Any significant difference between the estimated amounts and
actual amounts could have a material impact on the future financial results and financial condition. The impact of the cost of living crisis has increased the
uncertainty around ECL impairment calculations and has required management to make additional judgements and accounting estimates that affect the amount of
assets and liabilities at the reporting date and the amount of income and expenses in the reporting period. The key additional judgements due to the impact of the
cost of living crisis mainly reflect the increased uncertainty around forward-looking economic data and the need for additional judgemental adjustments.
Key judgements
\u2013 Determining an appropriate definition of default
\u2013 Establishing the criteria for a significant increase in credit risk (SICR) and, for corporate borrowers, internal credit risk rating
\u2013 Determining the need for any judgemental adjustments
\u2013 Determining the need to assess corporate Stage 3 exposures individually
Key estimates
\u2013 Forward-looking multiple economic scenario assumptions
\u2013 Probability weights assigned to multiple economic scenarios
For more on each of these key judgements and estimates, see 'Critical judgements and accounting estimates applied in calculating ECL' in the \u2018Credit risk \u2013 credit
risk management\u2019 section of the Risk review.
Sensitivity of ECL allowance
For detailed disclosures, see 'Sensitivity of ECL allowance' in the \u2018Credit risk \u2013 credit risk management\u2019 section of the Risk review.
b) Provisions and contingent liabilities
Key judgements
\u2013 Determining whether a present obligation exists
\u2013 Determining the likely outcome of future legal decisions
Key estimates
\u2013 Probability, timing, nature and amount of any outflows that may arise from past events
Included in Litigation and other regulatory provisions in Note 29 are amounts in respect of management\u2019s best estimates of liability relating to a legal dispute
regarding allocation of responsibility for a specific PPI portfolio of complaints. Note 31 provides disclosure relating to ongoing factual issues and reviews that could
impact the timing and amount of any outflows.
Note 31 includes disclosure relating to an investigation in relation to the historical involvement of Santander UK plc, Santander Financial Services plc and Cater Allen
International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax arbitrage transactions. It also includes disclosure relating to the
historical use of discretionary commission arrangements in Santander Consumer (UK) plc.
These judgements are based on the specific facts available and often require specialist professional advice. There can be a wide range of possible outcomes and
uncertainties, particularly in relation to legal actions, and regulatory and consumer credit matters. As a result, it is often not possible to make reliable estimates of
the likelihood and amount of any potential outflows, or to calculate any resulting sensitivities. For more on these key judgements and estimates, see Notes 29 and
31.
c) Pensions
The Santander UK group operates a number of defined benefit pension schemes as described in Note 30 and estimates their position as described in the accounting
policy \u2018Pensions and other post retirement benefits\u2019.
Key judgements
\u2013 Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate
\u2013 Determining the methodology for setting the inflation assumption
Key estimates
\u2013 Discount rate applied to future cash flows
\u2013 Rate of price inflation
\u2013 Expected lifetime of the schemes' members
\u2013 Valuation of pension fund assets whose values are not based on market observable data
For more on each of these key judgements and estimates, see Note 30 .
Sensitivity of defined benefit pension scheme estimates
For detailed disclosures, see \u2018Actuarial assumption sensitivities\u2019 in Note 30 . The Scheme is invested in certain assets whose values are not based on market
observable data, such as investments in private equity funds and property. Due diligence has been conducted to support the values obtained in respect of these
assets are appropriate and represent fair value. Given the nature of these investments, we are unable to prepare sensitivities on how their values could vary as
market conditions or other variables change.
d) Goodwill
The carrying amount of goodwill is based on the application of judgements including the basis of goodwill impairment calculation assumptions. Santander UK
undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more frequently if reviews identify
indicators of impairment or when events or changes in circumstances dictate.
Key judgements:
\u2013 Determining the basis of goodwill impairment testing and the methodology for determining the carrying value of CGUs, including the need for
planning assumptions and internal capital allocations
Key estimates:
\u2013 Forecast cash flows for cash generating units, including estimated allocations of regulatory capital
\u2013 Growth rate beyond initial cash flow projections
\u2013 Discount rates which factor in risk-free rates and applicable risk premiums
All of these variables are subject to fluctuations in external market rates and economic conditions beyond management\u2019s control
Santander UK Group undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more
frequently if reviews identify indicators of impairment or when events or changes in circumstances dictate.
The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement and is subject to potential
change over time.
For more on each of these key judgements and estimates, see Note 20 .
Sensitivity of goodwill
For detailed disclosures, see \u2018Sensitivities of key assumptions in calculating VIU\u2019 in Note 20.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAssetsAndLiabilitiesWithSignificantRiskOfMaterialAdjustmentExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-578": { "value": "
Critical judgements and accounting estimates
The preparation of Santander UK's consolidated financial statements in accordance with IFRS requires management to make judgements and assumptions in
applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates,
actual results reported in future periods may be based on amounts which differ from those estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. There has been no change in the inherent sensitivity of the areas of judgement in the period. Management have considered the impact of
developments in principal risks and uncertainties, as set out in the Risk review, on critical judgements and accounting estimates.
The significant judgements, apart from those involving estimation, made by management in applying Santander UK's accounting policies in these financial
statements (key judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount
of assets and liabilities within the next financial year (key estimates), which together are considered critical to Santander UK's results and financial position, are as
follows:
a) Credit impairment charges
The application of the ECL impairment methodology for calculating credit impairment allowances is highly susceptible to change from period to period. The
methodology requires management to make judgmental assumptions in determining the estimates. Any significant difference between the estimated amounts and
actual amounts could have a material impact on the future financial results and financial condition. The impact of the cost of living crisis has increased the
uncertainty around ECL impairment calculations and has required management to make additional judgements and accounting estimates that affect the amount of
assets and liabilities at the reporting date and the amount of income and expenses in the reporting period. The key additional judgements due to the impact of the
cost of living crisis mainly reflect the increased uncertainty around forward-looking economic data and the need for additional judgemental adjustments.
Key judgements
\u2013 Determining an appropriate definition of default
\u2013 Establishing the criteria for a significant increase in credit risk (SICR) and, for corporate borrowers, internal credit risk rating
\u2013 Determining the need for any judgemental adjustments
\u2013 Determining the need to assess corporate Stage 3 exposures individually
Key estimates
\u2013 Forward-looking multiple economic scenario assumptions
\u2013 Probability weights assigned to multiple economic scenarios
For more on each of these key judgements and estimates, see 'Critical judgements and accounting estimates applied in calculating ECL' in the \u2018Credit risk \u2013 credit
risk management\u2019 section of the Risk review.
Sensitivity of ECL allowance
For detailed disclosures, see 'Sensitivity of ECL allowance' in the \u2018Credit risk \u2013 credit risk management\u2019 section of the Risk review.
b) Provisions and contingent liabilities
Key judgements
\u2013 Determining whether a present obligation exists
\u2013 Determining the likely outcome of future legal decisions
Key estimates
\u2013 Probability, timing, nature and amount of any outflows that may arise from past events
Included in Litigation and other regulatory provisions in Note 29 are amounts in respect of management\u2019s best estimates of liability relating to a legal dispute
regarding allocation of responsibility for a specific PPI portfolio of complaints. Note 31 provides disclosure relating to ongoing factual issues and reviews that could
impact the timing and amount of any outflows.
Note 31 includes disclosure relating to an investigation in relation to the historical involvement of Santander UK plc, Santander Financial Services plc and Cater Allen
International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax arbitrage transactions. It also includes disclosure relating to the
historical use of discretionary commission arrangements in Santander Consumer (UK) plc.
These judgements are based on the specific facts available and often require specialist professional advice. There can be a wide range of possible outcomes and
uncertainties, particularly in relation to legal actions, and regulatory and consumer credit matters. As a result, it is often not possible to make reliable estimates of
the likelihood and amount of any potential outflows, or to calculate any resulting sensitivities. For more on these key judgements and estimates, see Notes 29 and
31.
c) Pensions
The Santander UK group operates a number of defined benefit pension schemes as described in Note 30 and estimates their position as described in the accounting
policy \u2018Pensions and other post retirement benefits\u2019.
Key judgements
\u2013 Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate
\u2013 Determining the methodology for setting the inflation assumption
Key estimates
\u2013 Discount rate applied to future cash flows
\u2013 Rate of price inflation
\u2013 Expected lifetime of the schemes' members
\u2013 Valuation of pension fund assets whose values are not based on market observable data
For more on each of these key judgements and estimates, see Note 30 .
Sensitivity of defined benefit pension scheme estimates
For detailed disclosures, see \u2018Actuarial assumption sensitivities\u2019 in Note 30 . The Scheme is invested in certain assets whose values are not based on market
observable data, such as investments in private equity funds and property. Due diligence has been conducted to support the values obtained in respect of these
assets are appropriate and represent fair value. Given the nature of these investments, we are unable to prepare sensitivities on how their values could vary as
market conditions or other variables change.
d) Goodwill
The carrying amount of goodwill is based on the application of judgements including the basis of goodwill impairment calculation assumptions. Santander UK
undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more frequently if reviews identify
indicators of impairment or when events or changes in circumstances dictate.
Key judgements:
\u2013 Determining the basis of goodwill impairment testing and the methodology for determining the carrying value of CGUs, including the need for
planning assumptions and internal capital allocations
Key estimates:
\u2013 Forecast cash flows for cash generating units, including estimated allocations of regulatory capital
\u2013 Growth rate beyond initial cash flow projections
\u2013 Discount rates which factor in risk-free rates and applicable risk premiums
All of these variables are subject to fluctuations in external market rates and economic conditions beyond management\u2019s control
Santander UK Group undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more
frequently if reviews identify indicators of impairment or when events or changes in circumstances dictate.
The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement and is subject to potential
change over time.
For more on each of these key judgements and estimates, see Note 20 .
Sensitivity of goodwill
For detailed disclosures, see \u2018Sensitivities of key assumptions in calculating VIU\u2019 in Note 20.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAccountingJudgementsAndEstimatesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-579": { "value": "Critical judgements and accounting estimatesThe preparation of Santander UK's consolidated financial statements in accordance with IFRS requires management to make judgements and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based on amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There has been no change in the inherent sensitivity of the areas of judgement in the period. Management have considered the impact of developments in principal risks and uncertainties, as set out in the Risk review, on critical judgements and accounting estimates.The significant judgements, apart from those involving estimation, made by management in applying Santander UK's accounting policies in these financial statements (key judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year (key estimates), which together are considered critical to Santander UK's results and financial position, are as follows:a) Credit impairment charges The application of the ECL impairment methodology for calculating credit impairment allowances is highly susceptible to change from period to period. The methodology requires management to make judgmental assumptions in determining the estimates. Any significant difference between the estimated amounts and actual amounts could have a material impact on the future financial results and financial condition. The impact of the cost of living crisis has increased the uncertainty around ECL impairment calculations and has required management to make additional judgements and accounting estimates that affect the amount of assets and liabilities at the reporting date and the amount of income and expenses in the reporting period. The key additional judgements due to the impact of the cost of living crisis mainly reflect the increased uncertainty around forward-looking economic data and the need for additional judgemental adjustments.Key judgements \u2013 Determining an appropriate definition of default\u2013 Establishing the criteria for a significant increase in credit risk (SICR) and, for corporate borrowers, internal credit risk rating\u2013 Determining the need for any judgemental adjustments\u2013 Determining the need to assess corporate Stage 3 exposures individuallyKey estimates \u2013 Forward-looking multiple economic scenario assumptions\u2013 Probability weights assigned to multiple economic scenariosFor more on each of these key judgements and estimates, see 'Critical judgements and accounting estimates applied in calculating ECL' in the \u2018Credit risk \u2013 credit risk management\u2019 section of the Risk review.Sensitivity of ECL allowance For detailed disclosures, see 'Sensitivity of ECL allowance' in the \u2018Credit risk \u2013 credit risk management\u2019 section of the Risk review. b) Provisions and contingent liabilitiesKey judgements \u2013 Determining whether a present obligation exists\u2013 Determining the likely outcome of future legal decisionsKey estimates \u2013 Probability, timing, nature and amount of any outflows that may arise from past eventsIncluded in Litigation and other regulatory provisions in Note 29 are amounts in respect of management\u2019s best estimates of liability relating to a legal dispute regarding allocation of responsibility for a specific PPI portfolio of complaints. Note 31 provides disclosure relating to ongoing factual issues and reviews that could impact the timing and amount of any outflows.Note 31 includes disclosure relating to an investigation in relation to the historical involvement of Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax arbitrage transactions. It also includes disclosure relating to the historical use of discretionary commission arrangements in Santander Consumer (UK) plc.These judgements are based on the specific facts available and often require specialist professional advice. There can be a wide range of possible outcomes and uncertainties, particularly in relation to legal actions, and regulatory and consumer credit matters. As a result, it is often not possible to make reliable estimates of the likelihood and amount of any potential outflows, or to calculate any resulting sensitivities. For more on these key judgements and estimates, see Notes 29 and 31.c) Pensions The Santander UK group operates a number of defined benefit pension schemes as described in Note 30 and estimates their position as described in the accounting policy \u2018Pensions and other post retirement benefits\u2019.Key judgements \u2013 Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate\u2013 Determining the methodology for setting the inflation assumption Key estimates \u2013 Discount rate applied to future cash flows\u2013 Rate of price inflation\u2013 Expected lifetime of the schemes' members\u2013 Valuation of pension fund assets whose values are not based on market observable dataFor more on each of these key judgements and estimates, see Note 30 . Sensitivity of defined benefit pension scheme estimates For detailed disclosures, see \u2018Actuarial assumption sensitivities\u2019 in Note 30 . The Scheme is invested in certain assets whose values are not based on market observable data, such as investments in private equity funds and property. Due diligence has been conducted to support the values obtained in respect of these assets are appropriate and represent fair value. Given the nature of these investments, we are unable to prepare sensitivities on how their values could vary as market conditions or other variables change. d) GoodwillThe carrying amount of goodwill is based on the application of judgements including the basis of goodwill impairment calculation assumptions. Santander UK undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more frequently if reviews identify indicators of impairment or when events or changes in circumstances dictate.Key judgements: \u2013 Determining the basis of goodwill impairment testing and the methodology for determining the carrying value of CGUs, including the need for planning assumptions and internal capital allocationsKey estimates: \u2013 Forecast cash flows for cash generating units, including estimated allocations of regulatory capital\u2013 Growth rate beyond initial cash flow projections\u2013 Discount rates which factor in risk-free rates and applicable risk premiumsAll of these variables are subject to fluctuations in external market rates and economic conditions beyond management\u2019s control Santander UK Group undertakes an annual assessment to evaluate whether the carrying amount of goodwill is impaired, carrying out this assessment more frequently if reviews identify indicators of impairment or when events or changes in circumstances dictate. The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement and is subject to potential change over time.For more on each of these key judgements and estimates, see Note 20 . Sensitivity of goodwill For detailed disclosures, see \u2018Sensitivities of key assumptions in calculating VIU\u2019 in Note 20.", "dimensions": { "concept": "ifrs-full:ExplanationOfAssumptionAboutFutureWithSignificantRiskOfResultingInMaterialAdjustments", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-581": { "value": "
2. SEGMENTS
Santander UK\u2019s principal activity is financial services, mainly in the UK. The business is managed and reported on the basis of four segments, which are strategic
business units that offer different products and services, have different customers and require different technology and marketing strategies. Geographical
information is not provided, as substantially all of Santander UK\u2019s activities are in the UK.
Retail & Business Banking (formerly Retail Banking) consists of two business units, Mortgages and Everyday Banking. Mortgages provides prime UK mortgage
lending to owner occupiers and buy-to-let landlords with small portfolios. Everyday Banking provides banking services and unsecured lending to individuals
and small businesses as well alongside wealth management for high-net-worth clients.
\u2013 Consumer Finance provides prime auto consumer financing for individuals, businesses, and automotive distribution networks.
\u2013 Corporate & Commercial Banking provides banking products and services to SMEs, mid-sized and larger corporates, typically with annual turnovers of
between \u00a32m and \u00a3500m as well as to Local Authorities and Housing Associations.
\u2013 Corporate Centre provides treasury services for asset and liability management of our balance sheet.
Retail & Business Banking delivers products through our omni-channel presence comprising branches, ATMs, telephony, digital and intermediary channels.
Consumer Finance business is primarily introduced by car dealerships acting as our intermediary along with a small amount of new business introduced via digital
channels. Corporate and Commercial Banking expertise is provided by relationship managers, product specialists and through digital and telephony channels, and
cover clients' needs both in the UK and overseas. In addition, Corporate and Investment Banking (CIB) provided services to corporate clients with an annual turnover
of \u00a3500m and above. Santander UK transferred a significant part of the CIB business to the London branch of Banco Santander SA under a part VII banking business
transfer scheme which completed on 11 October 2021. The residual parts of the business were wound down or transferred to other segments.
The segmental data is prepared on a statutory basis of accounting, in line with the accounting policies set out in Note 1. Transactions between segments are on
normal commercial terms and conditions. Internal charges and internal UK transfer pricing adjustments are reflected in the results of each segment, and eliminate
on consolidation. Revenue sharing agreements are used to allocate external customer revenues to a segment on a reasonable basis. Funds are ordinarily
reallocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on Santander UK\u2019s cost
of wholesale funding. Interest income and interest expense have not been reported separately. The majority of segment revenues are interest income in nature and
net interest income is relied on primarily to assess segment performance and to make decisions on the allocation of segment resources.
Results by segment3
For the year ended 31 December
Retail &
Business
Banking
Consumer
Finance
Corporate &
Commercial
Banking
Corporate
Centre
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Net interest income/(expense)
3,716
156
841
(55)
4,658
Non-interest income/(expense)
182
192
135
(71)
438
Total operating income/(expense)
3,898
348
976
(126)
5,096
Operating expenses before credit impairment charges, provisions and charges
(1,813)
(141)
(351)
(151)
(2,456)
Credit impairment charges
(149)
(15)
(40)
(1)
(205)
Provisions for other liabilities and charges
(233)
(18)
(15)
(69)
(335)
Total operating credit impairment charges, provisions and charges
(382)
(33)
(55)
(70)
(540)
Profit/(loss) from continuing operations before tax
1,703
174
570
(347)
2,100
Revenue from external customers
3,597
663
712
124
5,096
Inter-segment revenue/(expense)
301
(315)
264
(250)
\u2014
Total operating income/(expense)
3,898
348
976
(126)
5,096
Revenue from external customers includes the following fee and commission income:(1)
\u2013 Current account and debit card fees
493
\u2014
49
\u2014
542
\u2013 Insurance, protection and investments
47
\u2014
\u2014
\u2014
47
\u2013 Credit cards
94
\u2014
\u2014
\u2014
94
\u2013 Non-banking and other fees(2)
3
25
79
14
121
Total fee and commission income
637
25
128
14
804
Fee and commission expense
(458)
(6)
(11)
(26)
(501)
Net fee and commission income/(expense)
179
19
117
(12)
303
Customer loans
179,887
5,228
17,939
\u2014
203,054
Customer deposits
158,329
\u2014
24,066
5,050
187,445
Average number of full-time equivalent staff
16,330
816
2,376
24
19,546
(1) The disaggregation of fees and commission income as shown above is not included in reports provided to the chief operating decision maker but is provided to show the split by reportable segments.
(2) Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
(3) Total assets and total liabilities are no longer included in reports provided to the chief operating decision maker.
Retail &
Business
Banking
Consumer
Finance
Corporate &
Commercial
Banking
Corporate
Centre
Total
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Net interest income/(expense)
3,671
180
580
(6)
4,425
Non-interest income/(expense)
209
195
146
(19)
531
Total operating income
3,880
375
726
(25)
4,956
Operating expenses before credit impairment charges, provisions and charges
(1,682)
(144)
(342)
(175)
(2,343)
Credit impairment charges
(262)
(27)
(31)
\u2014
(320)
Provisions for other liabilities and charges
(394)
(6)
(8)
(11)
(419)
Total operating credit impairment charges, provisions and charges
(656)
(33)
(39)
(11)
(739)
Profit/(loss) from continuing operations before tax
1,542
198
345
(211)
1,874
Revenue/(expense) from external customers
4,109
513
732
(398)
4,956
Inter-segment revenue/(expense)
(229)
(138)
(6)
373
\u2014
Total operating income/(expense)
3,880
375
726
(25)
4,956
Revenue from external customers includes the following fee and commission income:(1)
\u2013 Current account and debit card fees
502
\u2014
60
\u2014
562
\u2013 Insurance, protection and investments
78
\u2014
\u2014
\u2014
78
\u2013 Credit cards
95
\u2014
\u2014
\u2014
95
\u2013 Non-banking and other fees(2)
2
20
77
5
104
Total fee and commission income
677
20
137
5
839
Fee and commission expense
(478)
(5)
(18)
(8)
(509)
Net fee/(expense) and commission income
199
15
119
(3)
330
31 December 2022
Customer loans
191,836
5,384
18,518
\u2014
215,738
Customer deposits
161,748
\u2014
24,798
3,365
189,911
Average number of full-time equivalent staff
15,212
531
2,336
44
18,123
Retail &
Business
Banking
Consumer
Finance
Corporate &
Commercial
Banking
Corporate &
Investment
Banking
Corporate
Centre
Total
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Net interest income/(expense)
3,356
233
397
\u2014
(37)
3,949
Non-interest income
205
178
112
\u2014
55
550
Total operating income
3,561
411
509
\u2014
18
4,499
Operating expenses before credit impairment (charges)/write-backs, provisions and
charges
(1,701)
(163)
(365)
\u2014
(281)
(2,510)
Credit impairment (charges)/write-backs
98
33
90
\u2014
12
233
Provisions for other liabilities and charges
(185)
4
(34)
\u2014
(162)
(377)
Total operating credit impairment (charges)/write-backs, provisions and charges
(87)
37
56
\u2014
(150)
(144)
Profit/(loss) from continuing operations before tax
1,773
285
200
\u2014
(413)
1,845
Revenue from external customers
4,010
489
619
\u2014
(619)
4,499
Inter-segment revenue
(449)
(78)
(110)
\u2014
637
\u2014
Total operating income
3,561
411
509
\u2014
18
4,499
Revenue from external customers includes the following fee and commission income:(1)
\u2013 Current account and debit card fees
428
\u2014
50
\u2014
\u2014
478
\u2013 Insurance, protection and investments
67
\u2014
\u2014
\u2014
\u2014
67
\u2013 Credit card fees
73
\u2014
\u2014
\u2014
\u2014
73
\u2013 Non-banking and other fees(2)
2
10
62
\u2014
5
79
Total fee and commission income
570
10
112
\u2014
5
697
Fee and commission expense
(380)
\u2014
(22)
\u2014
(9)
(411)
Net fee and commission income
190
10
90
\u2014
(4)
286
Customer loans
183,023
4,984
19,281
\u2014
\u2014
207,288
Customer deposits
156,991
\u2014
26,466
\u2014
2,758
186,215
Average number of full-time equivalent staff
16,149
670
2,281
528
76
19,704
The disaggregation of fees and commission income as shown above is not included in reports provided to the chief operating decision maker but is provided to show the split by reportable segments.
(2) Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
(3) Total assets and total liabilities are no longer included in reports provided to the chief operating decision maker.
The table below shows the relationships between Customer assets and Loans and advances to customers as presented in the Consolidated Balance Sheet.
Customer assets exclude Joint ventures, as they carry low credit risk and therefore have an immaterial ECL, and Other items, mainly accrued interest that we have
not yet charged to the customer's account, and cash collateral. It also shows the relationship between customer liabilities (see above) and Deposits by customers as
presented in the Consolidated Balance Sheet.
Assets
Liabilities
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Customer balances (gross)
203,054
215,738
187,445
189,911
Loan loss allowance
(914)
(931)
\u2014
\u2014
Customer balances (net)
202,140
214,807
187,445
189,911
Intercompany balances
4,544
4,161
2,825
5,981
Accrued interest
739
649
830
230
Other items
12
99
(250)
(554)
Loans and advances to customers / Deposits by customers
207,435
219,716
190,850
195,568
", "dimensions": { "concept": "ifrs-full:DisclosureOfEntitysReportableSegmentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-582": { "value": "
The segmental data is prepared on a statutory basis of accounting, in line with the accounting policies set out in Note 1. Transactions between segments are on
normal commercial terms and conditions. Internal charges and internal UK transfer pricing adjustments are reflected in the results of each segment, and eliminate
on consolidation. Revenue sharing agreements are used to allocate external customer revenues to a segment on a reasonable basis. Funds are ordinarily
reallocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on Santander UK\u2019s cost
of wholesale funding. Interest income and interest expense have not been reported separately. The majority of segment revenues are interest income in nature and
net interest income is relied on primarily to assess segment performance and to make decisions on the allocation of segment resources.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSegmentReportingExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-587": { "value": "
3. NET INTEREST INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Interest and similar income:
Loans and advances to customers
8,767
5,774
4,619
Loans and advances to banks
1,751
618
52
Reverse repurchase agreements \u2013 non-trading
626
149
35
Other
473
167
56
Total interest and similar income(1)
11,617
6,708
4,762
Interest expense and similar charges:
Deposits by customers
(3,230)
(905)
(430)
Deposits by banks
(1,165)
(496)
(25)
Repurchase agreements \u2013 non-trading
(538)
(120)
(3)
Debt securities in issue
(1,852)
(650)
(252)
Subordinated liabilities
(169)
(108)
(92)
Other
(5)
(4)
(11)
Total interest expense and similar charges(2)
(6,959)
(2,283)
(813)
Net interest income
4,658
4,425
3,949
(1) Includes \u00a3230m (2022: \u00a387m , 2021: \u00a322m) of interest income on financial assets at FVOCI.
(2) Includes \u00a3706m (2022: \u00a36m, 2021: \u00a3317m) of interest expense on the effective part of derivatives hedging debt issuances and \u00a33m (2022: \u00a33m, 2021: \u00a33m) of interest expense on lease liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-586": { "value": "
3. NET INTEREST INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Interest and similar income:
Loans and advances to customers
8,767
5,774
4,619
Loans and advances to banks
1,751
618
52
Reverse repurchase agreements \u2013 non-trading
626
149
35
Other
473
167
56
Total interest and similar income(1)
11,617
6,708
4,762
Interest expense and similar charges:
Deposits by customers
(3,230)
(905)
(430)
Deposits by banks
(1,165)
(496)
(25)
Repurchase agreements \u2013 non-trading
(538)
(120)
(3)
Debt securities in issue
(1,852)
(650)
(252)
Subordinated liabilities
(169)
(108)
(92)
Other
(5)
(4)
(11)
Total interest expense and similar charges(2)
(6,959)
(2,283)
(813)
Net interest income
4,658
4,425
3,949
(1) Includes \u00a3230m (2022: \u00a387m , 2021: \u00a322m) of interest income on financial assets at FVOCI.
(2) Includes \u00a3706m (2022: \u00a36m, 2021: \u00a3317m) of interest expense on the effective part of derivatives hedging debt issuances and \u00a33m (2022: \u00a33m, 2021: \u00a33m) of interest expense on lease liabilities.
4. NET FEE AND COMMISSION INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Fee and commission income:
Current account and debit card fees
542
562
478
Insurance, protection and investments
47
78
67
Credit cards
94
95
73
Non-banking and other fees(1)
121
104
79
Total fee and commission income
804
839
697
Total fee and commission expense
(501)
(509)
(411)
Net fee and commission income
303
330
286
(1)\u00a0 \u00a0 Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRevenueExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-585": { "value": "
3. NET INTEREST INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Interest and similar income:
Loans and advances to customers
8,767
5,774
4,619
Loans and advances to banks
1,751
618
52
Reverse repurchase agreements \u2013 non-trading
626
149
35
Other
473
167
56
Total interest and similar income(1)
11,617
6,708
4,762
Interest expense and similar charges:
Deposits by customers
(3,230)
(905)
(430)
Deposits by banks
(1,165)
(496)
(25)
Repurchase agreements \u2013 non-trading
(538)
(120)
(3)
Debt securities in issue
(1,852)
(650)
(252)
Subordinated liabilities
(169)
(108)
(92)
Other
(5)
(4)
(11)
Total interest expense and similar charges(2)
(6,959)
(2,283)
(813)
Net interest income
4,658
4,425
3,949
(1) Includes \u00a3230m (2022: \u00a387m , 2021: \u00a322m) of interest income on financial assets at FVOCI.
(2) Includes \u00a3706m (2022: \u00a36m, 2021: \u00a3317m) of interest expense on the effective part of derivatives hedging debt issuances and \u00a33m (2022: \u00a33m, 2021: \u00a33m) of interest expense on lease liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-584": { "value": "
3. NET INTEREST INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Interest and similar income:
Loans and advances to customers
8,767
5,774
4,619
Loans and advances to banks
1,751
618
52
Reverse repurchase agreements \u2013 non-trading
626
149
35
Other
473
167
56
Total interest and similar income(1)
11,617
6,708
4,762
Interest expense and similar charges:
Deposits by customers
(3,230)
(905)
(430)
Deposits by banks
(1,165)
(496)
(25)
Repurchase agreements \u2013 non-trading
(538)
(120)
(3)
Debt securities in issue
(1,852)
(650)
(252)
Subordinated liabilities
(169)
(108)
(92)
Other
(5)
(4)
(11)
Total interest expense and similar charges(2)
(6,959)
(2,283)
(813)
Net interest income
4,658
4,425
3,949
(1) Includes \u00a3230m (2022: \u00a387m , 2021: \u00a322m) of interest income on financial assets at FVOCI.
(2) Includes \u00a3706m (2022: \u00a36m, 2021: \u00a3317m) of interest expense on the effective part of derivatives hedging debt issuances and \u00a33m (2022: \u00a33m, 2021: \u00a33m) of interest expense on lease liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-583": { "value": "
3. NET INTEREST INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Interest and similar income:
Loans and advances to customers
8,767
5,774
4,619
Loans and advances to banks
1,751
618
52
Reverse repurchase agreements \u2013 non-trading
626
149
35
Other
473
167
56
Total interest and similar income(1)
11,617
6,708
4,762
Interest expense and similar charges:
Deposits by customers
(3,230)
(905)
(430)
Deposits by banks
(1,165)
(496)
(25)
Repurchase agreements \u2013 non-trading
(538)
(120)
(3)
Debt securities in issue
(1,852)
(650)
(252)
Subordinated liabilities
(169)
(108)
(92)
Other
(5)
(4)
(11)
Total interest expense and similar charges(2)
(6,959)
(2,283)
(813)
Net interest income
4,658
4,425
3,949
(1) Includes \u00a3230m (2022: \u00a387m , 2021: \u00a322m) of interest income on financial assets at FVOCI.
(2) Includes \u00a3706m (2022: \u00a36m, 2021: \u00a3317m) of interest expense on the effective part of derivatives hedging debt issuances and \u00a33m (2022: \u00a33m, 2021: \u00a33m) of interest expense on lease liabilities.
4. NET FEE AND COMMISSION INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Fee and commission income:
Current account and debit card fees
542
562
478
Insurance, protection and investments
47
78
67
Credit cards
94
95
73
Non-banking and other fees(1)
121
104
79
Total fee and commission income
804
839
697
Total fee and commission expense
(501)
(509)
(411)
Net fee and commission income
303
330
286
(1)\u00a0 \u00a0 Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
5. OTHER OPERATING INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Net (losses)/gains on financial instruments designated at fair value through profit or loss(1)
(57)
62
(24)
Net (losses) on financial instruments mandatorily at fair value through profit or loss(2)
(11)
(75)
(2)
Hedge ineffectiveness
19
29
13
Net profit on sale of financial assets at fair value through other comprehensive income
\u2014
\u2014
6
Income from operating lease assets
117
129
136
Other
67
56
135
135
201
264
(1) Net gains/(losses) on financial instruments designated at fair value through profit or loss include losses of \u00a324m on deposits (2022: \u00a335m gains, 2021 \u00a318m losses), losses of \u00a332m on debt securities (2022: \u00a331m
gains, 2021: \u00a3nil).
(2) Net gains/(losses) on financial instruments mandatorily at fair value through profit or loss include gains of \u00a35m on debt securities (2022: \u00a313m gains, 2021: \u00a310m losses).
Net gains on financial instruments mandatorily at FVTPL includes fair value losses of \u00a312m (2022: gains of \u00a314m, 2021: losses of \u00a315m) on embedded derivatives
bifurcated from certain equity index-linked deposits, as described in the derivatives accounting policy in Note 1. The embedded derivatives are economically hedged,
the results of which are also included in this line item and amounted to gains of \u00a312m (2022: losses of \u00a314m, 2021: gains of \u00a315m). As a result, the net fair value
movements recognised on the equity index-linked deposits and the related economic hedges were net gains of \u00a3nil (2022: \u00a3nil, 2021 : \u00a3nil).
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Exchange rate differences in the consolidated income statement on items not at fair value through profit and loss
1,288
(2,163)
242
These are principally offset by related releases from the cash flow hedge reserve
(1,248)
2,129
(358)
In 2023, the Santander UK group repurchased certain debt securities and subordinated liabilities as part of ongoing liability management exercises. For more, see
Note 27.
In 2022, Other includes \u00a37m of losses on the sale of property under our transformation programme. In 2021, Other includes \u00a373m of property gains from the sale
of our London head office and branch properties.
6. OPERATING EXPENSES BEFORE CREDIT IMPAIRMENT CHARGES, PROVISIONS AND
CHARGES
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
Staff costs
Performance-related payments\u2019 include bonuses paid in cash and share awards granted under the arrangements described in Note 36. Included in this are equity-
settled share-based payments, none of which related to option-based schemes. These are disclosed in the table below as \u2018Shares awards\u2019. Performance-related
payments above include amounts related to deferred performance awards as follows:
Costs recognised in 2023
Costs expected to be recognised in 2024 or later
Arising from
awards in
current year
Arising from
awards in prior
year
Total
Arising from
awards in
current year
Arising from
awards in prior
year
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash
3
4
7
5
7
12
Shares
2
5
7
4
7
11
5
9
14
9
14
23
The following table shows the amount of bonus awarded to employees for the performance year 2023. In the case of deferred cash and shares awards, the final
amount paid to an employee is influenced by forfeiture provisions and any performance conditions to which the awards are subject. The deferred shares award
amount is based on the fair value of the awards at the date of grant.
Expenses charged in the year
Expenses deferred to future periods
Total
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash award \u2013 not deferred
140
145
\u2014
\u2014
140
145
\u2013 deferred
7
8
12
14
19
22
Shares award \u2013 not deferred
8
9
\u2014
\u2014
8
9
\u2013 deferred
7
8
11
14
18
22
Total discretionary bonus
162
170
23
28
185
198
Other share-based payments\u2019 consist of options granted under the Employee Sharesave scheme which comprise the Santander UK group\u2019s cash-settled share-
based payments. For more, see Note 36.
The average number of full-time equivalent staff was 19,546 (2022: 18,123, 2021: 19,704). For the Company, the average number of full-time equivalent staff was
18,631 (2022: 16,830, 2021: 15,188).
Depreciation, amortisation and impairment
In 2023, depreciation, amortisation and impairment included depreciation of \u00a364m (2022: \u00a373m, 2021: \u00a381m) on operating lease assets (where the Santander UK
group is the lessor) with a carrying amount of \u00a3488m at 31 December 2023 (2022: \u00a3577m, 2021: \u00a3595m). It also included depreciation of \u00a330m (2022: \u00a319m,
2021: \u00a319m) on right-of-use assets with a carrying amount of \u00a390m at 31 December 2023 (2022: \u00a3112m, 2021: \u00a3117m).
Other administration expenses includes \u00a319m (2022: \u00a321m, 2021: \u00a323m) related to short-term leases.
In 2023, depreciation, amortisation and impairment included an impairment charge of \u00a325m (2022: \u00a310m, 2021: \u00a388m) associated with branch and head office
site closures as part of the transformation programme. For more, see Note 21.
For the Company, in 2023 impairment associated with branch and head office site closures as part of the transformation programme was \u00a325m (2022: \u00a310m, 2021:
\u00a363m).
7. AUDIT AND OTHER SERVICES
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Audit fees:
Fees payable to the Company\u2019s auditor and its associates for the audit of the Santander UK group\u2019s annual accounts
13.9
11.8
11.2
Fees payable to the Company\u2019s auditor and its associates for other services to the Santander UK group:
\u2013 Audit of the Santander UK group's subsidiaries
0.6
0.7
0.9
Total audit fees(1)
14.5
12.5
12.1
Non-audit fees:
Audit-related assurance services
0.7
0.6
0.8
Other assurance services
0.5
0.3
0.1
Other non-audit services
0.1
\u2014
0.2
Total non-audit fees
1.3
0.9
1.1
(1) 2023 audit fees included \u00a30.7m (2022: \u00a30.6m, 2021: \u00a31.2m) which related to the prior year.
Audit fees payable for the statutory audit of Santander UK plc were \u00a312.7m (2022: \u00a310.9m, 2021: \u00a310.7m).
Audit-related assurance services mainly comprised services performed in connection with review of the financial information of the Company and reporting to the
Company's UK regulators.
Other assurance services mainly comprised services performed in support of various debt issuance programmes.
Of the total non-audit fees, \u00a30.3m (2022: \u00a30.2m, 2021: \u00a30.4m) accords with the definition of 'Audit Fees' per US Securities and Exchange Commission (SEC)
guidance, \u00a31.0m (2022: \u00a30.7m, 2021: \u00a30.7m) accords with the definition of 'Audit related fees' per that guidance and \u00a312,550 (2022: \u00a3nil, 2021: \u00a3nil) accords with
the definition of 'All other fees' per that guidance.
In 2023, the Company\u2019s auditors earned no fees (2022: \u00a3nil, 2021: \u00a327,000 fees) payable by entities outside the Santander UK group for the review of the financial
position of corporate and other borrowers.
In 2023, the Company's auditors earned \u00a31.6m (2022: \u00a31.6m, 2021: \u00a31.4m), in relation to incremental work undertaken in support of the audit of Banco Santander
SA.
8. CREDIT IMPAIRMENT CHARGES AND PROVISIONS
For the year ended 31 December
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Credit impairment charges/(write-backs):
Loans and advances to customers
191
248
(186)
Recoveries of loans and advances, net of collection costs
10
36
(17)
Off-balance sheet credit exposures (See Note 29)
4
36
(30)
205
320
(233)
Provisions for other liabilities and charges (excluding off-balance sheet credit exposures) (See Note 29)
334
422
386
Releases for residual value and voluntary termination
1
(3)
(9)
335
419
377
540
739
144
In 2023, 2022 and 2021 there were no material credit impairment charges on loans and advances to banks, non-trading reverse repurchase agreements, other
financial assets at amortised cost and financial assets at FVOCI.
", "dimensions": { "concept": "ifrs-full:DisclosureOfProfitLossFromOperatingActivitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-588": { "value": "
4. NET FEE AND COMMISSION INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Fee and commission income:
Current account and debit card fees
542
562
478
Insurance, protection and investments
47
78
67
Credit cards
94
95
73
Non-banking and other fees(1)
121
104
79
Total fee and commission income
804
839
697
Total fee and commission expense
(501)
(509)
(411)
Net fee and commission income
303
330
286
(1)\u00a0 \u00a0 Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFeeAndCommissionIncomeExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-590": { "value": "
5. OTHER OPERATING INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Net (losses)/gains on financial instruments designated at fair value through profit or loss(1)
(57)
62
(24)
Net (losses) on financial instruments mandatorily at fair value through profit or loss(2)
(11)
(75)
(2)
Hedge ineffectiveness
19
29
13
Net profit on sale of financial assets at fair value through other comprehensive income
\u2014
\u2014
6
Income from operating lease assets
117
129
136
Other
67
56
135
135
201
264
(1) Net gains/(losses) on financial instruments designated at fair value through profit or loss include losses of \u00a324m on deposits (2022: \u00a335m gains, 2021 \u00a318m losses), losses of \u00a332m on debt securities (2022: \u00a331m
gains, 2021: \u00a3nil).
(2) Net gains/(losses) on financial instruments mandatorily at fair value through profit or loss include gains of \u00a35m on debt securities (2022: \u00a313m gains, 2021: \u00a310m losses).
Net gains on financial instruments mandatorily at FVTPL includes fair value losses of \u00a312m (2022: gains of \u00a314m, 2021: losses of \u00a315m) on embedded derivatives
bifurcated from certain equity index-linked deposits, as described in the derivatives accounting policy in Note 1. The embedded derivatives are economically hedged,
the results of which are also included in this line item and amounted to gains of \u00a312m (2022: losses of \u00a314m, 2021: gains of \u00a315m). As a result, the net fair value
movements recognised on the equity index-linked deposits and the related economic hedges were net gains of \u00a3nil (2022: \u00a3nil, 2021 : \u00a3nil).
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Exchange rate differences in the consolidated income statement on items not at fair value through profit and loss
1,288
(2,163)
242
These are principally offset by related releases from the cash flow hedge reserve
(1,248)
2,129
(358)
In 2023, the Santander UK group repurchased certain debt securities and subordinated liabilities as part of ongoing liability management exercises. For more, see
Note 27.
In 2022, Other includes \u00a37m of losses on the sale of property under our transformation programme. In 2021, Other includes \u00a373m of property gains from the sale
of our London head office and branch properties.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-589": { "value": "
5. OTHER OPERATING INCOME
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Net (losses)/gains on financial instruments designated at fair value through profit or loss(1)
(57)
62
(24)
Net (losses) on financial instruments mandatorily at fair value through profit or loss(2)
(11)
(75)
(2)
Hedge ineffectiveness
19
29
13
Net profit on sale of financial assets at fair value through other comprehensive income
\u2014
\u2014
6
Income from operating lease assets
117
129
136
Other
67
56
135
135
201
264
(1) Net gains/(losses) on financial instruments designated at fair value through profit or loss include losses of \u00a324m on deposits (2022: \u00a335m gains, 2021 \u00a318m losses), losses of \u00a332m on debt securities (2022: \u00a331m
gains, 2021: \u00a3nil).
(2) Net gains/(losses) on financial instruments mandatorily at fair value through profit or loss include gains of \u00a35m on debt securities (2022: \u00a313m gains, 2021: \u00a310m losses).
Net gains on financial instruments mandatorily at FVTPL includes fair value losses of \u00a312m (2022: gains of \u00a314m, 2021: losses of \u00a315m) on embedded derivatives
bifurcated from certain equity index-linked deposits, as described in the derivatives accounting policy in Note 1. The embedded derivatives are economically hedged,
the results of which are also included in this line item and amounted to gains of \u00a312m (2022: losses of \u00a314m, 2021: gains of \u00a315m). As a result, the net fair value
movements recognised on the equity index-linked deposits and the related economic hedges were net gains of \u00a3nil (2022: \u00a3nil, 2021 : \u00a3nil).
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Exchange rate differences in the consolidated income statement on items not at fair value through profit and loss
1,288
(2,163)
242
These are principally offset by related releases from the cash flow hedge reserve
(1,248)
2,129
(358)
In 2023, the Santander UK group repurchased certain debt securities and subordinated liabilities as part of ongoing liability management exercises. For more, see
Note 27.
In 2022, Other includes \u00a37m of losses on the sale of property under our transformation programme. In 2021, Other includes \u00a373m of property gains from the sale
of our London head office and branch properties.
6. OPERATING EXPENSES BEFORE CREDIT IMPAIRMENT CHARGES, PROVISIONS AND
CHARGES
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
Staff costs
Performance-related payments\u2019 include bonuses paid in cash and share awards granted under the arrangements described in Note 36. Included in this are equity-
settled share-based payments, none of which related to option-based schemes. These are disclosed in the table below as \u2018Shares awards\u2019. Performance-related
payments above include amounts related to deferred performance awards as follows:
Costs recognised in 2023
Costs expected to be recognised in 2024 or later
Arising from
awards in
current year
Arising from
awards in prior
year
Total
Arising from
awards in
current year
Arising from
awards in prior
year
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash
3
4
7
5
7
12
Shares
2
5
7
4
7
11
5
9
14
9
14
23
The following table shows the amount of bonus awarded to employees for the performance year 2023. In the case of deferred cash and shares awards, the final
amount paid to an employee is influenced by forfeiture provisions and any performance conditions to which the awards are subject. The deferred shares award
amount is based on the fair value of the awards at the date of grant.
Expenses charged in the year
Expenses deferred to future periods
Total
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash award \u2013 not deferred
140
145
\u2014
\u2014
140
145
\u2013 deferred
7
8
12
14
19
22
Shares award \u2013 not deferred
8
9
\u2014
\u2014
8
9
\u2013 deferred
7
8
11
14
18
22
Total discretionary bonus
162
170
23
28
185
198
Other share-based payments\u2019 consist of options granted under the Employee Sharesave scheme which comprise the Santander UK group\u2019s cash-settled share-
based payments. For more, see Note 36.
The average number of full-time equivalent staff was 19,546 (2022: 18,123, 2021: 19,704). For the Company, the average number of full-time equivalent staff was
18,631 (2022: 16,830, 2021: 15,188).
Depreciation, amortisation and impairment
In 2023, depreciation, amortisation and impairment included depreciation of \u00a364m (2022: \u00a373m, 2021: \u00a381m) on operating lease assets (where the Santander UK
group is the lessor) with a carrying amount of \u00a3488m at 31 December 2023 (2022: \u00a3577m, 2021: \u00a3595m). It also included depreciation of \u00a330m (2022: \u00a319m,
2021: \u00a319m) on right-of-use assets with a carrying amount of \u00a390m at 31 December 2023 (2022: \u00a3112m, 2021: \u00a3117m).
Other administration expenses includes \u00a319m (2022: \u00a321m, 2021: \u00a323m) related to short-term leases.
In 2023, depreciation, amortisation and impairment included an impairment charge of \u00a325m (2022: \u00a310m, 2021: \u00a388m) associated with branch and head office
site closures as part of the transformation programme. For more, see Note 21.
For the Company, in 2023 impairment associated with branch and head office site closures as part of the transformation programme was \u00a325m (2022: \u00a310m, 2021:
\u00a363m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-592": { "value": "
6. OPERATING EXPENSES BEFORE CREDIT IMPAIRMENT CHARGES, PROVISIONS AND
CHARGES
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
Staff costs
Performance-related payments\u2019 include bonuses paid in cash and share awards granted under the arrangements described in Note 36. Included in this are equity-
settled share-based payments, none of which related to option-based schemes. These are disclosed in the table below as \u2018Shares awards\u2019. Performance-related
payments above include amounts related to deferred performance awards as follows:
Costs recognised in 2023
Costs expected to be recognised in 2024 or later
Arising from
awards in
current year
Arising from
awards in prior
year
Total
Arising from
awards in
current year
Arising from
awards in prior
year
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash
3
4
7
5
7
12
Shares
2
5
7
4
7
11
5
9
14
9
14
23
The following table shows the amount of bonus awarded to employees for the performance year 2023. In the case of deferred cash and shares awards, the final
amount paid to an employee is influenced by forfeiture provisions and any performance conditions to which the awards are subject. The deferred shares award
amount is based on the fair value of the awards at the date of grant.
Expenses charged in the year
Expenses deferred to future periods
Total
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash award \u2013 not deferred
140
145
\u2014
\u2014
140
145
\u2013 deferred
7
8
12
14
19
22
Shares award \u2013 not deferred
8
9
\u2014
\u2014
8
9
\u2013 deferred
7
8
11
14
18
22
Total discretionary bonus
162
170
23
28
185
198
Other share-based payments\u2019 consist of options granted under the Employee Sharesave scheme which comprise the Santander UK group\u2019s cash-settled share-
based payments. For more, see Note 36.
The average number of full-time equivalent staff was 19,546 (2022: 18,123, 2021: 19,704). For the Company, the average number of full-time equivalent staff was
18,631 (2022: 16,830, 2021: 15,188).
Depreciation, amortisation and impairment
In 2023, depreciation, amortisation and impairment included depreciation of \u00a364m (2022: \u00a373m, 2021: \u00a381m) on operating lease assets (where the Santander UK
group is the lessor) with a carrying amount of \u00a3488m at 31 December 2023 (2022: \u00a3577m, 2021: \u00a3595m). It also included depreciation of \u00a330m (2022: \u00a319m,
2021: \u00a319m) on right-of-use assets with a carrying amount of \u00a390m at 31 December 2023 (2022: \u00a3112m, 2021: \u00a3117m).
Other administration expenses includes \u00a319m (2022: \u00a321m, 2021: \u00a323m) related to short-term leases.
In 2023, depreciation, amortisation and impairment included an impairment charge of \u00a325m (2022: \u00a310m, 2021: \u00a388m) associated with branch and head office
site closures as part of the transformation programme. For more, see Note 21.
For the Company, in 2023 impairment associated with branch and head office site closures as part of the transformation programme was \u00a325m (2022: \u00a310m, 2021:
\u00a363m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesByNatureExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-591": { "value": "
6. OPERATING EXPENSES BEFORE CREDIT IMPAIRMENT CHARGES, PROVISIONS AND
CHARGES
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
Staff costs
Performance-related payments\u2019 include bonuses paid in cash and share awards granted under the arrangements described in Note 36. Included in this are equity-
settled share-based payments, none of which related to option-based schemes. These are disclosed in the table below as \u2018Shares awards\u2019. Performance-related
payments above include amounts related to deferred performance awards as follows:
Costs recognised in 2023
Costs expected to be recognised in 2024 or later
Arising from
awards in
current year
Arising from
awards in prior
year
Total
Arising from
awards in
current year
Arising from
awards in prior
year
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash
3
4
7
5
7
12
Shares
2
5
7
4
7
11
5
9
14
9
14
23
The following table shows the amount of bonus awarded to employees for the performance year 2023. In the case of deferred cash and shares awards, the final
amount paid to an employee is influenced by forfeiture provisions and any performance conditions to which the awards are subject. The deferred shares award
amount is based on the fair value of the awards at the date of grant.
Expenses charged in the year
Expenses deferred to future periods
Total
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash award \u2013 not deferred
140
145
\u2014
\u2014
140
145
\u2013 deferred
7
8
12
14
19
22
Shares award \u2013 not deferred
8
9
\u2014
\u2014
8
9
\u2013 deferred
7
8
11
14
18
22
Total discretionary bonus
162
170
23
28
185
198
Other share-based payments\u2019 consist of options granted under the Employee Sharesave scheme which comprise the Santander UK group\u2019s cash-settled share-
based payments. For more, see Note 36.
The average number of full-time equivalent staff was 19,546 (2022: 18,123, 2021: 19,704). For the Company, the average number of full-time equivalent staff was
18,631 (2022: 16,830, 2021: 15,188).
Depreciation, amortisation and impairment
In 2023, depreciation, amortisation and impairment included depreciation of \u00a364m (2022: \u00a373m, 2021: \u00a381m) on operating lease assets (where the Santander UK
group is the lessor) with a carrying amount of \u00a3488m at 31 December 2023 (2022: \u00a3577m, 2021: \u00a3595m). It also included depreciation of \u00a330m (2022: \u00a319m,
2021: \u00a319m) on right-of-use assets with a carrying amount of \u00a390m at 31 December 2023 (2022: \u00a3112m, 2021: \u00a3117m).
Other administration expenses includes \u00a319m (2022: \u00a321m, 2021: \u00a323m) related to short-term leases.
In 2023, depreciation, amortisation and impairment included an impairment charge of \u00a325m (2022: \u00a310m, 2021: \u00a388m) associated with branch and head office
site closures as part of the transformation programme. For more, see Note 21.
For the Company, in 2023 impairment associated with branch and head office site closures as part of the transformation programme was \u00a325m (2022: \u00a310m, 2021:
\u00a363m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-596": { "value": "
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
Other administration expenses includes \u00a319m (2022: \u00a321m, 2021: \u00a323m) related to short-term leases.
", "dimensions": { "concept": "ifrs-full:DisclosureOfGeneralAndAdministrativeExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-595": { "value": "
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
30. RETIREMENT BENEFIT PLANS
The amounts recognised in the balance sheet were as follows:
Group and Company
2023
2022
\u00a3m
\u00a3m
Assets/(liabilities)
Funded defined benefit pension scheme - surplus
723
1,050
Funded defined benefit pension scheme - deficit
(41)
\u2014
Unfunded pension and post-retirement medical benefits
(25)
(25)
Total net assets
657
1,025
a) Defined contribution pension plans
The majority of employees are members of a defined contribution Master Trust, LifeSight. This is the plan into which eligible employees are enrolled automatically.
The assets of LifeSight are held in separate trustee-administered funds. Funds arising from Additional Voluntary Contributions (AVCs) are largely held within the
main defined benefit scheme operated by the Santander UK group.
An expense of \u00a371m (2022: \u00a360m) was recognised for defined contribution plans in the period and is included in staff costs within operating expenses (see Note 6).
b) Defined benefit pension schemes
The Santander UK group operates a number of defined benefit pension schemes. The main scheme is the Santander (UK) Group Pension Scheme (the Scheme). It
comprises seven legally segregated sections. The Scheme covers 7% (2022: 10%) of the Santander UK group\u2019s current employees and is a funded defined benefit
scheme which is closed to new members. Members accrue final salary benefits for each year of service in the Scheme, according to a salary definition which varies
across the sections.
The corporate trustee of the Scheme is Santander (UK) Group Pension Scheme Trustees Limited (the Trustee), a private limited company incorporated in 1996 and a
wholly owned subsidiary of Santander UK Group Holdings plc. The principal duty of the Trustee is to act in the best interests of the members of the Scheme. The
Trustee board comprises six (2022: six) Directors selected by Santander UK Group Holdings plc, plus four (2022: four) member-nominated Directors selected from
eligible members who apply for the role.
The assets of the funded schemes including the Scheme are held independently of the Santander UK group\u2019s assets in separate trustee administered funds.
Investment strategy across the sections of the Scheme remains under regular review. Responsibility for investment decisions, policy and strategy rests with the
Trustee of the Scheme who is required under the Pensions Act 2004 to prepare a statement of investment principles. The defined benefit pension schemes expose
the Santander UK group to risks such as investment risk, interest rate risk, longevity risk and inflation risk. The Santander UK group does not hold any insurance
policies over the defined benefit pension schemes and has not entered into any significant transactions with them.
For IAS 19, an accounting valuation of the assets and liabilities of the defined benefits schemes is prepared at each balance sheet date. For funding purposes, formal
actuarial valuations are carried out on at least a triennial basis. Both valuations are carried out by independent professionally qualified actuaries. The Scheme
Trustee is responsible for the funding actuarial valuations and in doing so considers, or relies in part on, a report of a third-party expert. The latest triennial funding
valuation for the Scheme at 31 March 2022 was finalised in November 2022, with an overall scheme deficit of \u00a3183m. The next scheduled triennial funding
valuation will be at 31 March 2025. Any funding surpluses can be recovered by Santander UK plc from the Scheme through refunds as the Scheme is run off over
time or could be used to pay for the cost of benefits which are accruing.
The main differences between the assumptions used for assessing the defined benefit liabilities for the funding valuation and those used for IAS 19 are that the
financial and demographic assumptions used for the funding valuation are generally more prudent than those used for the IAS 19 valuation.
The total amount charged to the income statement was as follows:
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Net interest income
(54)
(30)
(5)
Current service cost
13
30
38
Past service and GMP costs
1
\u2014
\u2014
Past service curtailment costs
\u2014
\u2014
5
Administration costs
7
9
8
(33)
9
46
The amounts recognised in other comprehensive income were as follows:
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Return on plan assets (excluding amounts included in net interest expense)
352
5,527
(454)
Actuarial (gains) arising from changes in demographic assumptions
(51)
(122)
(17)
Actuarial losses/(gains) arising from experience adjustments
91
481
(19)
Actuarial losses/(gains) arising from changes in financial assumptions
206
(5,164)
(774)
Pension remeasurement
598
722
(1,264)
Movements in the present value of defined benefit scheme obligations were as follows:
Group and Company
2023
2022
\u00a3m
\u00a3m
At 1 January
(7,933)
(12,878)
Current service cost paid by Santander UK plc
(13)
(29)
Current service cost paid by subsidiaries
\u2014
(1)
Interest cost
(379)
(241)
Employer salary sacrifice contributions
(1)
(2)
Past service cost
(1)
\u2014
Remeasurement due to actuarial movements arising from:
\u2013 Changes in demographic assumptions
51
122
\u2013 Experience adjustments
(91)
(481)
\u2013 Changes in financial assumptions
(206)
5,164
Benefits paid
372
413
At 31 December
(8,201)
(7,933)
Movements in the fair value of the schemes\u2019 assets were as follows:
Group and Company
2023
2022
\u00a3m
\u00a3m
At 1 January
8,958
14,413
Interest income
433
271
Contributions paid by employer and scheme members
198
223
Administration costs paid
(7)
(9)
Return on plan assets (excluding amounts included in net interest expense)
(352)
(5,527)
Benefits paid
(372)
(413)
At 31 December
8,858
8,958
The composition and fair value of the schemes\u2019 assets by category was:
Group and Company
Quoted prices in active markets
Prices not quoted in active markets
Total
Valuation
2023
\u00a3m
%
\u00a3m
%
\u00a3m
%
technique
Overseas equities
\u2014
\u2014
980
11
980
11
A,C
Corporate bonds
2,284
26
242
3
2,526
29
A,C
Government fixed interest bonds
1,618
18
\u2014
\u2014
1,618
18
A
Government index-linked bonds
4,422
50
\u2014
\u2014
4,422
50
A
Property
\u2014
\u2014
1,080
12
1,080
12
B
Derivatives
\u2014
\u2014
(2)
\u2014
(2)
\u2014
A
Cash
\u2014
\u2014
586
7
586
7
A
Repurchase agreements(1)
\u2014
\u2014
(3,062)
(35)
(3,062)
(35)
A
Infrastructure
\u2014
\u2014
408
5
408
5
B,C
Annuities
\u2014
\u2014
293
3
293
3
D
Longevity swap
\u2014
\u2014
(16)
\u2014
(16)
\u2014
D
Other
\u2014
\u2014
25
\u2014
25
\u2014
C
8,324
94
534
6
8,858
100
2022
Overseas equities
\u2014
\u2014
1,172
13
1,172
13
A,C
Corporate bonds
1,991
22
244
3
2,235
25
A,C
Government fixed interest bonds
1,138
13
\u2014
\u2014
1,138
13
A
Government index-linked bonds
5,525
62
\u2014
\u2014
5,525
62
A
Property
\u2014
\u2014
1,202
13
1,202
13
B
Derivatives
\u2014
\u2014
(78)
(1)
(78)
(1)
A
Cash
\u2014
\u2014
1,340
15
1,340
15
A
Repurchase agreements(1)
\u2014
\u2014
(4,312)
(48)
(4,312)
(48)
A
Infrastructure
\u2014
\u2014
426
5
426
5
B,C
Annuities
\u2014
\u2014
293
3
293
3
D
Longevity swap
\u2014
\u2014
(12)
\u2014
(12)
\u2014
D
Other
\u2014
\u2014
29
\u2014
29
\u2014
C
8,654
97
304
3
8,958
100
(1)Sale and repurchase agreements net of purchase and resale agreements.
Valuation techniques
The main methods for measuring the fair value of the Scheme\u2019s assets at 31 December 2023 and 2022 are set out below.
A. The asset valuation is provided by the asset manager. The valuation is based on observable market data, and where relevant is typically based on bid price values,
or the single price if only one price is available.
B. The underlying asset valuations are prepared by an independent expert, adjusted for any cash movements where necessary since the latest valuation.
C. Assets are valued by reference to the latest manager statements provided by the managers, adjusted for any cash movements since the latest valuation.
D. Assets relating to insured liabilities are valued by the actuaries based on our year-end accounting assumptions.
The \u2018Other\u2019 category includes hedge fund investments.
A number of insurance transactions have been entered into that have been included in the asset valuation under annuities and Longevity swap. The transactions
were as follows:
\u2013 In May 2020 a pensioner buy-in was entered into by the Trustee. This transaction insured 100% of the SMA section pensioner liabilities and 50% of the SPI
section pensioner liabilities based on membership in the Scheme at 31 December 2018.
\u2013 In March 2021, the Trustee entered into a longevity swap. Approximately 85% of pensioner liabilities were covered by the longevity swap at inception, excluding
pensioners in the SMA and SPI sections.
\u2013 In 2022, a pensioner buy-in was entered into by the Trustee covering pensioners in the SMA and SPI sections who were uninsured at 30 June 2021.
\u2013 In July 2022, the Trustee entered into a second longevity swap, extending the insurance over uninsured pensioners in the same membership groups covered by
the first swap transacted in March 2021, based on membership in the Scheme at 31 December 2021.
At 31 December 2023, as highlighted above, the Scheme was invested in certain assets whose values are not based on market observable data, such as the
investments in unquoted equities and bonds, as well as property, infrastructure and hedge funds. The valuation of these assets relies on unobservable data as these
assets do not have a readily available quoted price in an active market. A large proportion of the property is directly held and valued using a bespoke valuation
method taking both the nature of the properties and the tenancy schedules as inputs to derive the fair value. Where there is a time lag between the net asset value
and the balance sheet date, management adjusts the value of the assets for any cash movements. Due diligence has been conducted to ensure the values obtained
in respect of these assets are appropriate and represent fair value. Given the nature of these investments, we are unable to prepare sensitivities on how their values
could vary as market conditions or other variables change.
A strategy is in place to manage interest rate and inflation risk relating to the liabilities. The Scheme also hedges a proportion of its foreign exchange exposure to
manage currency risk. At 31 December 2023 the currency forwards had a notional value of \u00a3859m (2022: \u00a3985m). There have been no significant changes to the
asset allocation over 2023.
The Santander UK group\u2019s pension schemes did not directly hold any equity securities of the Company or any of its related parties at 31 December 2023 and 2022.
The Santander UK group\u2019s pension scheme assets do not include any property or other assets that are occupied or used by the Santander UK group.
Funding
In November 2022, in compliance with the Pensions Act 2004, the Trustee and the Santander UK group agreed to a new recovery plan in respect of the Scheme and
a schedule of contributions following the finalisation of the 31 March 2022 actuarial valuation. The funding target for this actuarial valuation is for the Scheme to
have sufficient assets to make payments to members in respect of the accrued benefits as and when they fall due. In accordance with the terms of the Trustee
agreement in place at the time, the Santander UK group contributed \u00a3195m in 2023 (2022: \u00a3218m) to the Scheme, of which \u00a3164m (2022: \u00a3178m) was in respect
of agreed deficit repair contributions. The agreed schedule of the Santander UK group\u2019s contributions to the Scheme covers the period up to 31\u00a0March 2026, and
comprises contingent contributions which become due if the funding position of any section falls behind the agreed plan. The Santander UK group also meets
Scheme administration expenses. The funding valuation is used to judge the amount of cash contributions the Santander UK group needs to put into the pension
scheme. It will always be different to the IAS 19 accounting position, which is an accounting rule concerning employee benefits and shown on the balance sheet of
our financial statements.
Actuarial assumptions
The principal actuarial assumptions used for the Scheme were:
Group and Company
2023
2022
2021
%
%
%
To determine benefit obligations(1) :
\u2013 Discount rate for scheme liabilities
4.6%
4.9
1.9
\u2013 General price inflation
3.0%
3.1
3.4
\u2013 General salary increase
1.0%
1.0
1.0
\u2013 Expected rate of pension increase
3.0%
3.0
3.2
Years
Years
Years
Longevity at 60 for current pensioners, on the valuation date:
\u2013 Males
27.0
27.4
27.5
\u2013 Females
29.8
30.1
30.1
Longevity at 60 for future pensioners currently aged 40, on the valuation date:
\u2013 Males
28.6
28.9
29.0
\u2013 Females
31.3
31.6
31.6
(1) The discount rate and inflation related assumptions set out in the table above reflect the assumptions calculated based on the Scheme\u2019s duration and cash flow profile as a whole. The actual assumptions used
were determined for each section independently based on each section\u2019s duration and cash flow profile.
The majority of the liability movement in 2023 was due to the reduction in credit spreads over the year.
Discount rate for scheme liabilities
The rate used to discount the retirement benefit obligation for accounting purposes is based on the annual yield at the balance sheet date of high-quality corporate
bonds on that date. There are only a limited number of higher quality Sterling-denominated corporate bonds, particularly those that are longer-dated. Therefore, in
order to set a suitable discount rate, we need to construct a corporate bond yield curve. The model which we use to construct the curve uses corporate bond data
but excludes convertible bonds, asset-backed bonds and government related bonds. The curve is then constructed from this data by extrapolating the spot rates
from 30 years to 50 years by holding the spread above nominal gilt spot rates constant. From 50 years onwards, it is assumed that spot rates remain constant.
When considering an appropriate assumption, we project forward the expected cash flows of each section of the Scheme and adopt a single equivalent cash flow
weighted discount rate for each section, subject to management judgement.
General price inflation
Consistent with our discount rate methodology, we set the inflation assumption using the expected cash flows for each section of the Scheme, fitting them to an
inflation curve to give a weighted average inflation assumption. We then deduct an inflation risk premium to reflect the compensation holders of fixed rate
instruments expect to receive for taking on the inflation risk. This premium is subject to a cap, to better reflect management\u2019s view of inflation expectations.
General salary increase
From 1 March 2015, a cap on pensionable pay increases of 1% each year was applied to staff in the Scheme.
Expected rate of pension increase
The pension increase assumption methodology uses a stochastic model, which is calibrated to consider both the observed historical volatility term structure and
derivative pricing. The model allows for the likelihood that high or low inflation in one year, feeds into inflation remaining high or low in the next year.
Mortality assumptions
The mortality assumptions are based on an independent analysis of the Scheme\u2019s actual mortality experience, carried out as part of the triennial actuarial valuation,
together with recent evidence from the Continuous Mortality Investigation. An allowance is then made for expected future improvements to life expectancy based
on the Continuous Mortality Investigation Tables. Following this review the S3 Medium all pensioner mortality table was adopted with appropriate adjustments to
reflect the actual mortality experience. At 31 December 2023 the assumption for future improvements was updated and the CMI 2022 projection model was
adopted, with model parameters selected having had regard to the Scheme\u2019s membership profile with an initial addition to improvements of 0.25% per annum,
together with a long-term rate of future improvements to life expectancy of 1.25% for male and female members.
In 2022, the methodology for setting the demographic assumptions was changed to better represent current expectations, following a review carried out by the
Trustee as part of the 2022 triennial valuation. These reviews resulted in changes in the assumptions for family statistics, early retirement and the withdrawal
assumption, which were retained at 31 December 2023.
Actuarial assumption sensitivities
The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting
period, while holding all other assumptions constant.
Group and Company
(Decrease)/increase
2023
2022
Assumption
Change in pension obligation at period end from
\u00a3m
\u00a3m
Discount rate
50bps increase
(507)
(501)
General price inflation
50bps increase
385
374
Mortality
Each additional year of longevity assumed
223
203
The 50bps sensitivity to the inflation assumption includes the corresponding impact of changes in future pension increase assumptions before and after retirement.
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the changes in
assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the sensitivity analysis, the present
value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method used
to calculate the defined benefit obligation recognised in the balance sheet. There were no changes in the methods and assumptions used in preparing the sensitivity
analyses from prior years.
The benefits expected to be paid in each of the next five years, and in the aggregate for the five years thereafter are:
Year ending 31 December
\u00a3m
2024
455
2025
389
2026
404
2027
428
2028
444
Five years ending 2033
2,398
The average duration of the defined benefit obligation at 31 December 2023 was 13.8 years (2022: 14.2 years).
Emerging risks
The focus in 2023 shifted to the risks arising from the Scheme\u2019s private market assets, rising interest rates and cybersecurity risk. The Santander UK group
collaborated with the Trustee to identify and monitor such risks to ensure they are adequately managed. The Trustee has engaged an independent cybersecurity
advisor to review the cybersecurity arrangements of its most critical suppliers and provide recommendations on potential improvements.
The Trustee has established the Sustainability Committee which is responsible for overseeing the Scheme\u2019s policies, regulatory obligations and priorities in respect
of climate change and wider Environmental, Social and Governance (ESG) related matters. This includes the monitoring of climate change related risks and
opportunities, scenario analysis and monitoring of investments from an ESG perspective.
The Santander UK group's employee pension funds recognise the magnitude of the challenges that climate and energy transition pose to governments, companies
and civil society. They are also aware of their impact on the ability to comply with their fiduciary duty providing long-term risk-adjusted returns to their members.
They have committed to a target of net zero by 2050, showing their full support for the Santander UK group's vision, commitment to sustainability and climate
change.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-594": { "value": "
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
Depreciation, amortisation and impairment
In 2023, depreciation, amortisation and impairment included depreciation of \u00a364m (2022: \u00a373m, 2021: \u00a381m) on operating lease assets (where the Santander UK
group is the lessor) with a carrying amount of \u00a3488m at 31 December 2023 (2022: \u00a3577m, 2021: \u00a3595m). It also included depreciation of \u00a330m (2022: \u00a319m,
2021: \u00a319m) on right-of-use assets with a carrying amount of \u00a390m at 31 December 2023 (2022: \u00a3112m, 2021: \u00a3117m).
b) Other intangibles
Group
Company
Cost
Accumulated
amortisation/
impairment
Carrying
amount
Cost
Accumulated
amortisation/
impairment
Carrying
amount
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
1,261
(910)
351
1,309
(970)
339
Additions
114
\u2014
114
109
\u2014
109
Disposals
(36)
36
\u2014
(36)
36
\u2014
Charge
\u2014
(116)
(116)
\u2014
(113)
(113)
At 31 December 2023
1,339
(990)
349
1,382
(1,047)
335
At 1 January 2022
1,334
(992)
342
1,373
(1,043)
330
Additions
112
\u2014
112
109
\u2014
109
Disposals
(185)
185
\u2014
(173)
173
\u2014
Charge
\u2014
(100)
(100)
\u2014
(97)
(97)
Impairment
\u2014
(3)
(3)
\u2014
(3)
(3)
At 31 December 2022
1,261
(910)
351
1,309
(970)
339
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2023
889
823
72
722
267
2,773
Additions
87
83
\u2014
85
31
286
Reclassification (to)/from assets held for sale
8
\u2014
\u2014
\u2014
\u2014
8
Disposals
(66)
(29)
(5)
(172)
(35)
(307)
At 31 December 2023
918
877
67
635
263
2,760
Accumulated depreciation:
At 1 January 2023
270
618
72
145
155
1,260
Charge for the period
17
62
\u2014
64
30
173
Impairment during the period
\u2014
\u2014
\u2014
\u2014
(11)
(11)
Disposals
(61)
(27)
(5)
(62)
(1)
(156)
At 31 December 2023
226
653
67
147
173
1,266
Carrying amount
692
224
\u2014
488
90
1,494
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepreciationAndAmortisationExpenseExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-593": { "value": "
For the year ended 31 December
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Staff costs:
Wages and salaries
839
745
745
787
683
577
Performance-related payments
162
170
183
156
160
159
Social security costs
115
112
112
109
102
89
Pensions costs: \u2013 defined contribution plans
71
60
64
67
54
49
\u2013 defined benefit plans
13
28
38
12
25
29
Other personnel costs
41
44
41
40
42
38
1,241
1,159
1,183
1,171
1,066
941
Other administration expenses
925
888
826
890
882
977
Depreciation, amortisation and impairment
290
296
501
220
219
373
2,456
2,343
2,510
2,281
2,167
2,291
In 2023, depreciation, amortisation and impairment included an impairment charge of \u00a325m (2022: \u00a310m, 2021: \u00a388m) associated with branch and head office
site closures as part of the transformation programme. For more, see Note 21.
For the Company, in 2023 impairment associated with branch and head office site closures as part of the transformation programme was \u00a325m (2022: \u00a310m, 2021:
\u00a363m).
Impairment of goodwill
In 2023 and 2022, no impairment of goodwill was recognised. Goodwill is tested for impairment annually, or more frequently, if reviews identify an impairment
indicator or when events or changes in circumstances dictate. Goodwill is tested for impairment annually at 31 December, with a review for impairment indicators
at 30 June.
The annual review identified that the risks of ongoing global conflicts, places increasing uncertainty on the UK economic trajectory, and its potential impact on the
carrying value of goodwill as impairment indicators for all cash-generating units (CGUs). As a result, management updated the impairment test at 31 December
2023 for all CGUs.
Basis of the recoverable amount
The recoverable amount of all CGUs was determined based on its value in use (VIU) methodology at each testing date. For each CGU, the VIU is calculated by
discounting management\u2019s cash flow projections for the CGU. The cash flow projections also take account of increased internal capital allocations needed to achieve
internal and regulatory capital targets including the leverage ratio. The key assumptions used in the VIU calculation for each CGU are set out below. The Retail &
Business Banking segment consists of the Private Banking CGU and the rest of Retail & Business Banking, known as the Personal Financial Services CGU.
Carrying amount of Goodwill by CGU and key assumptions in the VIU calculation
Goodwill
Discount rate
Growth rate beyond initial cash
flow projections
2023
2022
2023
2022
2023
2022
CGU
\u00a3m
\u00a3m
%
%
%
%
Personal Financial Services
1,169
1,169
16.7
16.6
1.6
1.6
Private Banking
30
30
14.6
15.3
1.6
1.6
1,199
1,199
The CGUs do not carry on their balance sheets any other intangible assets with indefinite useful lives.
Management\u2019s judgement in estimating the cash flows of a CGU
The cash flow projections for the purpose of impairment testing for each CGU are derived from the latest 3-year plan presented to the Board. The Board challenges
and endorses management\u2019s planning assumptions in light of internal capital allocations needed to support Santander UK\u2019s strategy, current market conditions and
the macroeconomic outlook. For the goodwill impairment tests conducted at 31 December 2023, the determination of the carrying amount of the Personal
Financial Services CGU was based on an allocation of regulatory capital and management\u2019s cash flow projections until the end of 2026. The assumptions included in
the cash flow projections reflect an allocation to the cost of capital to support future growth, as well as the expected impact of recent events in the UK economic
environment on the financial outlook within which the CGUs operate. The cash flow projections are supported by Santander UK\u2019s base case economic scenario. For
more on the base case economic scenario, including our forecasting approach and the assumptions in place at 31 December 2023, see the Credit risk \u2013 Santander
UK group level section of the Risk review. The cash flow projections take into account the likely impact of recent changes to the BoE Bank Rate, inflation and also
consider the impact of future climate change.
Cash flow projections for the purpose of impairment testing do not take account of any adverse outcomes arising from contingent liabilities (see Note 31), whose
existence will be confirmed by uncertain future events or where any obligation is not probable or otherwise cannot be measured reliably, nor do they take account
of the benefits arising from Santander UK\u2019s transformation plans that had not yet been implemented or committed at 31 December 2023.
Discount rate
The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a capital asset pricing model (CAPM) and
calculated on a post-tax basis. The CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to
reflect the inherent risk of the business being evaluated. These variables are based on the market\u2019s assessment of the economic variables and management\u2019s
judgement. The inputs to the CAPM are observable on a post-tax basis. In determining the discount rate, management has identified the cost of equity associated
with market participants that closely resemble our CGUs and adjusted them for tax to arrive at the pre-tax equivalent rate. The Private Banking CGU has a different
discount rate compared to the Personal Financial Services CGU because different market participants closely resemble each CGU.
Growth rate beyond initial cash flow projections
The growth rate for periods beyond the initial cash flow projections is used to extrapolate the cash flows in perpetuity because of the long-term perspective of
CGUs. In line with the accounting requirements, management uses the UK Government\u2019s official estimate of UK long-term average GDP growth rate, as this is lower
than management's estimate of the long-term average growth rate of the business. The estimated UK long-term average GDP growth rate has regard to the long-
term impact of inherent uncertainties, such as Brexit, climate change and higher living costs, driven by high inflation and rising interest rates.
Goodwill arising on the acquisition of Personal Financial Services and Private Banking
The VIU of each CGU remains higher than the carrying value of the related goodwill. The VIU review at 31 December 2023 did not indicate the need for an
impairment in the Company\u2019s goodwill balances. Management considered the level of headroom and the uncertainty relating to the respective estimates of the VIU
for those CGUs but determined that there was a sufficient basis to conclude that no impairment was required.
Sensitivities of key assumptions in calculating the value in use
At 31 December 2023 and 31 December 2022, the VIU of the Personal Financial Services CGU was sensitive to reasonably possible changes in the key assumptions
supporting the recoverable amount.
The table below presents a summary of the key assumptions underlying the most sensitive inputs to the model for the Personal Financial Services CGU, the key risks
associated with each and details of a reasonably possible change in assumptions, such as a decrease in mortgage new business. The sensitivity analysis presented
below has been prepared on the basis that a change in each key assumption would not have a consequential impact on other assumptions used in the impairment
review. However, due to the interrelationships between some of the assumptions, a change in one of the assumptions might impact one or more of the other
assumptions and could result in a larger or smaller overall impact.
Reasonably possible changes in key assumptions
CGU
Input
Key assumptions
Associated risks
Reasonably possible change
Personal Financial
Services
Cash flow projections
\u2013 BoE Bank Rate
\u2013 UK house price growth
\u2013 UK mortgage loan market growth
\u2013 UK unemployment rate
\u2013 Position in the market
\u2013 Regulatory capital levels.
\u2013 Uncertain market outlook
\u2013 Higher interest rate environment
impact on customer affordability
\u2013 Customer remediation and
regulatory action outcomes
\u2013 Uncertain regulatory capital
requirements.
\u2013 Cash flow projections
decrease by 10% (2022:
5%).
Discount rate
\u2013 Discount rate used is a reasonable estimate
of a suitable market rate for the profile of
the business.
\u2013 Market rates of interest rise.
\u2013 Discount rate increases
by 100 basis points
(2022: 100 basis
points).
GDP growth rate
\u2013 High oil / gas prices
\u2013 Elevated wage growth
\u2013 Weak productivity
\u2013 Large government debt burden
\u2013 Fragile business and consumer confidence
\u2013 Inflation and interest rates stay higher
for longer, hitting the disposable
income of our customers
\u2013 Affects the profitability of our
customers
\u2013 Limits the scope for tax cuts, hitting
the disposable income of our
customers
\u2013 Affects business and consumer
spending decisions of our customers
\u2013 GDP Growth rate
decreases by 10%
(2022: 10%)
At 31 December 2023 and 31 December 2022, a reasonably possible change in the key assumptions in relation to the VIU calculation for the goodwill balance in the
Personal Financial Services CGU would have resulted in a reduction in headroom as follows.
Reduction in headroom
2023
2022
CGU
Reasonably possible change
\u00a3m
\u00a3m
Personal Financial Services
Cash flow projections decrease by 10% (2022: 5%)
(818)
(538)
Discount rate increases by 100 basis points (2022: 100 basis points)
(663)
(887)
GDP Growth rate decreases by 10% (2022: 10%)
(19)
(31)
Sensitivity of Value in use changes to current assumptions to achieve nil headroom
Although there was no impairment of goodwill relating to the Personal Financial Services CGU or the Private Banking CGU at 31 December 2023, the test for the
Personal Financial Services CGU remains sensitive to some of the assumptions used, as described above. In addition, the changes in assumptions detailed below for
the discount rate and cash flow projections would eliminate the current headroom. As a result, there is a risk of impairment in the future should business
performance or economic factors diverge from forecasts.
In 2023, there was a decrease in headroom arising from a decline in cash flow forecasts, this is partially offset by a decrease to RWAs which has led to a reduction in
the required CET1 capital requirement.
The sensitivity analysis presented below has been prepared on the basis that a change in each key assumption would not have a consequential impact on other
assumptions used in the impairment review. However, due to the interrelationships between some of the assumptions, a change in one of the assumptions might
impact one or more of the other assumptions and could result in a larger or smaller overall impact.
2023
Carrying value
Value in use
Headroom
Increase in
discount rate
Decrease in
GDP growth
rate
Decrease in
cash flows
CGU
\u00a3m
\u00a3m
\u00a3m
bps
%
%
Personal Financial Services
7,513
8,178
665
101
4
8
2022
Personal Financial Services
8,860
10,752
1,892
239
13
18
b) Other intangibles
Group
Company
Cost
Accumulated
amortisation/
impairment
Carrying
amount
Cost
Accumulated
amortisation/
impairment
Carrying
amount
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
1,261
(910)
351
1,309
(970)
339
Additions
114
\u2014
114
109
\u2014
109
Disposals
(36)
36
\u2014
(36)
36
\u2014
Charge
\u2014
(116)
(116)
\u2014
(113)
(113)
At 31 December 2023
1,339
(990)
349
1,382
(1,047)
335
At 1 January 2022
1,334
(992)
342
1,373
(1,043)
330
Additions
112
\u2014
112
109
\u2014
109
Disposals
(185)
185
\u2014
(173)
173
\u2014
Charge
\u2014
(100)
(100)
\u2014
(97)
(97)
Impairment
\u2014
(3)
(3)
\u2014
(3)
(3)
At 31 December 2022
1,261
(910)
351
1,309
(970)
339
The impairment charge of \u00a3nil (2022: \u00a33m) relates to computer software no longer expected to yield future economic benefits as it has become obsolete.
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2023
889
823
72
722
267
2,773
Additions
87
83
\u2014
85
31
286
Reclassification (to)/from assets held for sale
8
\u2014
\u2014
\u2014
\u2014
8
Disposals
(66)
(29)
(5)
(172)
(35)
(307)
At 31 December 2023
918
877
67
635
263
2,760
Accumulated depreciation:
At 1 January 2023
270
618
72
145
155
1,260
Charge for the period
17
62
\u2014
64
30
173
Impairment during the period
\u2014
\u2014
\u2014
\u2014
(11)
(11)
Disposals
(61)
(27)
(5)
(62)
(1)
(156)
At 31 December 2023
226
653
67
147
173
1,266
Carrying amount
692
224
\u2014
488
90
1,494
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2022
978
1,049
434
755
254
3,470
Additions
61
86
\u2014
185
38
370
Reclassification to assets held for sale
(98)
(13)
\u2014
\u2014
\u2014
(111)
Disposals
(52)
(299)
(362)
(218)
(25)
(956)
At 31 December 2022
889
823
72
722
267
2,773
Accumulated depreciation:
At 1 January 2022
334
857
434
160
137
1,922
Charge for the year
18
68
1
73
19
179
Impairment during the year
8
2
\u2014
\u2014
\u2014
10
Reclassification to assets held for sale
(49)
(13)
\u2014
\u2014
\u2014
(62)
Disposals
(41)
(296)
(363)
(88)
(1)
(789)
At 31 December 2022
270
618
72
145
155
1,260
Carrying amount
619
205
\u2014
577
112
1,513
(1) Property includes investment properties of \u00a317m (2022: \u00a317m ) and assets under construction of \u00a3nil (2022: \u00a3204m). In September 2023, we completed the construction of a new head office in Milton Keynes.
In 2023, right-of-use assets were impaired as a result of our multi-year transformation project. The impairment relates to leasehold properties within the scope of
our branch network restructuring programme and head office sites which are either closing or consolidating.
", "dimensions": { "concept": "ifrs-full:DisclosureOfImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-597": { "value": "The average number of full-time equivalent staff was 19,546 (2022: 18,123, 2021: 19,704", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutEmployeesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-598": { "value": "
7. AUDIT AND OTHER SERVICES
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Audit fees:
Fees payable to the Company\u2019s auditor and its associates for the audit of the Santander UK group\u2019s annual accounts
13.9
11.8
11.2
Fees payable to the Company\u2019s auditor and its associates for other services to the Santander UK group:
\u2013 Audit of the Santander UK group's subsidiaries
0.6
0.7
0.9
Total audit fees(1)
14.5
12.5
12.1
Non-audit fees:
Audit-related assurance services
0.7
0.6
0.8
Other assurance services
0.5
0.3
0.1
Other non-audit services
0.1
\u2014
0.2
Total non-audit fees
1.3
0.9
1.1
(1) 2023 audit fees included \u00a30.7m (2022: \u00a30.6m, 2021: \u00a31.2m) which related to the prior year.
Audit fees payable for the statutory audit of Santander UK plc were \u00a312.7m (2022: \u00a310.9m, 2021: \u00a310.7m).
Audit-related assurance services mainly comprised services performed in connection with review of the financial information of the Company and reporting to the
Company's UK regulators.
Other assurance services mainly comprised services performed in support of various debt issuance programmes.
Of the total non-audit fees, \u00a30.3m (2022: \u00a30.2m, 2021: \u00a30.4m) accords with the definition of 'Audit Fees' per US Securities and Exchange Commission (SEC)
guidance, \u00a31.0m (2022: \u00a30.7m, 2021: \u00a30.7m) accords with the definition of 'Audit related fees' per that guidance and \u00a312,550 (2022: \u00a3nil, 2021: \u00a3nil) accords with
the definition of 'All other fees' per that guidance.
In 2023, the Company\u2019s auditors earned no fees (2022: \u00a3nil, 2021: \u00a327,000 fees) payable by entities outside the Santander UK group for the review of the financial
position of corporate and other borrowers.
In 2023, the Company's auditors earned \u00a31.6m (2022: \u00a31.6m, 2021: \u00a31.4m), in relation to incremental work undertaken in support of the audit of Banco Santander
SA.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAuditorsRemunerationExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-600": { "value": "
8. CREDIT IMPAIRMENT CHARGES AND PROVISIONS
For the year ended 31 December
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Credit impairment charges/(write-backs):
Loans and advances to customers
191
248
(186)
Recoveries of loans and advances, net of collection costs
10
36
(17)
Off-balance sheet credit exposures (See Note 29)
4
36
(30)
205
320
(233)
Provisions for other liabilities and charges (excluding off-balance sheet credit exposures) (See Note 29)
334
422
386
Releases for residual value and voluntary termination
1
(3)
(9)
335
419
377
540
739
144
In 2023, 2022 and 2021 there were no material credit impairment charges on loans and advances to banks, non-trading reverse repurchase agreements, other
financial assets at amortised cost and financial assets at FVOCI.
29. PROVISIONS
Group
Customer
remediation
Litigation
and other
regulatory
Bank Levy
Property
ECL on
undrawn
facilities and
guarantees
Restructuring
Other
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
90
136
3
47
74
21
7
378
Additional provisions (See Note 8)
45
28
44
16
4
56
168
361
Provisions released (See Note 8)
(8)
\u2014
(8)
(6)
\u2014
\u2014
\u2014
(22)
Utilisation and other
(21)
(32)
(95)
(10)
\u2014
(45)
(168)
(371)
Recharge(1)
\u2014
\u2014
20
\u2014
\u2014
\u2014
\u2014
20
Reclassification from provisions to other assets
\u2014
\u2014
36
\u2014
\u2014
\u2014
\u2014
36
At 31 December 2023
106
132
\u2014
47
78
32
7
402
Recharge in respect of the UK Bank Levy paid on behalf of other UK entities in the Banco Santander group
Provisions expected to be settled within no more than 12 months after 31 December 2023 were \u00a3217m (2022: \u00a3130m).
a) Customer remediation
Net provisions of \u00a337m were recognised in 2023 for customer remediations. An additional provision of \u00a345m was recognised in 2023 for customer remediation
exercises relating to our mortgage book. \u00a330m of this relates to the proposed refund of interest inconsistently charged on mortgage products for customers in
Financial Support, and \u00a310m relates to the proposed refund of early repayment charges paid by a specific group of customers who historically switched mortgage
products. The provisions remain subject to change as additional data becomes available and remediation boundaries are finalised.
b) Litigation and other regulatory
Litigation and other regulatory provisions principally comprised amounts in respect of litigation and other regulatory charges, operational loss and operational risk
provisions, and related expenses. A number of uncertainties exist with respect to these provisions given the uncertainties inherent in litigation and other regulatory
matters, that affect the amount and timing of any potential outflows with respect to which provisions have been established. These provisions are reviewed at least
quarterly.
In 2023 there were charges of \u00a312m for legal provisions and \u00a316m for regulatory fees and other issues.
The balance also included an amount in respect of our best estimate of liability relating to a legal dispute regarding allocation of responsibility for a specific PPI
portfolio of complaints, further described in Note 31. No further information on the best estimate is provided on the basis that it would be seriously prejudicial.
c) Bank Levy
In 2023, a rate of 0.05% (2022: 0.05%) was charged on long term chargeable equity and liabilities and 0.10% on short-term chargeable liabilities (2022: 0.10%).
d) Property
Property provisions include leasehold vacant property provisions, dilapidation provisions for leased properties within the scope of IFRS 16 and decommissioning and
disposal costs relating to vacant freehold properties. Leasehold vacant property provisions are made by reference to an estimate of any expected sub-let income,
compared to the head rent, and the possibility of disposing of Santander UK\u2019s interest in the lease, taking into account conditions in the property market.
Property provisions included \u00a34m of transformation charges in 2023. These charges consist of costs relating to leasehold head office closures, along with
decommissioning costs relating to freehold head office sites which are either closing or consolidating.
e) ECL on undrawn facilities and guarantees
Provisions include expected credit losses relating to guarantees given to third parties and undrawn loan commitments.
f) Restructuring
Restructuring provisions relate to severance costs associated with transformation and organisational changes. The provision includes a charge of \u00a351m as part of
our multi-year transformation programme to improve future returns, focused on simplifying, digitising and automating the bank.
g) Other
Other provisions include provisions that do not fit into any of the other categories, such as fraud losses and some categories of operational losses. In 2023, other
provisions included charges for operational risk provisions of \u00a3163m, including fraud losses of \u00a3136m.
", "dimensions": { "concept": "ifrs-full:DisclosureOfProvisionsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-599": { "value": "
8. CREDIT IMPAIRMENT CHARGES AND PROVISIONS
For the year ended 31 December
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Credit impairment charges/(write-backs):
Loans and advances to customers
191
248
(186)
Recoveries of loans and advances, net of collection costs
10
36
(17)
Off-balance sheet credit exposures (See Note 29)
4
36
(30)
205
320
(233)
Provisions for other liabilities and charges (excluding off-balance sheet credit exposures) (See Note 29)
334
422
386
Releases for residual value and voluntary termination
1
(3)
(9)
335
419
377
540
739
144
In 2023, 2022 and 2021 there were no material credit impairment charges on loans and advances to banks, non-trading reverse repurchase agreements, other
financial assets at amortised cost and financial assets at FVOCI.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAllowanceForCreditLossesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-601": { "value": "
9. TAXATION
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Current tax:
UK corporation tax on profit for the year
475
526
401
Adjustments in respect of prior years
(15)
(81)
(24)
Total current tax
460
445
377
Deferred tax:
Charge/(credit) for the year
106
(29)
100
Adjustments in respect of prior years
(7)
64
15
Total deferred tax
99
35
115
Tax on profit from continuing operations
559
480
492
The standard rate of UK corporation tax was 28% for banking entities and 24% for non-banking entities (2022: 27% for banking entities and 19% for non-banking
entities; 2021: 27% for banking entities and 19% for non-banking entities) following the introduction of a surcharge on banking companies in 2016. Taxation for
other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
The Santander UK group\u2019s effective tax rate for 2023 was 26.6% (2022: 25.6%, 2021: 26.7%). The tax on profit from continuing operations before tax differs from
the theoretical amount that would arise using the basic corporation tax rate as follows:
For the year ended 31 December
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Profit from continuing operations before tax
2,100
1,874
1,845
Tax calculated at a tax rate of 23.5% (2022:19%, 2021: 19%)
494
356
351
Bank surcharge on profits
85
121
104
Non-deductible preference dividends paid
9
9
9
Non-deductible UK Bank Levy
10
13
14
Non-deductible conduct remediation, fines and penalties
13
48
6
Other non-deductible costs and non-taxable income
2
29
37
Effect of change in tax rate on deferred tax provision
2
(29)
9
Tax relief on dividends in respect of other equity instruments
(34)
(40)
(40)
Adjustment to prior year provisions
(22)
(27)
2
Tax on profit from continuing operations
559
480
492
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK to implement the OECD Pillar Two model rules and which introduces a global
minimum effective tax rate of 15% with effect from 1 January 2024. Santander UK will therefore fall within the scope of these rules from 2024.
It is not anticipated that the rules will impact Santander UK but the position will be kept under review.
Current tax assets and liabilities
Movements in current tax assets and liabilities during the year were as follows:
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
478
347
557
445
At 1 January
478
347
557
445
Income statement charge (including discontinued operations)
(460)
(445)
(436)
(243)
Other comprehensive income (charge)/credit
(70)
159
\u2014
\u2014
Corporate income tax received
537
405
442
353
Other movements
5
12
5
2
490
478
568
557
Assets
490
478
568
557
At 31 December
490
478
568
557
The amount of corporation income tax paid differs from the tax charge for the period as a result of the timing of payments due to the tax authorities, the effects of
movements in deferred tax, adjustments to prior period current tax provisions and current tax recognised directly in other comprehensive income.
Santander UK proactively engages and cooperates with relevant tax authorities in their oversight of the company's tax matters. The accounting policy for
recognising provisions for any tax risks identified is described in Note 1. It is not expected that there will be any material movement in such provisions within the
next 12 months.
The Santander UK group has applied the UK\u2019s Code of Practice on Taxation for Banks following its adoption in 2010. For more information, see our Taxation Strategy
on our website aboutsantander.co.uk.
Deferred tax
The table below shows the deferred tax balances including the movement in the deferred tax account during the year. Deferred tax balances are presented in the
balance sheet after offsetting assets and liabilities where the Santander UK group and Company has the legal right to offset and intends to settle on a net basis.
Group
Fair value of
financial
instruments
Pension
remeasurement
Cash flow
hedges
Fair value
reserve
Tax losses
carried
forward
Accelerated
tax
depreciation
Other
temporary
differences
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
27
(290)
305
(1)
\u2014
35
(111)
(35)
Income statement (charge)/credit
(35)
(63)
\u2014
\u2014
\u2014
(18)
17
(99)
Transfers/reclassifications
\u2014
\u2014
(3)
(1)
\u2014
1
4
1
Credited/(charged) to other comprehensive income
\u2014
167
(229)
5
\u2014
\u2014
4
(53)
At 31 December 2023
(8)
(186)
73
3
\u2014
18
(86)
(186)
At 1 January 2022
(123)
(508)
(7)
(12)
8
68
(5)
(579)
Income statement credit/(charge)
150
(49)
\u2014
\u2014
(7)
(33)
(96)
(35)
Transfers/reclassifications
\u2014
\u2014
2
\u2014
(1)
\u2014
(1)
\u2014
Credited/(charged) to other comprehensive income
\u2014
267
310
11
\u2014
\u2014
(9)
579
At 31 December 2022
27
(290)
305
(1)
\u2014
35
(111)
(35)
The deferred tax assets and liabilities above have been recognised in both the Company and the Santander UK group on the basis that sufficient future taxable
profits are forecast within the foreseeable future, in excess of the profits arising from the reversal of existing taxable temporary differences, to allow for the
utilisation of the assets as they reverse. Based on the conditions at the balance sheet date, management determined that a reasonably possible change in any of the
key assumptions underlying the estimated future taxable profits in the Santander UK group\u2019s three-year plan (described in Note 20) would not cause a reduction in
the deferred tax assets recognised. There are \u00a3nil unrecognised deferred tax assets on capital losses carried forward (2022: \u00a3nil).
", "dimensions": { "concept": "ifrs-full:DisclosureOfIncomeTaxExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-602": { "value": "
Group
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Current tax:
UK corporation tax on profit for the year
475
526
401
Adjustments in respect of prior years
(15)
(81)
(24)
Total current tax
460
445
377
Deferred tax:
Charge/(credit) for the year
106
(29)
100
Adjustments in respect of prior years
(7)
64
15
Total deferred tax
99
35
115
Tax on profit from continuing operations
559
480
492
Deferred tax
The table below shows the deferred tax balances including the movement in the deferred tax account during the year. Deferred tax balances are presented in the
balance sheet after offsetting assets and liabilities where the Santander UK group and Company has the legal right to offset and intends to settle on a net basis.
Group
Fair value of
financial
instruments
Pension
remeasurement
Cash flow
hedges
Fair value
reserve
Tax losses
carried
forward
Accelerated
tax
depreciation
Other
temporary
differences
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
27
(290)
305
(1)
\u2014
35
(111)
(35)
Income statement (charge)/credit
(35)
(63)
\u2014
\u2014
\u2014
(18)
17
(99)
Transfers/reclassifications
\u2014
\u2014
(3)
(1)
\u2014
1
4
1
Credited/(charged) to other comprehensive income
\u2014
167
(229)
5
\u2014
\u2014
4
(53)
At 31 December 2023
(8)
(186)
73
3
\u2014
18
(86)
(186)
At 1 January 2022
(123)
(508)
(7)
(12)
8
68
(5)
(579)
Income statement credit/(charge)
150
(49)
\u2014
\u2014
(7)
(33)
(96)
(35)
Transfers/reclassifications
\u2014
\u2014
2
\u2014
(1)
\u2014
(1)
\u2014
Credited/(charged) to other comprehensive income
\u2014
267
310
11
\u2014
\u2014
(9)
579
At 31 December 2022
27
(290)
305
(1)
\u2014
35
(111)
(35)
The deferred tax assets and liabilities above have been recognised in both the Company and the Santander UK group on the basis that sufficient future taxable
profits are forecast within the foreseeable future, in excess of the profits arising from the reversal of existing taxable temporary differences, to allow for the
utilisation of the assets as they reverse. Based on the conditions at the balance sheet date, management determined that a reasonably possible change in any of the
key assumptions underlying the estimated future taxable profits in the Santander UK group\u2019s three-year plan (described in Note 20) would not cause a reduction in
the deferred tax assets recognised. There are \u00a3nil unrecognised deferred tax assets on capital losses carried forward (2022: \u00a3nil).
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-603": { "value": "
10. DIVIDENDS ON ORDINARY SHARES
Dividends on ordinary shares declared and paid in the year were as follows:
Group and Company
Group and Company
2023
2022
2021
2023
2022
2021
Pence per
share
Pence per
share
Pence per
share
\u00a3m
\u00a3m
\u00a3m
In respect of current year \u2013 first interim
1.32
1.25
0.90
410
389
281
\u2013 second interim
3.61
2.01
3.47
1,120
625
1,077
4.93
3.26
4.37
1,530
1,014
1,358
In 2023 an interim dividend of \u00a31,530m (2022: \u00a31,014m, 2021: \u00a31,358m) was paid on the Company's ordinary shares in issue. In 2023, \u00a3750m (2022: \u00a3300m) of
the dividend was a special dividend. These were paid following review and approval by the Board in line with our dividend policy.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDividendsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-604": { "value": "4.93", "decimals": 2, "dimensions": { "concept": "ifrs-full:DividendsRecognisedAsDistributionsToOwnersPerShare", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "f-605": { "value": "3.26", "decimals": 2, "dimensions": { "concept": "ifrs-full:DividendsRecognisedAsDistributionsToOwnersPerShare", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "f-606": { "value": "4.37", "decimals": 2, "dimensions": { "concept": "ifrs-full:DividendsRecognisedAsDistributionsToOwnersPerShare", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "f-608": { "value": "
11. DERIVATIVE FINANCIAL INSTRUMENTS
a) Use of derivatives
Santander UK undertakes derivative activities primarily to provide customers with risk management solutions and to manage and hedge its own risks. These
derivative activities do not give rise to significant open positions in portfolios of derivatives. Any residual position is managed to ensure that it remains within
acceptable risk levels, with matching transactions used to achieve this where necessary. When entering into derivatives, Santander UK employs the same credit risk
management procedures to assess and approve potential credit exposures that are used for traditional lending.
b) Analysis of derivatives
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
Group
2023
2022
Fair value
Fair value
Notional
amount
Assets
Liabilities
Notional
amount
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives held for trading:
Exchange rate contracts
12,927
92
217
14,006
315
281
Interest rate contracts
28,351
389
583
31,135
465
754
Equity and credit contracts
765
133
20
902
130
25
Total derivatives held for trading
42,043
614
820
46,043
910
1,060
Derivatives held for hedging
Designated as fair value hedges:
Exchange rate contracts
1,145
29
2
538
12
4
Interest rate contracts
107,540
1,275
839
77,748
1,777
403
108,685
1,304
841
78,286
1,789
407
Designated as cash flow hedges:
Exchange rate contracts
21,618
1,008
289
26,035
1,717
186
Interest rate contracts
50,896
553
915
26,108
164
1,471
72,514
1,561
1,204
52,143
1,881
1,657
Total derivatives held for hedging
181,199
2,865
2,045
130,429
3,670
2,064
Derivative netting(1)
\u2014
(2,047)
(2,047)
\u2014
(2,173)
(2,173)
Total derivatives
223,242
1,432
818
176,472
2,407
951
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was
472m (2022: 1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was 12m (2022: 70m).
At 31 December 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of \u00a3762m (2022: \u00a31,319m) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of \u00a3230m (2022: \u00a3207m).
For information about the impact of netting arrangements on derivative assets and liabilities in the table above, see Note 40.
The table below analyses the notional and fair values of derivatives by trading and settlement method.
Notional
Traded over the counter
Asset
Liability
Settled by
central
counterparties
Not settled by
central
counterparties
Total
Traded over
the counter
Traded over
the counter
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exchange rate contracts
\u2014
35,690
35,690
1,129
508
Interest rate contracts
174,460
12,327
186,787
170
290
Equity and credit contracts
\u2014
765
765
133
20
174,460
48,782
223,242
1,432
818
2022
Exchange rate contracts
\u2014
40,579
40,579
2,044
471
Interest rate contracts
124,638
10,353
134,991
233
455
Equity and credit contracts
\u2014
902
902
130
25
124,638
51,834
176,472
2,407
951
c) Analysis of derivatives designated as hedges
Santander UK applies hedge accounting on both a fair value and cash flow basis depending on the nature of the underlying exposure. We establish the hedge ratio
by matching the notional of the derivative with the underlying position being hedged. Only the designated risk is hedged and therefore other risks, such as credit risk
are managed but not hedged. For interest rate hedges, the designated hedged risk is determined with reference to the underlying benchmark rate.
Fair value hedges
Portfolio hedges of interest rate risk
Santander UK holds portfolios of fixed rate assets and liabilities which expose it to changes in fair value due to movements in market interest rates. We manage
these exposures by entering into interest rate swaps. Each portfolio contains assets or liabilities that are similar in nature and share the risk exposure that is
designated as being hedged.
The interest rate risk component is the change in fair value of fixed rate instruments for changes in the designated benchmark rate. Such changes are usually the
largest component of the overall change in fair value. Separate hedges are maintained for each underlying currency. Effectiveness is assessed by comparing
changes in the fair value of the hedged item attributable to changes in the designated benchmark interest rate, with changes in the fair value of the interest rate
swaps.
Micro hedges of interest rate risk and foreign currency risk
Santander UK accesses international markets to obtain funding, to issue fixed rate debt or to invest in fixed rate debt of other issuers as part of maintaining a
portfolio of HQLA (High Quality Liquid Assets) in its functional currency and other currencies. We are therefore exposed to changes in fair value due to changes in
market interest rates and/or foreign exchange rates, principally in USD and EUR, which we mitigate through the use of receive fixed/pay floating rate interest rate
swaps and/or receive fixed/pay floating rate cross currency swaps.
The interest rate risk component is the change in fair value of the fixed rate debt due to changes in the benchmark rate. The foreign exchange component is the
change in the fair value of the fixed rate debt issuance due to changes in foreign exchange rates prevailing from the time of execution. Effectiveness is assessed by
using linear regression techniques to compare changes in the fair value of the debt caused by changes in the benchmark interest rate and foreign exchange rates,
with changes in the fair value of the interest rate swaps and/or cross currency swaps.
Cash flow hedges
Hedges of interest rate risk
Santander UK manages its exposure to the variability in cash flows of floating rate assets and liabilities attributable to movements in market interest rates by
entering into interest rate swaps. The interest rate risk component is determined with reference to the underlying benchmark rate attributable to the floating rates
asset or liability. Designated benchmark rates referenced are currently SONIA or BoE base rate. Effectiveness is assessed by comparing changes in the fair value of
the interest rate swap with changes in the fair value of the hedged item attributable to the hedged risk, applying a hypothetical derivative method using linear
regression techniques.
Hedges of foreign currency risk
As Santander UK obtains funding in international markets, we assume significant foreign currency risk exposure, mainly in USD and EUR. In addition, Santander UK
also holds debt securities for liquidity purposes which assumes foreign currency exposure, principally in JPY and CHF.
Santander UK manages the exposures to the variability in cash flows of foreign currency denominated assets and liabilities to movements in foreign exchange rates
by entering into either foreign exchange contracts (spot, forward and swaps) or cross currency swaps. These instruments are entered into to match the cash flow
profile and maturity of the estimated interest and principal repayments of the hedged item.
The foreign currency risk component is the change in cash flows of the foreign currency debt arising from changes in the relevant foreign currency forward
exchange rate. Such changes constitute a significant component of the overall changes in cash flows of the instrument. Effectiveness is assessed by comparing
changes in the fair value of the foreign exchange contracts (spot, forward and swaps) or cross currency swaps with changes in the fair value of the hedged debt
attributable to the hedged risk applying a hypothetical derivative method using linear regression techniques.
Possible sources of hedge ineffectiveness
For both fair value and cash flow hedges, hedge ineffectiveness can arise from hedging derivatives with a non-zero fair value at the date of initial designation. In
addition, for:
Fair value hedges
Hedge ineffectiveness can also arise due to differences in discounting between the hedged item and the hedging instrument as cash collateralised swaps discount
using Overnight Indexed Swaps discount curves not applied to the hedged item; and where counterparty credit risk impacts the fair value of the derivative but not
the hedged item. For portfolio hedges of interest rate risk, it can also arise due to differences in the expected and actual volume of prepayments.
Cash flow hedges
Hedge ineffectiveness can also arise due to differences in the timing of cash flows between the hedged item and the hedging instrument. For micro hedges of
interest rate risk, it can also arise due to differences in the basis of cash flows between the hedged item and the hedging instrument.
Maturity profile and average price/rate of hedging instruments
The following table sets out the maturity profile and average price/rate of the hedging instruments used in the Santander UK group\u2019s hedging strategies:
Group
2023
Hedging Instruments
\u22641 month
>1 and \u22643
months
>3 and \u226412
months
>1 and \u22645
years
>5 years
Total
Fair value hedges:
Interest rate risk
Interest rate contracts - Nominal amount (\u00a3m)
3,612
7,141
32,241
60,590
3,008
106,592
Average fixed interest rate - GBP
2.38%
3.19%
3.42%
3.90%
3.99%
Average fixed interest rate - EUR
1.14%
0.18%
0.45%
0.21%
3.92%
Average fixed interest rate - USD
2.60%
2.46%
4.23%
1.36%
4.91%
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
\u2014
18
\u2014
1,041
86
1,145
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
18
\u2014
844
86
948
Average GBP - EUR exchange rate
\u2014
1.11
\u2014
1.16
1.15
Average GBP - USD exchange rate
\u2014
\u2014
\u2014
1.32
\u2014
Average fixed interest rate - EUR
\u2014
\u2014
\u2014
2.77%
3.48%
Average fixed interest rate - USD
\u2014
\u2014
\u2014
4.83%
\u2014
Cash flow hedges:
Interest rate risk
Interest rate contracts \u2013 Nominal amount (\u00a3m)
911
2,993
12,770
27,721
1,219
45,614
Average fixed interest rate - GBP
5.06%
2.98%
5.39%
3.83%
3.45%
FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
927
3,238
2,692
9,447
588
16,892
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
2,199
\u2014
\u2014
942
3,141
Average GBP - JPY exchange rate
154.14
153.95
167.85
\u2014
\u2014
Average GBP - CHF exchange rate
1.09
1.09
1.09
1.12
1.12
Average GBP - EUR exchange rate
\u2014
1.20
1.17
1.18
\u2014
Average GBP - USD exchange rate
\u2014
1.39
\u2014
1.28
1.39
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
87
785
500
2,896
458
4,726
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
\u2014
1,975
166
2,141
Average GBP - EUR exchange rate
1.18
\u2014
1.25
1.20
1.19
Average GBP - USD exchange rate
\u2014
1.66
\u2014
1.38
1.54
Average fixed interest rate - GBP
2.57%
2.54%
2.96%
2.31%
4.74%
2022
Fair value hedges:
Interest rate risk
Interest rate contracts- Nominal amount (\u00a3m)
2,210
4,468
21,678
45,314
3,808
77,478
Average fixed interest rate - GBP
2.58%
0.88%
0.56%
2.07%
3.78%
Average fixed interest rate - EUR
1.77%
1.60%
0.77%
0.28%
3.09%
Average fixed interest rate - USD
1.35%
3.47%
3.51%
2.00%
4.92%
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
66
465
7
538
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
\u2014
263
7
270
Average GBP - EUR exchange rate
\u2014
\u2014
1.20
1.16
1.10
Average GBP - USD exchange rate
\u2014
\u2014
\u2014
1.19
\u2014
Average fixed interest rate - EUR
\u2014
\u2014
3.42%
2.06%
\u2014
Average fixed interest rate - USD
\u2014
\u2014
\u2014
4.63%
\u2014
Cash flow hedges:
Interest rate risk
Interest rate contracts - Nominal amount (\u00a3m)
1,042
2,191
1,940
13,197
1,076
19,446
Average fixed interest rate - GBP
1.77%
2.29%
1.98%
2.35%
1.84%
FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
2,301
3,135
2,381
10,606
1,163
19,586
Interest rate contracts - Nominal amount (\u00a3m)
415
\u2014
\u2014
2,325
997
3,737
Average GBP - JPY exchange rate
\u2014
157.45
160.04
\u2014
\u2014
Average GBP - CHF exchange rate
\u2014
1.13
\u2014
\u2014
\u2014
Average GBP - EUR exchange rate
\u2014
\u2014
1.12
1.18
1.17
Average GBP - USD exchange rate
1.22
1.25
1.17
1.31
1.39
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
1,173
4,626
650
6,449
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
585
2,132
208
2,925
Average GBP - EUR exchange rate
\u2014
\u2014
1.19
1.21
1.20
Average GBP - USD exchange rate
\u2014
\u2014
1.60
1.50
1.54
Average fixed interest rate - GBP
\u2014
\u2014
3.27%
2.58%
4.59%
Net gains or losses arising from fair value and cash flow hedges included in other operating income
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Fair value hedging:
(Losses)/gains on hedging instruments
(1,879)
2,381
852
(1,920)
2,685
1,064
Gains/(losses) on hedged items attributable to hedged risks
1,896
(2,316)
(800)
1,927
(2,626)
(1,033)
Fair value hedging ineffectiveness
17
65
52
7
59
31
Cash flow hedging ineffectiveness
2
(36)
(39)
\u2014
(34)
(29)
19
29
13
7
25
2
Hedge ineffectiveness can be analysed by risk category as follows:
Group
2023
2022
2021
Change in FV
of hedging
instruments
Change in FV
of hedged
items
Recognised in
income
statement
Change in FV
of hedging
instruments
Change in FV
of hedged
items
Recognised in
income
statement
Change in FV
of hedging
instruments
Change in FV
of hedged
items
Recognised in
income
statement
Fair value hedges:
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Interest rate risk
(1,865)
1,877
12
2,392
(2,333)
59
874
(834)
40
Interest rate/FX risk
(14)
19
5
(11)
17
6
(22)
34
12
(1,879)
1,896
17
2,381
(2,316)
65
852
(800)
52
Group
Hedging Instruments
Recognised in
Income
Statement
Reclassified
from reserves
to income
Income statement line item affected by reclassification
Change in FV
Recognised in
OCI
Cash flow hedges:
\u00a3m
\u00a3m
\u00a3m
\u00a3m
2023
Interest rate risk
Net interest income
466
(445)
21
(469)
FX risk
Net interest income/other operating income
(396)
377
(19)
(392)
Interest rate/FX risk
Net interest income/other operating income
(237)
237
\u2014
(387)
(167)
169
2
(1,248)
2022
Interest rate risk
Net interest income
(1,161)
1,160
(1)
(96)
FX risk
Net interest income/other operating income
1,604
(1,604)
\u2014
1,692
Interest rate/FX risk
Net interest income/other operating income
(54)
19
(35)
533
389
(425)
(36)
2,129
2021
Interest rate risk
Net interest income
(317)
305
(12)
73
FX risk
Net interest income/other operating income
(54)
54
\u2014
(158)
Interest rate/FX risk
Net interest income/other operating income
(541)
514
(27)
(273)
(912)
873
(39)
(358)
In 2023, cash flow hedge accounting of \u00a3nil (2022: \u00a3nil ) had to cease due to the hedged cash flows no longer being expected to occur.
The following table provides a reconciliation by risk category of components of equity and analysis of OCI items (before tax) resulting from hedge accounting.
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Balance at 1 January
(1,575)
129
(1,102)
15
Effective portion of changes in fair value:
\u2013 Interest rate risk
445
(1,160)
416
(782)
\u2013 Foreign currency risk
(377)
1,604
(200)
1,299
\u2013 Interest rate/foreign currency risk
(237)
(19)
(170)
97
(169)
425
46
614
Income statement transfers:
\u2013 Interest rate risk
469
96
312
77
\u2013 Foreign currency risk
392
(1,692)
205
(1,366)
\u2013 Interest rate/foreign currency risk
387
(533)
277
(442)
1,248
(2,129)
794
(1,731)
Balance at 31 December
(496)
(1,575)
(262)
(1,102)
Hedged exposures
Santander UK hedges its exposures to various risks, including interest rate risk and foreign currency risk, as set out in the following table.
Group
2023
2022
Accumulated amount of FV hedge
adjustments
Change in
value to
calculate
hedge
ineffective
ness
Accumulated amount of FV hedge
adjustments
Change in
value to
calculate
hedge
ineffective
ness
Carrying
value
Hedged
item
Portfolio
hedge of
interest
rate risks
Of which
Discontinued
hedges
Carrying
value
Hedged
item
Portfolio
hedge of
interest
rate risks
Of which
Discontinued
hedges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Fair value hedges
Interest rate risk:
Loans and advances to customers
73,194
\u2014
(625)
(435)
1,968
60,783
\u2014
(2,640)
(653)
(2,707)
Other financial assets at amortised cost
152
1
(8)
(8)
5
156
\u2014
(12)
2
(14)
Reverse repurchase agreements \u2013 non
trading
6,186
\u2014
\u2014
\u2014
4
4,045
\u2014
(5)
(1)
\u2014
Other financial assets at FVOCI
2,013
(113)
\u2014
(131)
82
2,325
(200)
\u2014
35
(227)
Deposits by customers
(15,892)
38
(10)
\u2014
(53)
(1,739)
24
5
\u2014
33
Deposits by banks
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Debt securities in issue
(4,091)
118
(75)
(114)
(128)
(4,735)
321
(94)
(172)
528
Subordinated liabilities
(522)
(27)
(1)
(42)
(1)
(250)
(27)
(6)
(63)
54
Interest rate/FX risk:
Other financial assets at FVOCI
989
4
\u2014
\u2014
12
237
(21)
\u2014
1
(9)
Debt securities in issue
(214)
(14)
\u2014
(24)
8
(290)
(18)
\u2014
(37)
27
Subordinated liabilities
\u2014
\u2014
\u2014
\u2014
(1)
1
1
\u2014
1
(1)
61,815
7
(719)
(754)
1,896
60,533
80
(2,752)
(887)
(2,316)
Group
2023
2022
Change in value to
calculate hedge
ineffectiveness
Cash flow hedge
reserve
Balances on cash
flow hedge
reserve for
discontinued
hedges
Change in value to
calculate hedge
ineffectiveness
Cash flow hedge
reserve
Balances on cash
flow hedge reserve
for discontinued
hedges
Hedged item balance sheet line item
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash flow hedges:
Interest rate risk:
Loans and advances to customers
(163)
(462)
1
935
(1,010)
(1)
Cash and balances at central banks
(281)
99
(76)
233
(274)
(106)
Deposits by banks
(1)
(1)
\u2014
(8)
7
\u2014
FX risk:
Other financial assets at FVOCI
(253)
1
\u2014
\u2014
(6)
\u2014
Not applicable \u2013 highly probable forecast
transactions
88
1
\u2014
(349)
2
\u2014
Deposits by customers
(33)
\u2014
\u2014
(167)
(2)
\u2014
Debt securities in issue
617
(9)
\u2014
(1,051)
(17)
(2)
Repurchase agreements - non trading
(42)
\u2014
\u2014
(37)
\u2014
\u2014
Interest rate/FX risk:
Debt securities in issue/loans and advances to
customers
99
(75)
\u2014
56
(170)
(3)
Deposits by customers
94
(39)
\u2014
\u2014
(74)
\u2014
Subordinated liabilities/loans and advances to
customers
44
(11)
52
(37)
(31)
77
169
(496)
(23)
(425)
(1,575)
(35)
12. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans and advances to customers:
Loans to housing associations
8
4
8
4
Other loans
38
41
38
41
46
45
46
45
Debt securities
167
15
168
14
Other debt instruments
49
69
\u2014
\u2014
262
129
214
59
For the Santander UK group, other financial assets at FVTPL comprised \u00a38m (2022: \u00a316m) of financial assets designated at FVTPL and \u00a3254m (2022: \u00a3113m) of
financial assets mandatorily held at FVTPL. For the Company, other financial assets at FVTPL comprised \u00a38m (2022: \u00a316m) of financial assets designated at FVTPL
and \u00a3206m (2022: \u00a343m) of financial assets mandatorily held at FVTPL.
Loans and advances to customers principally represent other loans, being a portfolio of roll-up mortgages. These are managed, and have their performance
evaluated, on a fair value basis in accordance with a documented investment strategy, and information about them is provided on that basis to management. Since
2009, the Santander UK group\u2019s policy has been not to designate similar new loans at FVTPL.
The net loss in the year attributable to changes in credit risk for loans and advances at FVTPL was \u00a3nil (2022: \u00a31m, 2021: \u00a3nil). The cumulative net loss attributable
to changes in credit risk for loans and advances at FVTPL at 31 December 2023 was \u00a33m (2022: \u00a33m, 2021: \u00a32m).
14. SECURITISATIONS AND COVERED BONDS
The information in this Note relates to securitisations and covered bonds for consolidated structured entities, used to obtain funding or collateral. It excludes
structured entities relating to credit protection transactions.
The Santander UK group uses structured entities to securitise some of the mortgage and other loans to customers that it originates. The Santander UK group also
issues covered bonds, which are guaranteed by, and secured against, a pool of the Santander UK group\u2019s mortgage loans transferred to Abbey Covered Bonds LLP.
The Santander UK group issues mortgage-backed securities, other asset-backed securities and covered bonds mainly in order to obtain diverse, low-cost funding,
but also to use as collateral for raising funds via third party bilateral secured funding transactions or for liquidity purposes in the future. The Santander UK group has
successfully used bilateral secured transactions as an additional form of medium-term funding; this has allowed the Santander UK group to further diversify its
medium-term funding investor base.
Loans and advances to customers include portfolios of residential mortgage loans, and receivables derived from credit agreements with retail customers for the
purchases of financed vehicles, which are subject to non-recourse finance arrangements. These loans and receivables have been purchased by, or assigned to,
structured entities or Abbey Covered Bonds LLP, and have been funded primarily through the issue of mortgage-backed securities, other asset-backed securities or
covered bonds. No gain or loss has been recognised as a result of these sales. The structured entities and Abbey Covered Bonds LLP are consolidated as subsidiary
undertakings. The Company and its subsidiaries do not own directly, or indirectly, any of the share capital of any of the structured entities.
a) Securitisations
i) Master trust structures
The Santander UK group makes use of master trust structures, whereby a pool of residential mortgage loans is assigned to a trust company by the asset originator.
A funding entity acquires a beneficial interest in the pool of assets held by the trust company with funds borrowed from qualifying structured entities, which at the
same time issue asset-backed securities to third-party investors or the Santander UK group.
Santander UK plc and its subsidiaries receive payments from the securitisation companies in respect of fees for administering the loans, and payment of deferred
consideration for the sale of the loans. Santander UK plc and its subsidiaries have no right or obligation to repurchase any securitised loan, except if certain
representations and warranties given by Santander UK plc or its subsidiaries at the time of transfer are breached and, in certain cases, if there is a product switch or
further advance, if a securitised loan is in arrears for over two months or if a securitised loan does not comply with regulatory requirements.
ii) Other securitisation structures
The Santander UK group also makes use of auto loan securitisations, whereby a pool of auto loans originated by a member of the Santander UK group is sold to a
special purpose vehicle by the asset originator. The special purpose vehicle funds the purchase of the auto loans by issuing asset-backed securities to third-party
investors. A proportion of the securities are also retained by members of the Santander UK group. Members of the Santander UK group also receive payments from
the special purpose vehicle in respect of fees for administering the auto loans, and payment of deferred consideration for the sale of the auto loans. The seller has
no right or obligation to repurchase any securitised loan, except if certain representations and warranties given by the seller at the time of transfer are breached
and, in certain cases, if there has been a subsequent variation in the terms of the underlying auto loan not permitted under the sale agreement.
b) Covered bonds
Santander UK plc also issues covered bonds, which are its direct, unsecured and unconditional obligation. The covered bonds benefit from a guarantee from Abbey
Covered Bonds LLP. Santander UK plc makes a term advance to Abbey Covered Bonds LLP equal to the sterling proceeds of each issue of covered bonds. Abbey
Covered Bonds LLP uses the proceeds of the term advance to purchase portfolios of residential mortgage loans and their security from Santander UK plc. Under the
terms of the guarantee, Abbey Covered Bonds LLP has agreed to pay an amount equal to the guaranteed amounts when the same shall become due for payment,
but which would otherwise be unpaid by Santander UK plc.
c) Analysis of securitisations and covered bonds
The Santander UK group\u2019s principal securitisation programmes and covered bond programme, together with the balances of the advances subject to securitisation
(or for the covered bond programme assigned) and the carrying value of the notes in issue at 31 December 2023 and 2022 are listed below.
Group
Gross assets
External notes in issue
Notes issued to Santander UK
plc/subsidiaries as collateral
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage-backed master trust structures:
\u2013 Holmes
3,242
1,646
2,119
790
300
176
\u2013 Fosse
2,048
2,028
100
100
1,382
1,365
5,290
3,674
2,219
890
1,682
1,541
Other asset-backed securitisation structures:
\u2013 Motor
\u2014
6
\u2014
7
\u2014
\u2014
\u2013 Repton
757
\u2014
550
\u2014
\u2014
\u2014
757
6
550
7
\u2014
\u2014
Total securitisation programmes
6,047
3,680
2,769
897
1,682
1,541
Covered bond programme:
\u2013 Euro 35bn Global Covered Bond Programme
21,880
21,304
15,000
15,205
\u2014
\u2014
Total securitisation and covered bond programmes
27,927
24,984
17,769
16,102
1,682
1,541
The following table sets out the internal and external issuances and redemptions in 2023 and 2022 for each securitisation and covered bond programme.
Group
Internal issuances
External issuances
Internal redemptions
External redemptions
2023
2022
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage-backed master trust structures:
\u2013 Holmes
241
\u2014
1,500
600
121
100
186
200
\u2013 Fosse
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
200
Other asset-backed securitisation structures:
\u2013 Motor
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
7
33
\u2013 Repton
\u2014
\u2014
550
\u2014
\u2014
\u2014
\u2014
\u2014
Covered bond programme:
\u2013 Euro 35bn Global Covered Bond Programme
\u2014
\u2014
\u2014
4,200
\u2014
100
\u2014
1,700
241
\u2014
2,050
4,800
121
200
193
2,133
During 2023, the remaining asset-backed notes from the Motor securitisation structure were redeemed. In 2023 Repton 2023-1 Limited borrowed \u00a3550m through
an asset-backed variable funding note facility. Repayment of this will begin in 2025.
Holmes Funding Ltd has a beneficial interest of \u00a32,396m (2022: \u00a3796m) in the residential mortgage loans held by Holmes Trustees Ltd. The remaining share of the
beneficial interest in residential mortgage loans held by Holmes Trustees Ltd belongs to Santander UK plc.
Fosse Funding (No.1) Ltd has a beneficial interest of \u00a31,393m (2022: \u00a31,465m) in the residential mortgage loans held by Fosse Trustee (UK) Ltd. The remaining
share of the beneficial interest in residential mortgage loans held by Fosse Trustee (UK) Ltd belongs to Santander UK plc.
The Holmes securitisation companies have cash deposits of \u00a380m (2022: \u00a3112m), which have been accumulated to finance the redemption of a number of
securities issued by the Holmes securitisation companies. The share of Holmes Funding Ltd in the trust assets is therefore reduced by this amount.
The Fosse securitisation companies have cash deposits of \u00a3108m (2022: \u00a3108m), which have been accumulated to finance the redemption of a number of
securities issued by Fosse securitisation companies. The share of Fosse Funding (No.1) Ltd\u2019s beneficial interest in the assets held by Fosse Trustee (UK) Ltd is
therefore reduced by this amount.
15. TRANSFERS OF FINANCIAL ASSETS NOT QUALIFYING FOR DERECOGNITION
The Santander UK group enters into transactions in the normal course of business by which it transfers recognised financial assets directly to third parties or to
structured entities. These transfers may give rise to the full or partial derecognition of those financial assets. Transferred financial assets that do not qualify for
derecognition consist of (i) securities held by counterparties as collateral under repurchase agreements, (ii) securities lent under securities lending agreements, and
(iii) loans that have been securitised under arrangements by which the Santander UK group retains a continuing involvement in such transferred assets.
As a result of these sale and repurchase and securities lending transactions, the Santander UK group is unable to use, sell or pledge the transferred assets for the
duration of the transaction. The Santander UK group remains exposed to interest rate risk and credit risk on these pledged instruments. The counterparty\u2019s recourse
is not limited to the transferred assets.
The Santander UK group securitisation transfers do not qualify for derecognition. The Santander UK group remains exposed to credit risks arising from the mortgage
loans or credit agreements and has retained control of the transferred assets. Circumstances in which the Santander UK group has continuing involvement in the
transferred assets may include retention of servicing rights over the transferred assets (the servicing fee in respect of which is dependent on the amount or timing
of the cash flows collected from, or the non-performance of, the transferred assets), entering into a derivative transaction with the securitisation vehicle, retaining
an interest in the securitisation vehicle or providing a cash reserve fund. Where the Santander UK group has continuing involvement, it continues to recognise the
transferred assets to the extent of its continuing involvement and recognises an associated liability. The net carrying amount of the transferred assets and
associated liabilities reflects the rights and obligations that the Santander UK group has retained.
The following table analyses the carrying amount of financial assets that did not qualify for derecognition and their associated financial liabilities:
Group
2023
2022
Assets
Liabilities
Assets
Liabilities
Nature of transaction
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Sale and repurchase agreements
14
(15)
120
(128)
Securities lending agreements
3,136
(2,735)
2,871
(2,509)
Securitisations (See Notes 14 and 26)
6,047
(2,769)
3,680
(897)
9,197
(5,519)
6,671
(3,534)
17. OTHER FINANCIAL ASSETS AT AMORTISED COST
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Asset backed securities
\u2014
\u2014
1,681
1,551
Debt securities
152
156
152
156
0
152
156
1,833
1,707
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. Detailed disclosures can
be found in the 'Liquidity risk' section of the Risk review.
The Company\u2019s asset backed securities include investments in debt securities issued by Santander UK structured entities.
18. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Debt securities
8,481
6,024
8,481
6,024
8,481
6,024
8,481
6,024
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. Detailed disclosures can
be found in the 'Liquidity risk' section of the Risk review.
22. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Structured Notes Programmes
369
375
369
375
Structured deposits
426
321
426
321
Zero Amortising Guaranteed Notes
104
107
104
107
899
803
899
803
For the Santander UK group and the Company, all (2022: all) of the other financial liabilities at FVTPL were designated as such.
Gains and losses arising from changes in the credit spread of securities issued by the Santander UK group reverse over the contractual life of the debt, provided that
the debt is not repaid at a premium or a discount. The net loss during the year attributable to changes in the Santander UK group\u2019s own credit risk on the above
securities was \u00a321m (2022: \u00a325m gain, 2021: \u00a312m loss). The cumulative net loss attributable to changes in the Santander UK group\u2019s own credit risk on the above
securities at 31 December 2023 was \u00a36m (2022: \u00a315m gain, 2021: \u00a310m loss).
At 31 December 2023, the amount that would be required to be contractually paid at maturity of the securities above was \u00a397m (2022: \u00a3138m) higher than the
carrying value.
26. DEBT SECURITIES IN ISSUE
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Medium-term notes:
\u2013 US$30bn Euro Medium Term Note Programme
744
739
744
739
\u2013 Euro 30bn Euro Medium Term Note Programme
3,784
3,211
3,784
3,202
- US SEC-registered Debt Programme - Santander UK plc
7,128
6,694
7,128
6,707
Medium-term notes
11,656
10,644
11,656
10,648
Euro 35bn Global Covered Bond Programme
15,000
15,205
15,087
15,348
US$20bn Commercial Paper Programmes
2,761
1,851
2,761
1,851
Certificates of deposit
1,530
2,874
1,530
2,874
Credit linked notes
194
60
194
\u2014
Securitisation programmes
2,769
897
\u2014
\u2014
33,910
31,531
31,228
30,721
27. SUBORDINATED LIABILITIES
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3325m Sterling preference shares
343
344
343
344
Undated subordinated liabilities
205
219
205
220
Dated subordinated liabilities
1,838
1,769
1,839
1,772
2,386
2,332
2,387
2,336
In 2023, certain subordinated liabilities were repurchased as part of ongoing liability management exercises, resulting in a profit of \u00a34m (2022: a loss of \u00a35m).
The above securities will, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer, other than
creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The subordination amongst each of the
subordinated liabilities upon a winding up of the issuer is specified in their respective terms and conditions.
In 2023 and 2022, the Santander UK group had no defaults of principal, interest or other breaches with respect to its subordinated liabilities. No repayment or
purchase by the issuer of the subordinated liabilities may be made prior to their stated maturity without the consent of the PRA.
Undated subordinated liabilities
Group
Company
2023
2022
2023
2022
First call date
\u00a3m
\u00a3m
\u00a3m
\u00a3m
10.0625% Exchangeable capital securities
n/a
205
205
205
205
7.125% 30 Year Step-up perpetual callable subordinated notes
2030
\u2014
14
\u2014
15
205
219
205
220
In common with other debt securities issued by Santander UK group companies and notwithstanding the issuer\u2019s first call dates in the table above, in the event of
certain tax changes affecting the treatment of payments of interest on subordinated liabilities in the UK, the 7.125% 30 Year Step-up perpetual callable
subordinated notes are redeemable at any time, and the 10.0625% Exchangeable capital securities are redeemable on any interest payment date \u2013 each in whole at
the option of Santander UK, at their principal amount together with any accrued interest.
The 10.0625% Exchangeable capital securities are exchangeable into fully paid 10.375% non-cumulative non-redeemable sterling preference shares of \u00a31 each, at
the option of Santander UK, on the business day immediately following any interest payment date.
Dated subordinated liabilities
Group
Company
2023
2022
2023
2022
Maturity
\u00a3m
\u00a3m
\u00a3m
\u00a3m
5% Subordinated notes
2023
\u2014
591
\u2014
591
4.75% Subordinated notes
2025
326
608
326
608
7.95% Subordinated notes
2029
193
207
193
207
6.50% Subordinated notes
2030
1
22
1
24
5.875% Subordinated notes
2031
7
7
8
8
5.625%Subordinated notes
2045
222
334
222
334
7.869% Subordinated notes
2033
321
\u2014
321
\u2014
8.296% Subordinated notes
2033
768
\u2014
768
\u2014
1,838
1,769
1,839
1,772
The dated subordinated liabilities are redeemable in whole at the option of Santander UK in the event of certain tax changes affecting the treatment of payments of
interest on the subordinated liabilities in the UK, at their principal amount together with any accrued interest.
39. FINANCIAL INSTRUMENTS
a) Fair value measurement and hierarchy
(i) Fair value measurement
The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal, or in its absence, the most advantageous market to which Santander UK has access at that date. The fair value
of a liability reflects its non-performance risk.
Financial instruments valued using observable market prices
If a quoted market price in an active market is available for an instrument, the fair value is calculated as the current bid price multiplied by the number of units of the
instrument held.
Financial instruments valued using a valuation technique
In the absence of a quoted market price in an active market, management uses internal models to make its best estimate of the price that the market would set for
that financial instrument. In order to make these estimations, various techniques are employed, including extrapolation from observable market data and
observation of similar financial instruments with similar characteristics. Wherever possible, valuation parameters for each product are based on prices directly
observable in active markets or that can be derived from directly observable market prices. Chosen valuation techniques incorporate all the factors that market
participants would take into account in pricing transactions.
Santander UK manages certain groups of financial assets and liabilities on the basis of its net exposure to either market risks or credit risk. As a result, it has elected
to use the exception under IFRS 13 which permits the fair value measurement of a group of financial assets and financial liabilities on the basis of the price that
would be received to sell a net long position for a particular risk exposure or paid to transfer a net short position for a particular risk exposure in an orderly
transaction between market participants at the measurement date under current market conditions.
(ii) Fair value hierarchy
Santander UK applies the following fair value hierarchy that prioritises the inputs to valuation techniques used in measuring fair value. The hierarchy establishes
three categories for valuing financial instruments, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The three categories are: quoted prices in active markets (Level 1), internal models based on observable market data (Level
2) and internal models based on other than observable market data (Level 3). If the inputs used to measure an asset or a liability fall to different levels within the
hierarchy, the classification of the entire asset or liability will be based on the lowest level input that is significant to the overall fair value measurement of the asset
or liability.
Santander UK categorises assets and liabilities measured at fair value within the fair value hierarchy based on the inputs to the valuation techniques as follows:
Level 1Unadjusted quoted prices for identical assets or liabilities in an active market that Santander UK can access at the measurement date. Active markets are
assessed by reference to average daily trading volumes in absolute terms and, where applicable, by reference to market capitalisation for the instrument.
Level 2Quoted prices in inactive markets, quoted prices for similar assets or liabilities, recent market transactions, inputs other than quoted market prices for the
asset or liability that are observable either directly or indirectly for substantially the full term, and inputs to valuation techniques that are derived principally from or
corroborated by observable market data through correlation or other statistical means for substantially the full term of the asset or liability.
Level 3Significant inputs to the pricing or valuation techniques are unobservable. These unobservable inputs reflect the assumptions that market participants
would use when pricing assets or liabilities and are considered significant to the overall valuation.
Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy.
The Santander UK group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level
of observability of the inputs to the valuation techniques at the end of the reporting period.
b) Valuation techniques
The main valuation techniques employed in internal models to measure the fair value of the financial instruments at 31 December 2023 and 2022 are set out
below. In substantially all cases, the principal inputs into these models are derived from observable market data. Santander UK did not make any material changes
to the valuation techniques and internal models it used in 2023, 2022 and 2021.
A. In the valuation of financial instruments requiring static hedging (for example interest rate, currency derivatives and property derivatives) and in the valuation
of loans and advances and deposits, the \u2018present value\u2019 method is used. Expected future cash flows are discounted using the interest rate curves of the
applicable currencies or forward house price index levels, as well as credit spreads. The interest rate curves are generally observable market data and
reference yield curves derived from quoted interest rates in appropriate time bandings, which match the timings of the cash flows and maturities of the
instruments.
B. In the valuation of equity financial instruments requiring dynamic hedging (principally equity securities, options and other structured instruments), proprietary
local volatility and stochastic volatility models are used. These types of models are widely accepted in the financial services industry. Observable market inputs
used in these models include the bid-offer spread, foreign currency exchange rates, volatility and correlation between indices. In limited circumstances, other
inputs may be used in these models that are based on unobservable market data, such as the Halifax\u2019s UK HPI volatility, HPI forward growth, HPI spot rate,
mortality and mean reversion.
C. In the valuation of financial instruments exposed to interest rate risk that require either static or dynamic hedging (such as interest rate futures, caps and
floors, and options), the present value method (futures), Black\u2019s model (caps/floors) and the Hull/White and Markov functional models (Bermudan options) are
used. These types of models are widely accepted in the financial services industry. The significant inputs used in these models are observable market data,
including appropriate interest rate curves, volatilities, correlations and exchange rates. In limited circumstances, other inputs may be used in these models that
are based on unobservable market data, such as HPI volatility, HPI forward growth, HPI spot rate and mortality.
D. In the valuation of linear instruments such as credit risk and fixed-income derivatives, credit risk is measured using dynamic models similar to those used in the
measurement of interest rate risk. In the case of non-linear instruments, if the portfolio is exposed to credit risk such as credit derivatives, the probability of
default is determined using the credit default spread market. The main inputs used to determine the underlying cost of credit of credit derivatives are quoted
credit risk premiums and the correlation between the quoted credit derivatives of various issuers.
The fair values of the financial instruments arising from Santander UK\u2019s internal models take into account, among other things, contract terms and observable
market data, which include such factors as bid-offer spread, interest rates, credit risk, exchange rates, the quoted market price of equity securities, volatility and
prepayments. In all cases, when it is not possible to derive a valuation for a particular feature of an instrument, management uses judgement to determine the fair
value of the particular feature. In exercising this judgement, a variety of tools are used including proxy observable data, historical data and extrapolation techniques.
Extrapolation techniques take into account behavioural characteristics of equity markets that have been observed over time, and for which there is a strong case to
support an expectation of a continuing trend in the future. Estimates are calibrated to observable market prices when they become available.
Santander UK believes its valuation methods are appropriate and consistent with other market participants. Nevertheless, the use of different valuation methods or
assumptions, including imprecision in estimating unobservable market inputs, to determine the fair value of certain financial instruments could result in different
estimates of fair value at the reporting date and the amount of gain or loss recorded for a particular instrument. Most of the valuation models are not significantly
subjective, because they can be tested and, if necessary, recalibrated by the internal calculation of and subsequent comparison to market prices of actively traded
securities, where available.
c) Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk-taker. To this
end, ultimate responsibility for the determination of fair values lies with the Risk Department. For all financial instruments where fair values are determined by
reference to externally quoted prices or observable pricing inputs to models, independent price determination or verification is utilised. In inactive markets, direct
observation of a traded price may not be possible. In these circumstances, Santander UK will source alternative market information to validate the financial
instrument\u2019s fair value, with greater weight given to information that is considered to be more relevant and reliable.
The factors that are considered in this regard include:
\u2013 The extent to which prices may be expected to represent genuine traded or tradeable prices
\u2013 The degree of similarity between financial instruments
\u2013 The degree of consistency between different sources
\u2013 The process followed by the pricing provider to derive the data
\u2013 The elapsed time between the date to which the market data relates and the balance sheet date
\u2013 The manner in which the data was sourced.
The source of pricing data is considered as part of the process that determines the classification of the level of a financial instrument. Consideration is given to the
quality of the information available that provides the current mark-to-model valuation and estimates of how different these valuations could be on an actual trade,
taking into consideration how active the market is. For spot assets that cannot be sold due to illiquidity, forward estimates are discounted to estimate a realisable
value over time. Adjustments for illiquid positions are regularly reviewed to reflect changing market conditions.
For fair values determined using a valuation model, the control framework may include as applicable, independent development and / or validation of: (i) the logic
within the models; (ii) the inputs to those models; and (iii) any adjustments required outside the models. Internal valuation models are validated independently
within the Risk Department. A validation report is produced for each model-derived valuation that assesses the mathematical assumptions behind the model, the
implementation of the model and its integration within the trading system.
d) Fair values of financial instruments carried at amortised cost
The following tables analyse the fair value of the financial instruments carried at amortised cost at 31 December 2023 and 2022, including their levels in the fair
value hierarchy - Level 1, Level 2 and Level 3. Cash and balances at central banks, which consist of demand deposits with the Bank of England, together with cash in
tills and ATMs, have been excluded from the table as the carrying amount is deemed an appropriate approximation of fair value.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
The carrying value above of any financial assets and liabilities that are designated as hedged items in a portfolio (or macro) fair value hedge relationship excludes
gains and losses attributable to the hedged risk, as this is included as a separate line item on the balance sheet.
Valuation methodology for financial instruments carried at amortised cost
The valuation approach to specific categories of financial instruments is described below.
Assets:
Loans and advances to customers
The approach to estimating the fair value of loans and advances to customers has been determined by discounting expected cash flows to reflect either current
market rates or credit spreads relevant to the specific industry of the borrower. The determination of their fair values is an area of considerable estimation and
uncertainty as there is no observable market and values are significantly affected by customer behaviour.
i) Advances secured on residential property
The fair value of the mortgage portfolio is calculated by discounting contractual cash flows by different spreads for each LTV Band, after taking account of expected
customer prepayment rates. The spread is based on new business interest rates derived from publicly available competitor market information.
ii) Corporate loans
The determination of the fair values of performing loans is calculated by discounting the contractual cash flows and also deducting other costs relating to expected
credit losses, cost of capital, credit risk capital, operational risk capital, cost of funding and operating costs.
iii) Other loans
These consist of unsecured personal loans, credit cards, overdrafts and consumer (auto) finance. The weighted average lives of these portfolios are typically short
and relate to relatively new business. For unsecured personal loans and consumer (auto) finance loans, a small surplus or deficit has been recognised based on the
differential between existing portfolio margins and the current contractual interest rates.
Loans and advances to banks
These comprise secured loans, short-term placements with banks including collateral and unsettled financial transactions. The secured loans have been valued
based on a discounted spread for the term of the loans using valuation technique A as described above. The carrying amount of the other items is deemed a
reasonable approximation of their fair value, as the transactions are very short-term in duration.
Reverse repurchase agreements - non-trading
The fair value of the reverse repurchase agreements - non trading has been estimated using valuation technique A as described above, using a spread appropriate to
the underlying collateral.
Other financial assets at amortised cost
These consist of asset backed securities and debt securities. The asset backed securities can be complex products and in some instances are valued with the
assistance of an independent, specialist valuation firm. These fair values are determined using industry-standard valuation techniques, including discounted cash
flow models. The inputs to these models used in these valuation techniques include quotes from market makers, prices of similar assets, adjustments for
differences in credit spreads, and additional quantitative and qualitative research. The debt security investments consist of a portfolio of government debt securities.
The fair value of this portfolio has been determined using quoted market prices.
Liabilities:
Deposits by customers
The majority of deposit liabilities are payable on demand and therefore can be deemed short-term in nature with the fair value equal to the carrying value. Certain
of the deposit liabilities are at a fixed rate until maturity. The deficit/surplus of fair value over carrying value of these liabilities has been estimated by reference to
the market rates available at the balance sheet date for similar deposit liabilities of similar maturities. The fair value of such deposit liabilities has been estimated
using valuation technique A as described above.
Deposits by banks
The fair value of deposits by banks, including repos, has been estimated using valuation technique A as described above, discounted at the appropriate credit spread.
Repurchase agreements - non trading
The fair value of the repurchase agreements - non trading has been estimated using valuation technique A as described above, discounted at a spread appropriate
to the underlying collateral.
Debt securities in issue and subordinated liabilities
Where reliable prices are available, the fair value of debt securities in issue and subordinated liabilities has been calculated using quoted market prices. Where
reliable prices are not available, internal models have been used to determine fair values, which take into account, among other things, contract terms and
observable market data, which include such factors as interest rates, credit risk and exchange rates. In all cases, when it is not possible to derive a valuation for a
particular feature of an instrument, management uses judgement to determine the fair value of the particular feature. In exercising this judgement, a variety of
tools are used including proxy observable data.
e) Fair values of financial instruments measured at fair value
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 31 December 2023 and 31 December 2022,
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
Group
2023
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Valuation
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
technique
Assets
Derivative financial instruments
Exchange rate contracts
\u2014
1,129
\u2014
1,129
\u2014
2,044
\u2014
2,044
A
Interest rate contracts
\u2014
2,216
1
2,217
\u2014
2,399
7
2,406
A & C
Equity and credit contracts
\u2014
98
35
133
\u2014
100
30
130
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
1,396
36
1,432
\u2014
2,370
37
2,407
Other financial assets at FVTPL
Loans and advances to customers
\u2014
\u2014
46
46
\u2014
\u2014
45
45
A
Debt securities
\u2014
167
49
216
\u2014
12
72
84
A, B & D
\u2014
167
95
262
\u2014
12
117
129
Financial assets at FVOCI
Debt securities
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
D
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
Total assets at fair value
8,293
1,751
131
10,175
5,996
2,410
154
8,560
Liabilities
Derivative financial instruments
Exchange rate contracts
\u2014
508
\u2014
508
\u2014
471
\u2014
471
A
Interest rate contracts
\u2014
2,336
1
2,337
\u2014
2,624
4
2,628
A & C
Equity and credit contracts
\u2014
11
9
20
\u2014
17
8
25
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
808
10
818
\u2014
939
12
951
Other financial liabilities at FVTPL
Debt securities in issue
\u2014
369
\u2014
369
\u2014
372
3
375
A
Structured deposits
\u2014
426
\u2014
426
\u2014
321
\u2014
321
A
Zero Amortising Guaranteed Notes
\u2014
104
\u2014
104
\u2014
107
\u2014
107
D
\u2014
899
\u2014
899
\u2014
800
3
803
Total liabilities at fair value
\u2014
1,707
10
1,717
\u2014
1,739
15
1,754
Transfers between levels of the fair value hierarchy
In 2023 there were \u00a322m (2022: no significant) transfers of financial instruments between levels of the fair value hierarchy.
f) Fair value adjustments
The internal models incorporate assumptions that Santander UK believes would be made by a market participant to establish fair value. Fair value adjustments are
adopted when Santander UK considers that there are additional factors that would be considered by a market participant that are not incorporated in the valuation
model.
Santander UK classifies fair value adjustments as either \u2018risk-related\u2019 or \u2018model-related\u2019. The fair value adjustments form part of the portfolio fair value and are
included in the balance sheet values of the product types to which they have been applied.
The fair value adjustments are set out in the following table:
Group
2023
2022
\u00a3m
\u00a3m
Risk-related:
- Bid-offer and trade specific adjustments
(6)
(12)
- Uncertainty
6
12
- Credit risk adjustment
1
2
- Funding fair value adjustment
1
1
2
3
Day One profit
1
1
3
4
Risk-related adjustments
Risk-related adjustments are driven, in part, by the magnitude of Santander UK\u2019s market or credit risk exposure, and by external market factors, such as the size of
market spreads.
(i) Bid-offer and trade specific adjustments
Portfolios are marked at bid or offer, as appropriate. Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the cost that
would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the
position. For debt securities, the bid-offer spread is based on a market price at an individual security level. For other products, the major risk types are identified. For
each risk type, the net portfolio risks are first classified into buckets, and then a bid-offer spread is applied to each risk bucket based upon the market bid-offer
spread for the relevant hedging instrument.
(ii) Uncertainty
Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more subjective. In these circumstances, a range
of possible values exists that the financial instrument or market parameter may assume, and an adjustment may be needed to reflect the likelihood that in
estimating the fair value of the financial instrument, market participants would adopt more conservative values for uncertain parameters and/or model
assumptions than those used in the valuation model.
(iii) Credit risk adjustment
Credit risk adjustments comprise credit and debit valuation adjustments. The credit valuation adjustment (CVA) is an adjustment to the valuation of OTC derivative
contracts to reflect within fair value the possibility that the counterparty may default, and Santander UK may not receive the full market value of the transactions.
The debit valuation adjustment (DVA) is an adjustment to the valuation of the OTC derivative contracts to reflect within the fair value the possibility that Santander
UK may default, and that Santander UK may not pay full market value of the transactions.
Santander UK calculates a separate CVA and DVA for each Santander UK legal entity, and within each entity for each counterparty to which the entity has exposure.
Santander UK calculates the CVA by applying the probability of default of the counterparty to the expected positive exposure to the counterparty, and multiplying
the result by the loss expected in the event of default i.e. LGD. Conversely, Santander UK calculates the DVA by applying the PD of the Santander UK group, to the
expected positive exposure of the counterparty to Santander UK and multiplying the result by the LGD. Both calculations are performed over the life of the potential
exposure.
For most products Santander UK uses a simulation methodology to calculate the expected positive exposure to a counterparty. This incorporates a range of
potential exposures across the portfolio of transactions with the counterparty over the life of the portfolio. The simulation methodology includes credit mitigants
such as counterparty netting agreements and collateral agreements with the counterparty.
(iv) Funding fair value adjustment (FFVA)
The FFVA is an adjustment to the valuation of OTC derivative positions to include the net cost of funding uncollateralised derivative positions. This is calculated by
applying a suitable funding cost to the expected future funding exposure of any uncollateralised component of the OTC derivative portfolio.
Model-related adjustments
Models used for portfolio valuation purposes may be based upon a simplifying set of assumptions that do not capture all material market characteristics.
Additionally, markets evolve, and models that were adequate in the past may require development to capture all material market characteristics in current market
conditions. In these circumstances, model limitation adjustments are adopted. As model development progresses, model limitations are addressed within the core
revaluation models and a model limitation adjustment is no longer needed.
Day One profit adjustments
Day One profit adjustments are adopted where the fair value estimated by a valuation model is based on one or more significant unobservable inputs. Day One
profit adjustments are calculated and reported on a portfolio basis.
The timing of recognition of deferred Day One profit and loss is determined individually. It is deferred until either the instrument\u2019s fair value can be determined
using market observable inputs or is realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred Day
One profit and loss. Subsequent changes in fair value are recognised immediately in the Income Statement without immediate reversal of deferred Day One profits
and losses.
g) Internal models based on information other than market data (Level 3)
The table below provides an analysis of financial instruments valued using internal models based on information other than market data together with further
details on the valuation techniques used for each type of instrument. Each instrument is initially valued at transaction price:
Group
Balance sheet value
Fair value movements recognised
in profit/(loss)
2023
2022
2023
2022
2021
Balance sheet line item
Category
Financial instrument product type
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
1. Derivative assets
Equity and credit contracts
Reversionary property interests
35
30
12
(8)
\u2014
2. FVTPL assets
Loans and advances to customers
Roll-up mortgage portfolio
24
28
(2)
(18)
(5)
3. FVTPL assets
Loans and advances to customers
Other loans
22
17
4
(4)
(2)
4. FVTPL assets
Debt securities
Reversionary property securities
49
70
(3)
\u2014
5
130
145
11
(30)
(2)
Other Level 3 assets
1
9
(1)
10
(9)
Other Level 3 liabilities
(10)
(15)
(2)
3
7
Total net assets
121
139
Total income/(expense)
8
(17)
(4)
Valuation techniques (Group)
1. Derivative assets \u2013 Equity and credit contracts
These are valued using a probability weighted set of HPI forward prices, which are assumed to be a reasonable representation of the increase in value of the
Santander UK group\u2019s reversionary interest portfolio underlying the derivatives. The probability used reflects the likelihood of the homeowner vacating the property
and is calculated from mortality rates and acceleration rates which are a function of age and gender, obtained from the relevant mortality tables. Indexing is felt to
be appropriate due to the size and geographical dispersion of the reversionary interest portfolio. These are determined using HPI Spot Rates adjusted to reflect
estimated forward growth. Non-seasonally adjusted (NSA) national and regional HPI are used in the valuation model to avoid any subjective judgement in the
adjustment process, which is made by Markit, which publishes the Halifax House Price Index.
The inputs used to determine the value of the reversionary property derivatives are HPI spot, HPI forward growth and mortality rates. The principal pricing
parameter is HPI forward growth.
2. FVTPL assets \u2013 Loans and advances to customers \u2013 roll-up mortgage portfolio
These represent roll-up mortgages (sometimes referred to as lifetime mortgages), which are an equity release scheme under which a property owner takes out a
loan secured against their home. The owner does not have to make any interest payments during their lifetime in which case the fixed interest payments are rolled
up into the mortgage. The loan or mortgage (capital and rolled-up interest) is repaid upon the owner\u2019s vacation of the property and the value of the loan is only
repaid from the value of the property. This is known as a \u2018no negative equity guarantee\u2019. Santander UK suffers a loss if the sale proceeds from the property are
insufficient to repay the loan, as it is unable to pursue the homeowner\u2019s estate or beneficiaries for the shortfall.
The value of the mortgage \u2018rolls up\u2019 or accretes until the owner vacates the property. In order to value the roll-up mortgages, Santander UK uses a probability-
weighted set of European option prices (puts) determined using the Black-Scholes model, in which the \u2018no negative equity guarantee\u2019 are valued as short put
options. The probability weighting applied is calculated from mortality rates and acceleration rates as a function of age and gender, taken from mortality tables.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth, HPI volatility, mortality rates and repayment rates. The principal
pricing parameter is HPI forward growth. The HPI forward growth rate used is unobservable and is the same as used in the valuation of Instrument 1 above. The
other parameters do not have a significant effect on the value of the instruments.
3. FVTPL assets \u2013 Loans and advances to customers \u2013 other loans
These relate to loans to transport and education companies. The fair value of these loans is estimated using the \u2018present value\u2019 model based on a credit curve
derived from current market spreads. Loan specific credit data is unobservable, so a proxy population is applied based on industry sector and credit rating.
4. FVTPL assets \u2013 Debt securities
These consist of reversionary property securities and are an equity release scheme, where the property owner receives an upfront lump sum in return for paying a
fixed percentage of the sales proceeds of the property when the owner vacates the property. These reversionary property securities are valued using a probability-
weighted set of HPI forward prices which are assumed to be a reasonable representation of the increase in value of Santander UK\u2019s reversionary interest portfolio
underlying the derivatives. The probability weighting used reflects the probability of the homeowner vacating the property through death or moving into care and is
calculated from mortality rates and acceleration factors which are a function of age and gender, obtained from the relevant mortality table.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth and mortality rates. The principal pricing parameter is HPI forward
growth. Discussion of the HPI spot rate, HPI forward growth rate and mortality rates for this financial instrument is the same as Instrument 1 above. An adjustment
is also made to reflect the specific property risk. Specific property risk is from the difference between the specific properties in the portfolio, and the average price as
expressed in the regionally weighted house price index.
Reconciliation of fair value measurement in Level 3 of the fair value hierarchy
The following table sets out the movements in Level 3 financial instruments in 2023:
Group
Assets
Liabilities
Derivatives
Other
financial
assets at
FVTPL
Financial
assets at
FVOCI
Total
Derivatives
Other
financial
liabilities
at FVTPL
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
37
117
\u2014
154
(12)
(3)
(15)
Total gains/(losses) recognised:
Fair value movements(2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
Purchases
\u2014
1
\u2014
1
\u2014
\u2014
\u2014
Netting(1)
\u2014
(3)
\u2014
(3)
\u2014
\u2014
\u2014
Settlements
(11)
(20)
\u2014
(31)
4
3
7
At 31 December 2023
36
95
\u2014
131
(10)
\u2014
(10)
Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
At 1 January 2022
46
185
18
249
(32)
(6)
(38)
Total (losses)/gains recognised:
Fair value movements(2)
(2)
(18)
\u2014
(20)
2
1
3
Transfers in
\u2014
\u2014
\u2014
\u2014
(2)
\u2014
(2)
Netting(1)
\u2014
(8)
\u2014
(8)
\u2014
\u2014
\u2014
Sales
\u2014
(5)
\u2014
(5)
\u2014
\u2014
\u2014
Settlements
(7)
(37)
(18)
(62)
20
2
22
At 31 December 2022
37
117
\u2014
154
(12)
(3)
(15)
(Losses)/gains recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
(2)
(18)
\u2014
(20)
2
1
3
This relates to the effect of netting on the fair value of the credit linked notes due to a legal right of set-off between the principal amounts of the senior notes and the associated cash deposits. For more, see \u2018ii)
Credit protection entities\u2019 in Note 19
(2) Fair value movements relating to derivatives and other financial assets at FVTPL are recognised in other operating income in the income statement.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives (Level 3)
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are
not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the inputs to the valuation models to reasonably possible alternative assumptions would change the
fair values significantly. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions.
Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable
input as described in the table below. The potential effects do not take into effect any hedged positions.
Group
Significant unobservable input
Sensitivity
Assumption value
Favourable
changes
Unfavourable
changes
Fair value
Range (1)
Weighted
average
Shift
2023
\u00a3m
Assumption description
\u00a3m
\u00a3m
1. Derivative assets \u2013 Equity and credit contracts:
35
HPI Forward growth rate
-5% to 5%
(0.20)%
1.0%
2
(2)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
2
(4)
2. FVTPL \u2013 Loans and advances to customers:
24
HPI Forward growth rate
-5% to 5%
1.31%
1.0%
\u2014
\u2014
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
22
Credit spreads
0.13% - 2.54%
0.97%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
49
HPI Forward growth rate
-5% to 5%
-0.20%
1.0%
\u2014
\u2014
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
2
(2)
2022
1. Derivative assets \u2013 Equity and credit contracts:
30
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
4
(4)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
4
(4)
2. FVTPL \u2013 Loans and advances to customers:
28
HPI Forward growth rate
-5% to 5%
1.39%
1.0%
1
(1)
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
17
Credit spreads
0.19% to 2.04%
0.98%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
70
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
1
(1)
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
3
(3)
5. Derivative liabilities \u2013 Equity contracts:
(8)
HPI Forward growth rate
-5% to 5%
(0.92)%
1.0%
1
(1)
\u2013 Property-related options and forwards
HPI Spot rate(2)
n/a
491
10.0%
2
(3)
(1) The range of actual assumption values used to calculate the weighted average disclosure.
(2) The HPI spot rate in the weighted average column represents the HPI spot rate index level at 31 December 2023 and 2022.
No sensitivities are presented for FVTPL assets \u2013 Debt securities (credit linked securities) or FVTPL liabilities - Financial guarantees, as the terms of these
instruments are fully matched. As a result, any changes in the valuation of the credit linked notes would be offset by an equal and opposite change in the valuation
of the financial guarantees.
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
As the above table is based on contractual maturities, no account is taken of call features related to subordinated liabilities. In addition, the repayment terms of debt
securities may be accelerated in line with relevant covenants. Further, no account is taken of the possible early repayment of Santander UK\u2019s mortgage-backed non-
recourse finance which is redeemed by Santander UK as funds become available from redemptions of the residential mortgages. Santander UK has no control over
the timing and amount of redemptions of residential mortgages.
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
41. INTEREST RATE BENCHMARK REFORM
Santander UK continues to work with customers and counterparties to transition any remaining agreements referencing 3-month synthetic LIBOR before that
setting ends on 31 March 2024. At 31 December 2023, these represent an insignificant element of Santander UK\u2019s exposures and there are no remaining exposures
which reference other LIBOR settings.
The following tables show the notional amounts of assets, liabilities and off-balance sheet commitments at 31 December 2023 and 31 December 2022 affected by
IBOR reform that have yet to transition to an alternative benchmark interest rate.
Group
GBP
LIBOR
USD
LIBOR
Total
2023
\u00a3m
\u00a3m
\u00a3m
Assets
Financial assets at amortised cost
6
\u2014
6
6
\u2014
6
2022
Assets
Derivatives
\u2014
1,665
1,665
Financial assets at amortised cost
76
57
133
76
1,722
1,798
Liabilities
Derivatives
66
1,846
1,912
66
1,846
1,912
Off-balance sheet commitments given
2
\u2014
2
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-607": { "value": "
11. DERIVATIVE FINANCIAL INSTRUMENTS
a) Use of derivatives
Santander UK undertakes derivative activities primarily to provide customers with risk management solutions and to manage and hedge its own risks. These
derivative activities do not give rise to significant open positions in portfolios of derivatives. Any residual position is managed to ensure that it remains within
acceptable risk levels, with matching transactions used to achieve this where necessary. When entering into derivatives, Santander UK employs the same credit risk
management procedures to assess and approve potential credit exposures that are used for traditional lending.
b) Analysis of derivatives
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
Group
2023
2022
Fair value
Fair value
Notional
amount
Assets
Liabilities
Notional
amount
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives held for trading:
Exchange rate contracts
12,927
92
217
14,006
315
281
Interest rate contracts
28,351
389
583
31,135
465
754
Equity and credit contracts
765
133
20
902
130
25
Total derivatives held for trading
42,043
614
820
46,043
910
1,060
Derivatives held for hedging
Designated as fair value hedges:
Exchange rate contracts
1,145
29
2
538
12
4
Interest rate contracts
107,540
1,275
839
77,748
1,777
403
108,685
1,304
841
78,286
1,789
407
Designated as cash flow hedges:
Exchange rate contracts
21,618
1,008
289
26,035
1,717
186
Interest rate contracts
50,896
553
915
26,108
164
1,471
72,514
1,561
1,204
52,143
1,881
1,657
Total derivatives held for hedging
181,199
2,865
2,045
130,429
3,670
2,064
Derivative netting(1)
\u2014
(2,047)
(2,047)
\u2014
(2,173)
(2,173)
Total derivatives
223,242
1,432
818
176,472
2,407
951
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was
472m (2022: 1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was 12m (2022: 70m).
At 31 December 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of \u00a3762m (2022: \u00a31,319m) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of \u00a3230m (2022: \u00a3207m).
For information about the impact of netting arrangements on derivative assets and liabilities in the table above, see Note 40.
The table below analyses the notional and fair values of derivatives by trading and settlement method.
Notional
Traded over the counter
Asset
Liability
Settled by
central
counterparties
Not settled by
central
counterparties
Total
Traded over
the counter
Traded over
the counter
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Exchange rate contracts
\u2014
35,690
35,690
1,129
508
Interest rate contracts
174,460
12,327
186,787
170
290
Equity and credit contracts
\u2014
765
765
133
20
174,460
48,782
223,242
1,432
818
2022
Exchange rate contracts
\u2014
40,579
40,579
2,044
471
Interest rate contracts
124,638
10,353
134,991
233
455
Equity and credit contracts
\u2014
902
902
130
25
124,638
51,834
176,472
2,407
951
c) Analysis of derivatives designated as hedges
Santander UK applies hedge accounting on both a fair value and cash flow basis depending on the nature of the underlying exposure. We establish the hedge ratio
by matching the notional of the derivative with the underlying position being hedged. Only the designated risk is hedged and therefore other risks, such as credit risk
are managed but not hedged. For interest rate hedges, the designated hedged risk is determined with reference to the underlying benchmark rate.
Fair value hedges
Portfolio hedges of interest rate risk
Santander UK holds portfolios of fixed rate assets and liabilities which expose it to changes in fair value due to movements in market interest rates. We manage
these exposures by entering into interest rate swaps. Each portfolio contains assets or liabilities that are similar in nature and share the risk exposure that is
designated as being hedged.
The interest rate risk component is the change in fair value of fixed rate instruments for changes in the designated benchmark rate. Such changes are usually the
largest component of the overall change in fair value. Separate hedges are maintained for each underlying currency. Effectiveness is assessed by comparing
changes in the fair value of the hedged item attributable to changes in the designated benchmark interest rate, with changes in the fair value of the interest rate
swaps.
Micro hedges of interest rate risk and foreign currency risk
Santander UK accesses international markets to obtain funding, to issue fixed rate debt or to invest in fixed rate debt of other issuers as part of maintaining a
portfolio of HQLA (High Quality Liquid Assets) in its functional currency and other currencies. We are therefore exposed to changes in fair value due to changes in
market interest rates and/or foreign exchange rates, principally in USD and EUR, which we mitigate through the use of receive fixed/pay floating rate interest rate
swaps and/or receive fixed/pay floating rate cross currency swaps.
The interest rate risk component is the change in fair value of the fixed rate debt due to changes in the benchmark rate. The foreign exchange component is the
change in the fair value of the fixed rate debt issuance due to changes in foreign exchange rates prevailing from the time of execution. Effectiveness is assessed by
using linear regression techniques to compare changes in the fair value of the debt caused by changes in the benchmark interest rate and foreign exchange rates,
with changes in the fair value of the interest rate swaps and/or cross currency swaps.
Cash flow hedges
Hedges of interest rate risk
Santander UK manages its exposure to the variability in cash flows of floating rate assets and liabilities attributable to movements in market interest rates by
entering into interest rate swaps. The interest rate risk component is determined with reference to the underlying benchmark rate attributable to the floating rates
asset or liability. Designated benchmark rates referenced are currently SONIA or BoE base rate. Effectiveness is assessed by comparing changes in the fair value of
the interest rate swap with changes in the fair value of the hedged item attributable to the hedged risk, applying a hypothetical derivative method using linear
regression techniques.
Hedges of foreign currency risk
As Santander UK obtains funding in international markets, we assume significant foreign currency risk exposure, mainly in USD and EUR. In addition, Santander UK
also holds debt securities for liquidity purposes which assumes foreign currency exposure, principally in JPY and CHF.
Santander UK manages the exposures to the variability in cash flows of foreign currency denominated assets and liabilities to movements in foreign exchange rates
by entering into either foreign exchange contracts (spot, forward and swaps) or cross currency swaps. These instruments are entered into to match the cash flow
profile and maturity of the estimated interest and principal repayments of the hedged item.
The foreign currency risk component is the change in cash flows of the foreign currency debt arising from changes in the relevant foreign currency forward
exchange rate. Such changes constitute a significant component of the overall changes in cash flows of the instrument. Effectiveness is assessed by comparing
changes in the fair value of the foreign exchange contracts (spot, forward and swaps) or cross currency swaps with changes in the fair value of the hedged debt
attributable to the hedged risk applying a hypothetical derivative method using linear regression techniques.
Possible sources of hedge ineffectiveness
For both fair value and cash flow hedges, hedge ineffectiveness can arise from hedging derivatives with a non-zero fair value at the date of initial designation. In
addition, for:
Fair value hedges
Hedge ineffectiveness can also arise due to differences in discounting between the hedged item and the hedging instrument as cash collateralised swaps discount
using Overnight Indexed Swaps discount curves not applied to the hedged item; and where counterparty credit risk impacts the fair value of the derivative but not
the hedged item. For portfolio hedges of interest rate risk, it can also arise due to differences in the expected and actual volume of prepayments.
Cash flow hedges
Hedge ineffectiveness can also arise due to differences in the timing of cash flows between the hedged item and the hedging instrument. For micro hedges of
interest rate risk, it can also arise due to differences in the basis of cash flows between the hedged item and the hedging instrument.
Maturity profile and average price/rate of hedging instruments
The following table sets out the maturity profile and average price/rate of the hedging instruments used in the Santander UK group\u2019s hedging strategies:
Group
2023
Hedging Instruments
\u22641 month
>1 and \u22643
months
>3 and \u226412
months
>1 and \u22645
years
>5 years
Total
Fair value hedges:
Interest rate risk
Interest rate contracts - Nominal amount (\u00a3m)
3,612
7,141
32,241
60,590
3,008
106,592
Average fixed interest rate - GBP
2.38%
3.19%
3.42%
3.90%
3.99%
Average fixed interest rate - EUR
1.14%
0.18%
0.45%
0.21%
3.92%
Average fixed interest rate - USD
2.60%
2.46%
4.23%
1.36%
4.91%
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
\u2014
18
\u2014
1,041
86
1,145
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
18
\u2014
844
86
948
Average GBP - EUR exchange rate
\u2014
1.11
\u2014
1.16
1.15
Average GBP - USD exchange rate
\u2014
\u2014
\u2014
1.32
\u2014
Average fixed interest rate - EUR
\u2014
\u2014
\u2014
2.77%
3.48%
Average fixed interest rate - USD
\u2014
\u2014
\u2014
4.83%
\u2014
Cash flow hedges:
Interest rate risk
Interest rate contracts \u2013 Nominal amount (\u00a3m)
911
2,993
12,770
27,721
1,219
45,614
Average fixed interest rate - GBP
5.06%
2.98%
5.39%
3.83%
3.45%
FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
927
3,238
2,692
9,447
588
16,892
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
2,199
\u2014
\u2014
942
3,141
Average GBP - JPY exchange rate
154.14
153.95
167.85
\u2014
\u2014
Average GBP - CHF exchange rate
1.09
1.09
1.09
1.12
1.12
Average GBP - EUR exchange rate
\u2014
1.20
1.17
1.18
\u2014
Average GBP - USD exchange rate
\u2014
1.39
\u2014
1.28
1.39
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
87
785
500
2,896
458
4,726
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
\u2014
1,975
166
2,141
Average GBP - EUR exchange rate
1.18
\u2014
1.25
1.20
1.19
Average GBP - USD exchange rate
\u2014
1.66
\u2014
1.38
1.54
Average fixed interest rate - GBP
2.57%
2.54%
2.96%
2.31%
4.74%
2022
Fair value hedges:
Interest rate risk
Interest rate contracts- Nominal amount (\u00a3m)
2,210
4,468
21,678
45,314
3,808
77,478
Average fixed interest rate - GBP
2.58%
0.88%
0.56%
2.07%
3.78%
Average fixed interest rate - EUR
1.77%
1.60%
0.77%
0.28%
3.09%
Average fixed interest rate - USD
1.35%
3.47%
3.51%
2.00%
4.92%
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
66
465
7
538
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
\u2014
263
7
270
Average GBP - EUR exchange rate
\u2014
\u2014
1.20
1.16
1.10
Average GBP - USD exchange rate
\u2014
\u2014
\u2014
1.19
\u2014
Average fixed interest rate - EUR
\u2014
\u2014
3.42%
2.06%
\u2014
Average fixed interest rate - USD
\u2014
\u2014
\u2014
4.63%
\u2014
Cash flow hedges:
Interest rate risk
Interest rate contracts - Nominal amount (\u00a3m)
1,042
2,191
1,940
13,197
1,076
19,446
Average fixed interest rate - GBP
1.77%
2.29%
1.98%
2.35%
1.84%
FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
2,301
3,135
2,381
10,606
1,163
19,586
Interest rate contracts - Nominal amount (\u00a3m)
415
\u2014
\u2014
2,325
997
3,737
Average GBP - JPY exchange rate
\u2014
157.45
160.04
\u2014
\u2014
Average GBP - CHF exchange rate
\u2014
1.13
\u2014
\u2014
\u2014
Average GBP - EUR exchange rate
\u2014
\u2014
1.12
1.18
1.17
Average GBP - USD exchange rate
1.22
1.25
1.17
1.31
1.39
Interest rate/FX risk
Exchange rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
1,173
4,626
650
6,449
Interest rate contracts - Nominal amount (\u00a3m)
\u2014
\u2014
585
2,132
208
2,925
Average GBP - EUR exchange rate
\u2014
\u2014
1.19
1.21
1.20
Average GBP - USD exchange rate
\u2014
\u2014
1.60
1.50
1.54
Average fixed interest rate - GBP
\u2014
\u2014
3.27%
2.58%
4.59%
Net gains or losses arising from fair value and cash flow hedges included in other operating income
Group
Company
2023
2022
2021
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Fair value hedging:
(Losses)/gains on hedging instruments
(1,879)
2,381
852
(1,920)
2,685
1,064
Gains/(losses) on hedged items attributable to hedged risks
1,896
(2,316)
(800)
1,927
(2,626)
(1,033)
Fair value hedging ineffectiveness
17
65
52
7
59
31
Cash flow hedging ineffectiveness
2
(36)
(39)
\u2014
(34)
(29)
19
29
13
7
25
2
Hedge ineffectiveness can be analysed by risk category as follows:
Group
2023
2022
2021
Change in FV
of hedging
instruments
Change in FV
of hedged
items
Recognised in
income
statement
Change in FV
of hedging
instruments
Change in FV
of hedged
items
Recognised in
income
statement
Change in FV
of hedging
instruments
Change in FV
of hedged
items
Recognised in
income
statement
Fair value hedges:
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Interest rate risk
(1,865)
1,877
12
2,392
(2,333)
59
874
(834)
40
Interest rate/FX risk
(14)
19
5
(11)
17
6
(22)
34
12
(1,879)
1,896
17
2,381
(2,316)
65
852
(800)
52
Group
Hedging Instruments
Recognised in
Income
Statement
Reclassified
from reserves
to income
Income statement line item affected by reclassification
Change in FV
Recognised in
OCI
Cash flow hedges:
\u00a3m
\u00a3m
\u00a3m
\u00a3m
2023
Interest rate risk
Net interest income
466
(445)
21
(469)
FX risk
Net interest income/other operating income
(396)
377
(19)
(392)
Interest rate/FX risk
Net interest income/other operating income
(237)
237
\u2014
(387)
(167)
169
2
(1,248)
2022
Interest rate risk
Net interest income
(1,161)
1,160
(1)
(96)
FX risk
Net interest income/other operating income
1,604
(1,604)
\u2014
1,692
Interest rate/FX risk
Net interest income/other operating income
(54)
19
(35)
533
389
(425)
(36)
2,129
2021
Interest rate risk
Net interest income
(317)
305
(12)
73
FX risk
Net interest income/other operating income
(54)
54
\u2014
(158)
Interest rate/FX risk
Net interest income/other operating income
(541)
514
(27)
(273)
(912)
873
(39)
(358)
In 2023, cash flow hedge accounting of \u00a3nil (2022: \u00a3nil ) had to cease due to the hedged cash flows no longer being expected to occur.
The following table provides a reconciliation by risk category of components of equity and analysis of OCI items (before tax) resulting from hedge accounting.
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Balance at 1 January
(1,575)
129
(1,102)
15
Effective portion of changes in fair value:
\u2013 Interest rate risk
445
(1,160)
416
(782)
\u2013 Foreign currency risk
(377)
1,604
(200)
1,299
\u2013 Interest rate/foreign currency risk
(237)
(19)
(170)
97
(169)
425
46
614
Income statement transfers:
\u2013 Interest rate risk
469
96
312
77
\u2013 Foreign currency risk
392
(1,692)
205
(1,366)
\u2013 Interest rate/foreign currency risk
387
(533)
277
(442)
1,248
(2,129)
794
(1,731)
Balance at 31 December
(496)
(1,575)
(262)
(1,102)
Hedged exposures
Santander UK hedges its exposures to various risks, including interest rate risk and foreign currency risk, as set out in the following table.
Group
2023
2022
Accumulated amount of FV hedge
adjustments
Change in
value to
calculate
hedge
ineffective
ness
Accumulated amount of FV hedge
adjustments
Change in
value to
calculate
hedge
ineffective
ness
Carrying
value
Hedged
item
Portfolio
hedge of
interest
rate risks
Of which
Discontinued
hedges
Carrying
value
Hedged
item
Portfolio
hedge of
interest
rate risks
Of which
Discontinued
hedges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Fair value hedges
Interest rate risk:
Loans and advances to customers
73,194
\u2014
(625)
(435)
1,968
60,783
\u2014
(2,640)
(653)
(2,707)
Other financial assets at amortised cost
152
1
(8)
(8)
5
156
\u2014
(12)
2
(14)
Reverse repurchase agreements \u2013 non
trading
6,186
\u2014
\u2014
\u2014
4
4,045
\u2014
(5)
(1)
\u2014
Other financial assets at FVOCI
2,013
(113)
\u2014
(131)
82
2,325
(200)
\u2014
35
(227)
Deposits by customers
(15,892)
38
(10)
\u2014
(53)
(1,739)
24
5
\u2014
33
Deposits by banks
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Debt securities in issue
(4,091)
118
(75)
(114)
(128)
(4,735)
321
(94)
(172)
528
Subordinated liabilities
(522)
(27)
(1)
(42)
(1)
(250)
(27)
(6)
(63)
54
Interest rate/FX risk:
Other financial assets at FVOCI
989
4
\u2014
\u2014
12
237
(21)
\u2014
1
(9)
Debt securities in issue
(214)
(14)
\u2014
(24)
8
(290)
(18)
\u2014
(37)
27
Subordinated liabilities
\u2014
\u2014
\u2014
\u2014
(1)
1
1
\u2014
1
(1)
61,815
7
(719)
(754)
1,896
60,533
80
(2,752)
(887)
(2,316)
Group
2023
2022
Change in value to
calculate hedge
ineffectiveness
Cash flow hedge
reserve
Balances on cash
flow hedge
reserve for
discontinued
hedges
Change in value to
calculate hedge
ineffectiveness
Cash flow hedge
reserve
Balances on cash
flow hedge reserve
for discontinued
hedges
Hedged item balance sheet line item
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash flow hedges:
Interest rate risk:
Loans and advances to customers
(163)
(462)
1
935
(1,010)
(1)
Cash and balances at central banks
(281)
99
(76)
233
(274)
(106)
Deposits by banks
(1)
(1)
\u2014
(8)
7
\u2014
FX risk:
Other financial assets at FVOCI
(253)
1
\u2014
\u2014
(6)
\u2014
Not applicable \u2013 highly probable forecast
transactions
88
1
\u2014
(349)
2
\u2014
Deposits by customers
(33)
\u2014
\u2014
(167)
(2)
\u2014
Debt securities in issue
617
(9)
\u2014
(1,051)
(17)
(2)
Repurchase agreements - non trading
(42)
\u2014
\u2014
(37)
\u2014
\u2014
Interest rate/FX risk:
Debt securities in issue/loans and advances to
customers
99
(75)
\u2014
56
(170)
(3)
Deposits by customers
94
(39)
\u2014
\u2014
(74)
\u2014
Subordinated liabilities/loans and advances to
customers
44
(11)
52
(37)
(31)
77
169
(496)
(23)
(425)
(1,575)
(35)
e) Fair values of financial instruments measured at fair value
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 31 December 2023 and 31 December 2022,
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
Group
2023
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Valuation
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
technique
Assets
Derivative financial instruments
Exchange rate contracts
\u2014
1,129
\u2014
1,129
\u2014
2,044
\u2014
2,044
A
Interest rate contracts
\u2014
2,216
1
2,217
\u2014
2,399
7
2,406
A & C
Equity and credit contracts
\u2014
98
35
133
\u2014
100
30
130
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
1,396
36
1,432
\u2014
2,370
37
2,407
Other financial assets at FVTPL
Loans and advances to customers
\u2014
\u2014
46
46
\u2014
\u2014
45
45
A
Debt securities
\u2014
167
49
216
\u2014
12
72
84
A, B & D
\u2014
167
95
262
\u2014
12
117
129
Financial assets at FVOCI
Debt securities
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
D
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
Total assets at fair value
8,293
1,751
131
10,175
5,996
2,410
154
8,560
Liabilities
Derivative financial instruments
Exchange rate contracts
\u2014
508
\u2014
508
\u2014
471
\u2014
471
A
Interest rate contracts
\u2014
2,336
1
2,337
\u2014
2,624
4
2,628
A & C
Equity and credit contracts
\u2014
11
9
20
\u2014
17
8
25
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
808
10
818
\u2014
939
12
951
Other financial liabilities at FVTPL
Debt securities in issue
\u2014
369
\u2014
369
\u2014
372
3
375
A
Structured deposits
\u2014
426
\u2014
426
\u2014
321
\u2014
321
A
Zero Amortising Guaranteed Notes
\u2014
104
\u2014
104
\u2014
107
\u2014
107
D
\u2014
899
\u2014
899
\u2014
800
3
803
Total liabilities at fair value
\u2014
1,707
10
1,717
\u2014
1,739
15
1,754
The table below provides an analysis of financial instruments valued using internal models based on information other than market data together with further
details on the valuation techniques used for each type of instrument. Each instrument is initially valued at transaction price:
Group
Balance sheet value
Fair value movements recognised
in profit/(loss)
2023
2022
2023
2022
2021
Balance sheet line item
Category
Financial instrument product type
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
1. Derivative assets
Equity and credit contracts
Reversionary property interests
35
30
12
(8)
\u2014
2. FVTPL assets
Loans and advances to customers
Roll-up mortgage portfolio
24
28
(2)
(18)
(5)
3. FVTPL assets
Loans and advances to customers
Other loans
22
17
4
(4)
(2)
4. FVTPL assets
Debt securities
Reversionary property securities
49
70
(3)
\u2014
5
130
145
11
(30)
(2)
Other Level 3 assets
1
9
(1)
10
(9)
Other Level 3 liabilities
(10)
(15)
(2)
3
7
Total net assets
121
139
Total income/(expense)
8
(17)
(4)
Reconciliation of fair value measurement in Level 3 of the fair value hierarchy
The following table sets out the movements in Level 3 financial instruments in 2023:
Group
Assets
Liabilities
Derivatives
Other
financial
assets at
FVTPL
Financial
assets at
FVOCI
Total
Derivatives
Other
financial
liabilities
at FVTPL
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
37
117
\u2014
154
(12)
(3)
(15)
Total gains/(losses) recognised:
Fair value movements(2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
Purchases
\u2014
1
\u2014
1
\u2014
\u2014
\u2014
Netting(1)
\u2014
(3)
\u2014
(3)
\u2014
\u2014
\u2014
Settlements
(11)
(20)
\u2014
(31)
4
3
7
At 31 December 2023
36
95
\u2014
131
(10)
\u2014
(10)
Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
At 1 January 2022
46
185
18
249
(32)
(6)
(38)
Total (losses)/gains recognised:
Fair value movements(2)
(2)
(18)
\u2014
(20)
2
1
3
Transfers in
\u2014
\u2014
\u2014
\u2014
(2)
\u2014
(2)
Netting(1)
\u2014
(8)
\u2014
(8)
\u2014
\u2014
\u2014
Sales
\u2014
(5)
\u2014
(5)
\u2014
\u2014
\u2014
Settlements
(7)
(37)
(18)
(62)
20
2
22
At 31 December 2022
37
117
\u2014
154
(12)
(3)
(15)
(Losses)/gains recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
(2)
(18)
\u2014
(20)
2
1
3
This relates to the effect of netting on the fair value of the credit linked notes due to a legal right of set-off between the principal amounts of the senior notes and the associated cash deposits. For more, see \u2018ii)
Credit protection entities\u2019 in Note 19
(2) Fair value movements relating to derivatives and other financial assets at FVTPL are recognised in other operating income in the income statement.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives (Level 3)
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are
not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the inputs to the valuation models to reasonably possible alternative assumptions would change the
fair values significantly. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions.
Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable
input as described in the table below. The potential effects do not take into effect any hedged positions.
Group
Significant unobservable input
Sensitivity
Assumption value
Favourable
changes
Unfavourable
changes
Fair value
Range (1)
Weighted
average
Shift
2023
\u00a3m
Assumption description
\u00a3m
\u00a3m
1. Derivative assets \u2013 Equity and credit contracts:
35
HPI Forward growth rate
-5% to 5%
(0.20)%
1.0%
2
(2)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
2
(4)
2. FVTPL \u2013 Loans and advances to customers:
24
HPI Forward growth rate
-5% to 5%
1.31%
1.0%
\u2014
\u2014
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
22
Credit spreads
0.13% - 2.54%
0.97%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
49
HPI Forward growth rate
-5% to 5%
-0.20%
1.0%
\u2014
\u2014
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
2
(2)
2022
1. Derivative assets \u2013 Equity and credit contracts:
30
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
4
(4)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
4
(4)
2. FVTPL \u2013 Loans and advances to customers:
28
HPI Forward growth rate
-5% to 5%
1.39%
1.0%
1
(1)
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
17
Credit spreads
0.19% to 2.04%
0.98%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
70
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
1
(1)
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
3
(3)
5. Derivative liabilities \u2013 Equity contracts:
(8)
HPI Forward growth rate
-5% to 5%
(0.92)%
1.0%
1
(1)
\u2013 Property-related options and forwards
HPI Spot rate(2)
n/a
491
10.0%
2
(3)
(1) The range of actual assumption values used to calculate the weighted average disclosure.
(2) The HPI spot rate in the weighted average column represents the HPI spot rate index level at 31 December 2023 and 2022.
No sensitivities are presented for FVTPL assets \u2013 Debt securities (credit linked securities) or FVTPL liabilities - Financial guarantees, as the terms of these
instruments are fully matched. As a result, any changes in the valuation of the credit linked notes would be offset by an equal and opposite change in the valuation
of the financial guarantees.
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
The following tables show the notional amounts of assets, liabilities and off-balance sheet commitments at 31 December 2023 and 31 December 2022 affected by
IBOR reform that have yet to transition to an alternative benchmark interest rate.
Group
GBP
LIBOR
USD
LIBOR
Total
2023
\u00a3m
\u00a3m
\u00a3m
Assets
Financial assets at amortised cost
6
\u2014
6
6
\u2014
6
2022
Assets
Derivatives
\u2014
1,665
1,665
Financial assets at amortised cost
76
57
133
76
1,722
1,798
Liabilities
Derivatives
66
1,846
1,912
66
1,846
1,912
Off-balance sheet commitments given
2
\u2014
2
", "dimensions": { "concept": "ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-612": { "value": "
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
Group
2023
2022
Fair value
Fair value
Notional
amount
Assets
Liabilities
Notional
amount
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives held for trading:
Exchange rate contracts
12,927
92
217
14,006
315
281
Interest rate contracts
28,351
389
583
31,135
465
754
Equity and credit contracts
765
133
20
902
130
25
Total derivatives held for trading
42,043
614
820
46,043
910
1,060
Derivatives held for hedging
Designated as fair value hedges:
Exchange rate contracts
1,145
29
2
538
12
4
Interest rate contracts
107,540
1,275
839
77,748
1,777
403
108,685
1,304
841
78,286
1,789
407
Designated as cash flow hedges:
Exchange rate contracts
21,618
1,008
289
26,035
1,717
186
Interest rate contracts
50,896
553
915
26,108
164
1,471
72,514
1,561
1,204
52,143
1,881
1,657
Total derivatives held for hedging
181,199
2,865
2,045
130,429
3,670
2,064
Derivative netting(1)
\u2014
(2,047)
(2,047)
\u2014
(2,173)
(2,173)
Total derivatives
223,242
1,432
818
176,472
2,407
951
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was
472m (2022: 1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was 12m (2022: 70m).
At 31 December 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of \u00a3762m (2022: \u00a31,319m) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of \u00a3230m (2022: \u00a3207m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialAssetsHeldForTradingExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-611": { "value": "
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
Group
2023
2022
Fair value
Fair value
Notional
amount
Assets
Liabilities
Notional
amount
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives held for trading:
Exchange rate contracts
12,927
92
217
14,006
315
281
Interest rate contracts
28,351
389
583
31,135
465
754
Equity and credit contracts
765
133
20
902
130
25
Total derivatives held for trading
42,043
614
820
46,043
910
1,060
Derivatives held for hedging
Designated as fair value hedges:
Exchange rate contracts
1,145
29
2
538
12
4
Interest rate contracts
107,540
1,275
839
77,748
1,777
403
108,685
1,304
841
78,286
1,789
407
Designated as cash flow hedges:
Exchange rate contracts
21,618
1,008
289
26,035
1,717
186
Interest rate contracts
50,896
553
915
26,108
164
1,471
72,514
1,561
1,204
52,143
1,881
1,657
Total derivatives held for hedging
181,199
2,865
2,045
130,429
3,670
2,064
Derivative netting(1)
\u2014
(2,047)
(2,047)
\u2014
(2,173)
(2,173)
Total derivatives
223,242
1,432
818
176,472
2,407
951
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was
472m (2022: 1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was 12m (2022: 70m).
At 31 December 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of \u00a3762m (2022: \u00a31,319m) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of \u00a3230m (2022: \u00a3207m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialLiabilitiesHeldForTradingExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-610": { "value": "
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
Group
2023
2022
Fair value
Fair value
Notional
amount
Assets
Liabilities
Notional
amount
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives held for trading:
Exchange rate contracts
12,927
92
217
14,006
315
281
Interest rate contracts
28,351
389
583
31,135
465
754
Equity and credit contracts
765
133
20
902
130
25
Total derivatives held for trading
42,043
614
820
46,043
910
1,060
Derivatives held for hedging
Designated as fair value hedges:
Exchange rate contracts
1,145
29
2
538
12
4
Interest rate contracts
107,540
1,275
839
77,748
1,777
403
108,685
1,304
841
78,286
1,789
407
Designated as cash flow hedges:
Exchange rate contracts
21,618
1,008
289
26,035
1,717
186
Interest rate contracts
50,896
553
915
26,108
164
1,471
72,514
1,561
1,204
52,143
1,881
1,657
Total derivatives held for hedging
181,199
2,865
2,045
130,429
3,670
2,064
Derivative netting(1)
\u2014
(2,047)
(2,047)
\u2014
(2,173)
(2,173)
Total derivatives
223,242
1,432
818
176,472
2,407
951
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was
472m (2022: 1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was 12m (2022: 70m).
At 31 December 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of \u00a3762m (2022: \u00a31,319m) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of \u00a3230m (2022: \u00a3207m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsHeldForTradingExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-609": { "value": "
The table below includes the notional amounts of transactions outstanding at the balance sheet date; they do not represent actual exposures.
Group
2023
2022
Fair value
Fair value
Notional
amount
Assets
Liabilities
Notional
amount
Assets
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Derivatives held for trading:
Exchange rate contracts
12,927
92
217
14,006
315
281
Interest rate contracts
28,351
389
583
31,135
465
754
Equity and credit contracts
765
133
20
902
130
25
Total derivatives held for trading
42,043
614
820
46,043
910
1,060
Derivatives held for hedging
Designated as fair value hedges:
Exchange rate contracts
1,145
29
2
538
12
4
Interest rate contracts
107,540
1,275
839
77,748
1,777
403
108,685
1,304
841
78,286
1,789
407
Designated as cash flow hedges:
Exchange rate contracts
21,618
1,008
289
26,035
1,717
186
Interest rate contracts
50,896
553
915
26,108
164
1,471
72,514
1,561
1,204
52,143
1,881
1,657
Total derivatives held for hedging
181,199
2,865
2,045
130,429
3,670
2,064
Derivative netting(1)
\u2014
(2,047)
(2,047)
\u2014
(2,173)
(2,173)
Total derivatives
223,242
1,432
818
176,472
2,407
951
(1) Derivative netting excludes the effect of cash collateral, which is offset against the gross derivative position. The amount of cash collateral received that had been offset against the gross derivative assets was
472m (2022: 1,368m) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was 12m (2022: 70m).
At 31 December 2023, the fair value of derivative assets included amounts due from Banco Santander group entities of \u00a3762m (2022: \u00a31,319m) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of \u00a3230m (2022: \u00a3207m).
14. SECURITISATIONS AND COVERED BONDS
The information in this Note relates to securitisations and covered bonds for consolidated structured entities, used to obtain funding or collateral. It excludes
structured entities relating to credit protection transactions.
The Santander UK group uses structured entities to securitise some of the mortgage and other loans to customers that it originates. The Santander UK group also
issues covered bonds, which are guaranteed by, and secured against, a pool of the Santander UK group\u2019s mortgage loans transferred to Abbey Covered Bonds LLP.
The Santander UK group issues mortgage-backed securities, other asset-backed securities and covered bonds mainly in order to obtain diverse, low-cost funding,
but also to use as collateral for raising funds via third party bilateral secured funding transactions or for liquidity purposes in the future. The Santander UK group has
successfully used bilateral secured transactions as an additional form of medium-term funding; this has allowed the Santander UK group to further diversify its
medium-term funding investor base.
Loans and advances to customers include portfolios of residential mortgage loans, and receivables derived from credit agreements with retail customers for the
purchases of financed vehicles, which are subject to non-recourse finance arrangements. These loans and receivables have been purchased by, or assigned to,
structured entities or Abbey Covered Bonds LLP, and have been funded primarily through the issue of mortgage-backed securities, other asset-backed securities or
covered bonds. No gain or loss has been recognised as a result of these sales. The structured entities and Abbey Covered Bonds LLP are consolidated as subsidiary
undertakings. The Company and its subsidiaries do not own directly, or indirectly, any of the share capital of any of the structured entities.
a) Securitisations
i) Master trust structures
The Santander UK group makes use of master trust structures, whereby a pool of residential mortgage loans is assigned to a trust company by the asset originator.
A funding entity acquires a beneficial interest in the pool of assets held by the trust company with funds borrowed from qualifying structured entities, which at the
same time issue asset-backed securities to third-party investors or the Santander UK group.
Santander UK plc and its subsidiaries receive payments from the securitisation companies in respect of fees for administering the loans, and payment of deferred
consideration for the sale of the loans. Santander UK plc and its subsidiaries have no right or obligation to repurchase any securitised loan, except if certain
representations and warranties given by Santander UK plc or its subsidiaries at the time of transfer are breached and, in certain cases, if there is a product switch or
further advance, if a securitised loan is in arrears for over two months or if a securitised loan does not comply with regulatory requirements.
ii) Other securitisation structures
The Santander UK group also makes use of auto loan securitisations, whereby a pool of auto loans originated by a member of the Santander UK group is sold to a
special purpose vehicle by the asset originator. The special purpose vehicle funds the purchase of the auto loans by issuing asset-backed securities to third-party
investors. A proportion of the securities are also retained by members of the Santander UK group. Members of the Santander UK group also receive payments from
the special purpose vehicle in respect of fees for administering the auto loans, and payment of deferred consideration for the sale of the auto loans. The seller has
no right or obligation to repurchase any securitised loan, except if certain representations and warranties given by the seller at the time of transfer are breached
and, in certain cases, if there has been a subsequent variation in the terms of the underlying auto loan not permitted under the sale agreement.
b) Covered bonds
Santander UK plc also issues covered bonds, which are its direct, unsecured and unconditional obligation. The covered bonds benefit from a guarantee from Abbey
Covered Bonds LLP. Santander UK plc makes a term advance to Abbey Covered Bonds LLP equal to the sterling proceeds of each issue of covered bonds. Abbey
Covered Bonds LLP uses the proceeds of the term advance to purchase portfolios of residential mortgage loans and their security from Santander UK plc. Under the
terms of the guarantee, Abbey Covered Bonds LLP has agreed to pay an amount equal to the guaranteed amounts when the same shall become due for payment,
but which would otherwise be unpaid by Santander UK plc.
c) Analysis of securitisations and covered bonds
The Santander UK group\u2019s principal securitisation programmes and covered bond programme, together with the balances of the advances subject to securitisation
(or for the covered bond programme assigned) and the carrying value of the notes in issue at 31 December 2023 and 2022 are listed below.
Group
Gross assets
External notes in issue
Notes issued to Santander UK
plc/subsidiaries as collateral
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage-backed master trust structures:
\u2013 Holmes
3,242
1,646
2,119
790
300
176
\u2013 Fosse
2,048
2,028
100
100
1,382
1,365
5,290
3,674
2,219
890
1,682
1,541
Other asset-backed securitisation structures:
\u2013 Motor
\u2014
6
\u2014
7
\u2014
\u2014
\u2013 Repton
757
\u2014
550
\u2014
\u2014
\u2014
757
6
550
7
\u2014
\u2014
Total securitisation programmes
6,047
3,680
2,769
897
1,682
1,541
Covered bond programme:
\u2013 Euro 35bn Global Covered Bond Programme
21,880
21,304
15,000
15,205
\u2014
\u2014
Total securitisation and covered bond programmes
27,927
24,984
17,769
16,102
1,682
1,541
The following table sets out the internal and external issuances and redemptions in 2023 and 2022 for each securitisation and covered bond programme.
Group
Internal issuances
External issuances
Internal redemptions
External redemptions
2023
2022
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage-backed master trust structures:
\u2013 Holmes
241
\u2014
1,500
600
121
100
186
200
\u2013 Fosse
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
200
Other asset-backed securitisation structures:
\u2013 Motor
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
7
33
\u2013 Repton
\u2014
\u2014
550
\u2014
\u2014
\u2014
\u2014
\u2014
Covered bond programme:
\u2013 Euro 35bn Global Covered Bond Programme
\u2014
\u2014
\u2014
4,200
\u2014
100
\u2014
1,700
241
\u2014
2,050
4,800
121
200
193
2,133
During 2023, the remaining asset-backed notes from the Motor securitisation structure were redeemed. In 2023 Repton 2023-1 Limited borrowed \u00a3550m through
an asset-backed variable funding note facility. Repayment of this will begin in 2025.
Holmes Funding Ltd has a beneficial interest of \u00a32,396m (2022: \u00a3796m) in the residential mortgage loans held by Holmes Trustees Ltd. The remaining share of the
beneficial interest in residential mortgage loans held by Holmes Trustees Ltd belongs to Santander UK plc.
Fosse Funding (No.1) Ltd has a beneficial interest of \u00a31,393m (2022: \u00a31,465m) in the residential mortgage loans held by Fosse Trustee (UK) Ltd. The remaining
share of the beneficial interest in residential mortgage loans held by Fosse Trustee (UK) Ltd belongs to Santander UK plc.
The Holmes securitisation companies have cash deposits of \u00a380m (2022: \u00a3112m), which have been accumulated to finance the redemption of a number of
securities issued by the Holmes securitisation companies. The share of Holmes Funding Ltd in the trust assets is therefore reduced by this amount.
The Fosse securitisation companies have cash deposits of \u00a3108m (2022: \u00a3108m), which have been accumulated to finance the redemption of a number of
securities issued by Fosse securitisation companies. The share of Fosse Funding (No.1) Ltd\u2019s beneficial interest in the assets held by Fosse Trustee (UK) Ltd is
therefore reduced by this amount.
15. TRANSFERS OF FINANCIAL ASSETS NOT QUALIFYING FOR DERECOGNITION
The Santander UK group enters into transactions in the normal course of business by which it transfers recognised financial assets directly to third parties or to
structured entities. These transfers may give rise to the full or partial derecognition of those financial assets. Transferred financial assets that do not qualify for
derecognition consist of (i) securities held by counterparties as collateral under repurchase agreements, (ii) securities lent under securities lending agreements, and
(iii) loans that have been securitised under arrangements by which the Santander UK group retains a continuing involvement in such transferred assets.
As a result of these sale and repurchase and securities lending transactions, the Santander UK group is unable to use, sell or pledge the transferred assets for the
duration of the transaction. The Santander UK group remains exposed to interest rate risk and credit risk on these pledged instruments. The counterparty\u2019s recourse
is not limited to the transferred assets.
The Santander UK group securitisation transfers do not qualify for derecognition. The Santander UK group remains exposed to credit risks arising from the mortgage
loans or credit agreements and has retained control of the transferred assets. Circumstances in which the Santander UK group has continuing involvement in the
transferred assets may include retention of servicing rights over the transferred assets (the servicing fee in respect of which is dependent on the amount or timing
of the cash flows collected from, or the non-performance of, the transferred assets), entering into a derivative transaction with the securitisation vehicle, retaining
an interest in the securitisation vehicle or providing a cash reserve fund. Where the Santander UK group has continuing involvement, it continues to recognise the
transferred assets to the extent of its continuing involvement and recognises an associated liability. The net carrying amount of the transferred assets and
associated liabilities reflects the rights and obligations that the Santander UK group has retained.
The following table analyses the carrying amount of financial assets that did not qualify for derecognition and their associated financial liabilities:
Group
2023
2022
Assets
Liabilities
Assets
Liabilities
Nature of transaction
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Sale and repurchase agreements
14
(15)
120
(128)
Securities lending agreements
3,136
(2,735)
2,871
(2,509)
Securitisations (See Notes 14 and 26)
6,047
(2,769)
3,680
(897)
9,197
(5,519)
6,671
(3,534)
22. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Structured Notes Programmes
369
375
369
375
Structured deposits
426
321
426
321
Zero Amortising Guaranteed Notes
104
107
104
107
899
803
899
803
For the Santander UK group and the Company, all (2022: all) of the other financial liabilities at FVTPL were designated as such.
Gains and losses arising from changes in the credit spread of securities issued by the Santander UK group reverse over the contractual life of the debt, provided that
the debt is not repaid at a premium or a discount. The net loss during the year attributable to changes in the Santander UK group\u2019s own credit risk on the above
securities was \u00a321m (2022: \u00a325m gain, 2021: \u00a312m loss). The cumulative net loss attributable to changes in the Santander UK group\u2019s own credit risk on the above
securities at 31 December 2023 was \u00a36m (2022: \u00a315m gain, 2021: \u00a310m loss).
At 31 December 2023, the amount that would be required to be contractually paid at maturity of the securities above was \u00a397m (2022: \u00a3138m) higher than the
carrying value.
35. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL
ACCEPTED AS SECURITY FOR ASSETS
The following transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities
lending and repurchase agreements.
a) Assets charged as security for liabilities
The financial assets below are analysed between those assets accounted for on-balance sheet and off-balance sheet.
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
On-balance sheet:
Cash and balances at central banks
1,480
1,330
1,480
1,330
Loans and advances to banks
191
130
189
130
Loans and advances to customers - securitisations and covered bonds (See Note 14)
27,088
24,155
\u2014
\u2014
Loans and advances to customers - other
20,699
32,001
20,699
32,001
Other financial assets at amortised cost
14
48
14
48
Financial assets at fair value through other comprehensive income
5,183
4,365
5,183
4,364
Total on-balance sheet
54,655
62,029
27,565
37,873
Total off-balance sheet
10,185
9,146
10,185
9,171
Santander UK provides assets as collateral in the following areas of the business.
Sale and repurchase agreements
Santander UK also enters into sale and repurchase agreements and similar transactions of debt securities. Upon entering into such transactions, Santander UK
provides collateral in excess of the borrowed amount. The carrying amount of assets that were so provided at 31 December 2023 was \u00a313,291m (2022 :
\u00a311,553m), of which \u00a3909m (2022: \u00a3900m) was classified in \u2018Loans and advances to customers \u2013 securitisations and covered bonds\u2019 in the table above.
Securitisations and covered bonds
As described in Note 14, Santander UK plc and certain of its subsidiaries issue securitisations and covered bonds. At 31 December 2023, there were \u00a327,927m
(2022: \u00a324,984m) of gross assets in these secured programmes and \u00a3839m (2022: \u00a3829m) of these related to internally retained issuances that were available for
use as collateral for liquidity purposes in the future.
At 31 December 2023, \u00a32,928m (2022: \u00a31,725m) of notes issued under securitisation and covered bond programmes had been retained internally, a proportion of
which had been used as collateral via third party bilateral secured funding transactions, which totalled \u00a31,500m at 31 December 2023 (2022: \u00a3500m), or for use as
collateral for liquidity purposes in the future.
Stock borrowing and lending agreements
Asset balances under stock borrowing and lending agreements represent stock lent by Santander UK. These balances amounted to \u00a323,644m at 31 December
2023 (2022: \u00a334,861m) and are offset by contractual commitments to return stock borrowed or cash received.
Derivatives business
In addition to the arrangements described above, collateral is also provided in the normal course of derivative business to counterparties. At 31 December 2023
\u00a31,726m (2022: \u00a31,506m) of such collateral in the form of cash had been provided by Santander UK and is included in the table.
b) Collateral accepted as security for assets
The collateral held as security for assets, analysed between those liabilities accounted for on balance sheet and off-balance sheet, was:
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
On-balance sheet:
Deposits by banks
860
1,741
860
1,741
Total on-balance sheet
860
1,741
860
1,741
Total off-balance sheet
14,992
10,141
14,992
10,166
Purchase and resale agreements
Santander UK also enters into purchase and resale agreements and similar transactions of debt securities. Upon entering into such transactions, Santander UK
receives collateral in excess of the loan amount. The level of collateral held is monitored daily and if required, further calls are made to ensure the market values of
collateral remains at least equal to the loan balance. The subsidiaries are permitted to sell or repledge the collateral held in the absence of default. At 31 December
2023, the fair value of such collateral received was \u00a312,982m (2022: \u00a38,628m). Of the collateral received, almost all was sold or repledged. The subsidiaries have
an obligation to return collateral that they have sold or pledged.
Stock borrowing and lending agreements
Obligations representing contractual commitments to return stock borrowed by Santander UK amounted to \u00a32,010m at 31 December 2023 (2022: \u00a31,513m) and
are offset by a contractual right to receive stock lent.
Derivatives business
In addition to the arrangements described, collateral is also received from counterparties in the normal course of derivative business. At 31 December 2023, \u00a3860m
(2022: \u00a31,741m) of such collateral in the form of cash had been received by Santander UK and is included in the table.
Lending activities
In addition to the collateral held as security for assets, Santander UK may obtain a charge over a customer\u2019s property in connection with its lending activities. Details
of these arrangements are set out in the \u2018Credit risk\u2019 section of the Risk review.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCollateralExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-613": { "value": "
Hedged exposures
Santander UK hedges its exposures to various risks, including interest rate risk and foreign currency risk, as set out in the following table.
Group
2023
2022
Accumulated amount of FV hedge
adjustments
Change in
value to
calculate
hedge
ineffective
ness
Accumulated amount of FV hedge
adjustments
Change in
value to
calculate
hedge
ineffective
ness
Carrying
value
Hedged
item
Portfolio
hedge of
interest
rate risks
Of which
Discontinued
hedges
Carrying
value
Hedged
item
Portfolio
hedge of
interest
rate risks
Of which
Discontinued
hedges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Fair value hedges
Interest rate risk:
Loans and advances to customers
73,194
\u2014
(625)
(435)
1,968
60,783
\u2014
(2,640)
(653)
(2,707)
Other financial assets at amortised cost
152
1
(8)
(8)
5
156
\u2014
(12)
2
(14)
Reverse repurchase agreements \u2013 non
trading
6,186
\u2014
\u2014
\u2014
4
4,045
\u2014
(5)
(1)
\u2014
Other financial assets at FVOCI
2,013
(113)
\u2014
(131)
82
2,325
(200)
\u2014
35
(227)
Deposits by customers
(15,892)
38
(10)
\u2014
(53)
(1,739)
24
5
\u2014
33
Deposits by banks
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
Debt securities in issue
(4,091)
118
(75)
(114)
(128)
(4,735)
321
(94)
(172)
528
Subordinated liabilities
(522)
(27)
(1)
(42)
(1)
(250)
(27)
(6)
(63)
54
Interest rate/FX risk:
Other financial assets at FVOCI
989
4
\u2014
\u2014
12
237
(21)
\u2014
1
(9)
Debt securities in issue
(214)
(14)
\u2014
(24)
8
(290)
(18)
\u2014
(37)
27
Subordinated liabilities
\u2014
\u2014
\u2014
\u2014
(1)
1
1
\u2014
1
(1)
61,815
7
(719)
(754)
1,896
60,533
80
(2,752)
(887)
(2,316)
Group
2023
2022
Change in value to
calculate hedge
ineffectiveness
Cash flow hedge
reserve
Balances on cash
flow hedge
reserve for
discontinued
hedges
Change in value to
calculate hedge
ineffectiveness
Cash flow hedge
reserve
Balances on cash
flow hedge reserve
for discontinued
hedges
Hedged item balance sheet line item
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cash flow hedges:
Interest rate risk:
Loans and advances to customers
(163)
(462)
1
935
(1,010)
(1)
Cash and balances at central banks
(281)
99
(76)
233
(274)
(106)
Deposits by banks
(1)
(1)
\u2014
(8)
7
\u2014
FX risk:
Other financial assets at FVOCI
(253)
1
\u2014
\u2014
(6)
\u2014
Not applicable \u2013 highly probable forecast
transactions
88
1
\u2014
(349)
2
\u2014
Deposits by customers
(33)
\u2014
\u2014
(167)
(2)
\u2014
Debt securities in issue
617
(9)
\u2014
(1,051)
(17)
(2)
Repurchase agreements - non trading
(42)
\u2014
\u2014
(37)
\u2014
\u2014
Interest rate/FX risk:
Debt securities in issue/loans and advances to
customers
99
(75)
\u2014
56
(170)
(3)
Deposits by customers
94
(39)
\u2014
\u2014
(74)
\u2014
Subordinated liabilities/loans and advances to
customers
44
(11)
52
(37)
(31)
77
169
(496)
(23)
(425)
(1,575)
(35)
16. REVERSE REPURCHASE AGREEMENTS \u2013 NON-TRADING
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Agreements with banks
2,397
885
2,397
885
Agreements with customers
10,071
6,463
10,071
6,463
12,468
7,348
12,468
7,348
25. REPURCHASE AGREEMENTS \u2013 NON TRADING
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Agreements with banks
551
50
551
50
Agreements with customers
7,860
7,932
7,860
7,932
8,411
7,982
8,411
7,982
\u00a0 \u00a0 \u00a0
Sale and repurchase agreements
Santander UK also enters into sale and repurchase agreements and similar transactions of debt securities. Upon entering into such transactions, Santander UK
provides collateral in excess of the borrowed amount. The carrying amount of assets that were so provided at 31 December 2023 was \u00a313,291m (2022 :
\u00a311,553m), of which \u00a3909m (2022: \u00a3900m) was classified in \u2018Loans and advances to customers \u2013 securitisations and covered bonds\u2019 in the table above.
Purchase and resale agreements
Santander UK also enters into purchase and resale agreements and similar transactions of debt securities. Upon entering into such transactions, Santander UK
receives collateral in excess of the loan amount. The level of collateral held is monitored daily and if required, further calls are made to ensure the market values of
collateral remains at least equal to the loan balance. The subsidiaries are permitted to sell or repledge the collateral held in the absence of default. At 31 December
2023, the fair value of such collateral received was \u00a312,982m (2022: \u00a38,628m). Of the collateral received, almost all was sold or repledged. The subsidiaries have
an obligation to return collateral that they have sold or pledged.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-615": { "value": "
12. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans and advances to customers:
Loans to housing associations
8
4
8
4
Other loans
38
41
38
41
46
45
46
45
Debt securities
167
15
168
14
Other debt instruments
49
69
\u2014
\u2014
262
129
214
59
For the Santander UK group, other financial assets at FVTPL comprised \u00a38m (2022: \u00a316m) of financial assets designated at FVTPL and \u00a3254m (2022: \u00a3113m) of
financial assets mandatorily held at FVTPL. For the Company, other financial assets at FVTPL comprised \u00a38m (2022: \u00a316m) of financial assets designated at FVTPL
and \u00a3206m (2022: \u00a343m) of financial assets mandatorily held at FVTPL.
Loans and advances to customers principally represent other loans, being a portfolio of roll-up mortgages. These are managed, and have their performance
evaluated, on a fair value basis in accordance with a documented investment strategy, and information about them is provided on that basis to management. Since
2009, the Santander UK group\u2019s policy has been not to designate similar new loans at FVTPL.
The net loss in the year attributable to changes in credit risk for loans and advances at FVTPL was \u00a3nil (2022: \u00a31m, 2021: \u00a3nil). The cumulative net loss attributable
to changes in credit risk for loans and advances at FVTPL at 31 December 2023 was \u00a33m (2022: \u00a33m, 2021: \u00a32m).
13. LOANS AND ADVANCES TO CUSTOMERS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans secured on residential properties
172,854
184,317
172,854
184,317
Corporate loans
18,267
19,057
17,794
18,525
Finance leases
4,530
4,645
\u2014
\u2014
Other unsecured loans
7,232
7,742
7,065
7,447
Accrued interest and other adjustments
943
688
882
687
Amounts due from fellow Banco Santander subsidiaries and joint ventures
4,489
4,220
4
69
Amounts due from Santander UK Group Holdings plc
55
\u2014
55
\u2014
Amounts due from subsidiaries
\u2014
\u2014
25,903
25,089
Loans and advances to customers
208,370
220,669
224,557
236,134
Credit impairment loss allowances on loans and advances to customers
(914)
(931)
(1,046)
(1,063)
Residual value and voluntary termination provisions on finance leases
(21)
(22)
\u2014
\u2014
Net loans and advances to customers
207,435
219,716
223,511
235,071
For movements in expected credit losses, see the 'Movement in total exposures and the corresponding ECL' table in the Santander UK group level - Credit risk
review section of the Risk review.
Finance lease and hire purchase contract receivables may be analysed as follows:
Group
2023
2022
Gross
investment
Unearned
finance
income
Net
investment
Gross
investment
Unearned
finance income
Net
investment
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
No later than one year
1,502
(216)
1,286
1,493
(182)
1,311
Later than one year and not later than two years
1,426
(208)
1,218
1,367
(168)
1,199
Later than two years and not later than three years
1,331
(194)
1,137
1,190
(147)
1,043
Later than three years and not later than four years
882
(129)
753
1,044
(129)
915
Later than four years and not later than five years
99
(14)
85
143
(18)
125
Later than five years
60
(9)
51
59
(7)
52
5,300
(770)
4,530
5,296
(651)
4,645
At 31 December 2023 and 2022, the Company had no finance lease and hire purchase contract receivables.The Santander UK group enters into finance leasing
arrangements primarily for the financing of motor vehicles and a range of assets for its corporate customers. Included in the carrying value of net investment in
finance leases and hire purchase contracts is \u00a31,830m (2022: \u00a31,761m) of unguaranteed RV at the end of the current lease terms, which is expected to be
recovered through re-payment, re-financing or sale. Contingent rent income of nil (2022: \u00a3nil, 2021: \u00a3nil) was earned in the year, which was classified in \u2018Interest
and similar income\u2019. Finance income on the net investment in finance leases was \u00a3266m (2022: \u00a3230m, 2021: \u00a3243m).
Finance lease receivable balances are secured over the asset leased. The Santander UK group is not permitted to sell or repledge the asset in the absence of default
by the lessee. The Directors consider that the carrying amount of the finance lease receivables approximates to their fair value.
Included within loans and advances to customers are advances assigned to bankruptcy remote structured entities and Abbey Covered Bonds LLP. These loans
provide security to issues of covered bonds and mortgage-backed or other asset-backed securities issued by the Santander UK group. For more, see Note 14.
At 31 December 2023 and 2022, the Santander UK group had contracted with lessees for the following future undiscounted minimum lease payments receivable
under operating leases.
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
No later than one year
28
31
27
30
Later than one year and not later than two years
26
27
24
26
Later than two years and not later than three years
18
22
17
22
Later than three years and not later than four years
14
13
13
12
Later than four years and not later than five years
7
11
6
10
Later than five years
18
21
13
15
111
125
100
115
14. SECURITISATIONS AND COVERED BONDS
The information in this Note relates to securitisations and covered bonds for consolidated structured entities, used to obtain funding or collateral. It excludes
structured entities relating to credit protection transactions.
The Santander UK group uses structured entities to securitise some of the mortgage and other loans to customers that it originates. The Santander UK group also
issues covered bonds, which are guaranteed by, and secured against, a pool of the Santander UK group\u2019s mortgage loans transferred to Abbey Covered Bonds LLP.
The Santander UK group issues mortgage-backed securities, other asset-backed securities and covered bonds mainly in order to obtain diverse, low-cost funding,
but also to use as collateral for raising funds via third party bilateral secured funding transactions or for liquidity purposes in the future. The Santander UK group has
successfully used bilateral secured transactions as an additional form of medium-term funding; this has allowed the Santander UK group to further diversify its
medium-term funding investor base.
Loans and advances to customers include portfolios of residential mortgage loans, and receivables derived from credit agreements with retail customers for the
purchases of financed vehicles, which are subject to non-recourse finance arrangements. These loans and receivables have been purchased by, or assigned to,
structured entities or Abbey Covered Bonds LLP, and have been funded primarily through the issue of mortgage-backed securities, other asset-backed securities or
covered bonds. No gain or loss has been recognised as a result of these sales. The structured entities and Abbey Covered Bonds LLP are consolidated as subsidiary
undertakings. The Company and its subsidiaries do not own directly, or indirectly, any of the share capital of any of the structured entities.
a) Securitisations
i) Master trust structures
The Santander UK group makes use of master trust structures, whereby a pool of residential mortgage loans is assigned to a trust company by the asset originator.
A funding entity acquires a beneficial interest in the pool of assets held by the trust company with funds borrowed from qualifying structured entities, which at the
same time issue asset-backed securities to third-party investors or the Santander UK group.
Santander UK plc and its subsidiaries receive payments from the securitisation companies in respect of fees for administering the loans, and payment of deferred
consideration for the sale of the loans. Santander UK plc and its subsidiaries have no right or obligation to repurchase any securitised loan, except if certain
representations and warranties given by Santander UK plc or its subsidiaries at the time of transfer are breached and, in certain cases, if there is a product switch or
further advance, if a securitised loan is in arrears for over two months or if a securitised loan does not comply with regulatory requirements.
ii) Other securitisation structures
The Santander UK group also makes use of auto loan securitisations, whereby a pool of auto loans originated by a member of the Santander UK group is sold to a
special purpose vehicle by the asset originator. The special purpose vehicle funds the purchase of the auto loans by issuing asset-backed securities to third-party
investors. A proportion of the securities are also retained by members of the Santander UK group. Members of the Santander UK group also receive payments from
the special purpose vehicle in respect of fees for administering the auto loans, and payment of deferred consideration for the sale of the auto loans. The seller has
no right or obligation to repurchase any securitised loan, except if certain representations and warranties given by the seller at the time of transfer are breached
and, in certain cases, if there has been a subsequent variation in the terms of the underlying auto loan not permitted under the sale agreement.
b) Covered bonds
Santander UK plc also issues covered bonds, which are its direct, unsecured and unconditional obligation. The covered bonds benefit from a guarantee from Abbey
Covered Bonds LLP. Santander UK plc makes a term advance to Abbey Covered Bonds LLP equal to the sterling proceeds of each issue of covered bonds. Abbey
Covered Bonds LLP uses the proceeds of the term advance to purchase portfolios of residential mortgage loans and their security from Santander UK plc. Under the
terms of the guarantee, Abbey Covered Bonds LLP has agreed to pay an amount equal to the guaranteed amounts when the same shall become due for payment,
but which would otherwise be unpaid by Santander UK plc.
c) Analysis of securitisations and covered bonds
The Santander UK group\u2019s principal securitisation programmes and covered bond programme, together with the balances of the advances subject to securitisation
(or for the covered bond programme assigned) and the carrying value of the notes in issue at 31 December 2023 and 2022 are listed below.
Group
Gross assets
External notes in issue
Notes issued to Santander UK
plc/subsidiaries as collateral
2023
2022
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Mortgage-backed master trust structures:
\u2013 Holmes
3,242
1,646
2,119
790
300
176
\u2013 Fosse
2,048
2,028
100
100
1,382
1,365
5,290
3,674
2,219
890
1,682
1,541
Other asset-backed securitisation structures:
\u2013 Motor
\u2014
6
\u2014
7
\u2014
\u2014
\u2013 Repton
757
\u2014
550
\u2014
\u2014
\u2014
757
6
550
7
\u2014
\u2014
Total securitisation programmes
6,047
3,680
2,769
897
1,682
1,541
Covered bond programme:
\u2013 Euro 35bn Global Covered Bond Programme
21,880
21,304
15,000
15,205
\u2014
\u2014
Total securitisation and covered bond programmes
27,927
24,984
17,769
16,102
1,682
1,541
During 2023, the remaining asset-backed notes from the Motor securitisation structure were redeemed. In 2023 Repton 2023-1 Limited borrowed \u00a3550m through
an asset-backed variable funding note facility. Repayment of this will begin in 2025.
Holmes Funding Ltd has a beneficial interest of \u00a32,396m (2022: \u00a3796m) in the residential mortgage loans held by Holmes Trustees Ltd. The remaining share of the
beneficial interest in residential mortgage loans held by Holmes Trustees Ltd belongs to Santander UK plc.
Fosse Funding (No.1) Ltd has a beneficial interest of \u00a31,393m (2022: \u00a31,465m) in the residential mortgage loans held by Fosse Trustee (UK) Ltd. The remaining
share of the beneficial interest in residential mortgage loans held by Fosse Trustee (UK) Ltd belongs to Santander UK plc.
The Holmes securitisation companies have cash deposits of \u00a380m (2022: \u00a3112m), which have been accumulated to finance the redemption of a number of
securities issued by the Holmes securitisation companies. The share of Holmes Funding Ltd in the trust assets is therefore reduced by this amount.
The Fosse securitisation companies have cash deposits of \u00a3108m (2022: \u00a3108m), which have been accumulated to finance the redemption of a number of
securities issued by Fosse securitisation companies. The share of Fosse Funding (No.1) Ltd\u2019s beneficial interest in the assets held by Fosse Trustee (UK) Ltd is
therefore reduced by this amount.
17. OTHER FINANCIAL ASSETS AT AMORTISED COST
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Asset backed securities
\u2014
\u2014
1,681
1,551
Debt securities
152
156
152
156
0
152
156
1,833
1,707
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. Detailed disclosures can
be found in the 'Liquidity risk' section of the Risk review.
The Company\u2019s asset backed securities include investments in debt securities issued by Santander UK structured entities.
18. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Debt securities
8,481
6,024
8,481
6,024
8,481
6,024
8,481
6,024
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. Detailed disclosures can
be found in the 'Liquidity risk' section of the Risk review.
26. DEBT SECURITIES IN ISSUE
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Medium-term notes:
\u2013 US$30bn Euro Medium Term Note Programme
744
739
744
739
\u2013 Euro 30bn Euro Medium Term Note Programme
3,784
3,211
3,784
3,202
- US SEC-registered Debt Programme - Santander UK plc
7,128
6,694
7,128
6,707
Medium-term notes
11,656
10,644
11,656
10,648
Euro 35bn Global Covered Bond Programme
15,000
15,205
15,087
15,348
US$20bn Commercial Paper Programmes
2,761
1,851
2,761
1,851
Certificates of deposit
1,530
2,874
1,530
2,874
Credit linked notes
194
60
194
\u2014
Securitisation programmes
2,769
897
\u2014
\u2014
33,910
31,531
31,228
30,721
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
e) Fair values of financial instruments measured at fair value
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 31 December 2023 and 31 December 2022,
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
Group
2023
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Valuation
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
technique
Assets
Derivative financial instruments
Exchange rate contracts
\u2014
1,129
\u2014
1,129
\u2014
2,044
\u2014
2,044
A
Interest rate contracts
\u2014
2,216
1
2,217
\u2014
2,399
7
2,406
A & C
Equity and credit contracts
\u2014
98
35
133
\u2014
100
30
130
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
1,396
36
1,432
\u2014
2,370
37
2,407
Other financial assets at FVTPL
Loans and advances to customers
\u2014
\u2014
46
46
\u2014
\u2014
45
45
A
Debt securities
\u2014
167
49
216
\u2014
12
72
84
A, B & D
\u2014
167
95
262
\u2014
12
117
129
Financial assets at FVOCI
Debt securities
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
D
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
Total assets at fair value
8,293
1,751
131
10,175
5,996
2,410
154
8,560
Liabilities
Derivative financial instruments
Exchange rate contracts
\u2014
508
\u2014
508
\u2014
471
\u2014
471
A
Interest rate contracts
\u2014
2,336
1
2,337
\u2014
2,624
4
2,628
A & C
Equity and credit contracts
\u2014
11
9
20
\u2014
17
8
25
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
808
10
818
\u2014
939
12
951
Other financial liabilities at FVTPL
Debt securities in issue
\u2014
369
\u2014
369
\u2014
372
3
375
A
Structured deposits
\u2014
426
\u2014
426
\u2014
321
\u2014
321
A
Zero Amortising Guaranteed Notes
\u2014
104
\u2014
104
\u2014
107
\u2014
107
D
\u2014
899
\u2014
899
\u2014
800
3
803
Total liabilities at fair value
\u2014
1,707
10
1,717
\u2014
1,739
15
1,754
", "dimensions": { "concept": "ifrs-full:DisclosureOfDebtSecuritiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-614": { "value": "
12. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans and advances to customers:
Loans to housing associations
8
4
8
4
Other loans
38
41
38
41
46
45
46
45
Debt securities
167
15
168
14
Other debt instruments
49
69
\u2014
\u2014
262
129
214
59
For the Santander UK group, other financial assets at FVTPL comprised \u00a38m (2022: \u00a316m) of financial assets designated at FVTPL and \u00a3254m (2022: \u00a3113m) of
financial assets mandatorily held at FVTPL. For the Company, other financial assets at FVTPL comprised \u00a38m (2022: \u00a316m) of financial assets designated at FVTPL
and \u00a3206m (2022: \u00a343m) of financial assets mandatorily held at FVTPL.
Loans and advances to customers principally represent other loans, being a portfolio of roll-up mortgages. These are managed, and have their performance
evaluated, on a fair value basis in accordance with a documented investment strategy, and information about them is provided on that basis to management. Since
2009, the Santander UK group\u2019s policy has been not to designate similar new loans at FVTPL.
The net loss in the year attributable to changes in credit risk for loans and advances at FVTPL was \u00a3nil (2022: \u00a31m, 2021: \u00a3nil). The cumulative net loss attributable
to changes in credit risk for loans and advances at FVTPL at 31 December 2023 was \u00a33m (2022: \u00a33m, 2021: \u00a32m).
22. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Structured Notes Programmes
369
375
369
375
Structured deposits
426
321
426
321
Zero Amortising Guaranteed Notes
104
107
104
107
899
803
899
803
For the Santander UK group and the Company, all (2022: all) of the other financial liabilities at FVTPL were designated as such.
Gains and losses arising from changes in the credit spread of securities issued by the Santander UK group reverse over the contractual life of the debt, provided that
the debt is not repaid at a premium or a discount. The net loss during the year attributable to changes in the Santander UK group\u2019s own credit risk on the above
securities was \u00a321m (2022: \u00a325m gain, 2021: \u00a312m loss). The cumulative net loss attributable to changes in the Santander UK group\u2019s own credit risk on the above
securities at 31 December 2023 was \u00a36m (2022: \u00a315m gain, 2021: \u00a310m loss).
At 31 December 2023, the amount that would be required to be contractually paid at maturity of the securities above was \u00a397m (2022: \u00a3138m) higher than the
carrying value.
The table below provides an analysis of financial instruments valued using internal models based on information other than market data together with further
details on the valuation techniques used for each type of instrument. Each instrument is initially valued at transaction price:
Group
Balance sheet value
Fair value movements recognised
in profit/(loss)
2023
2022
2023
2022
2021
Balance sheet line item
Category
Financial instrument product type
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
1. Derivative assets
Equity and credit contracts
Reversionary property interests
35
30
12
(8)
\u2014
2. FVTPL assets
Loans and advances to customers
Roll-up mortgage portfolio
24
28
(2)
(18)
(5)
3. FVTPL assets
Loans and advances to customers
Other loans
22
17
4
(4)
(2)
4. FVTPL assets
Debt securities
Reversionary property securities
49
70
(3)
\u2014
5
130
145
11
(30)
(2)
Other Level 3 assets
1
9
(1)
10
(9)
Other Level 3 liabilities
(10)
(15)
(2)
3
7
Total net assets
121
139
Total income/(expense)
8
(17)
(4)
Valuation techniques (Group)
1. Derivative assets \u2013 Equity and credit contracts
These are valued using a probability weighted set of HPI forward prices, which are assumed to be a reasonable representation of the increase in value of the
Santander UK group\u2019s reversionary interest portfolio underlying the derivatives. The probability used reflects the likelihood of the homeowner vacating the property
and is calculated from mortality rates and acceleration rates which are a function of age and gender, obtained from the relevant mortality tables. Indexing is felt to
be appropriate due to the size and geographical dispersion of the reversionary interest portfolio. These are determined using HPI Spot Rates adjusted to reflect
estimated forward growth. Non-seasonally adjusted (NSA) national and regional HPI are used in the valuation model to avoid any subjective judgement in the
adjustment process, which is made by Markit, which publishes the Halifax House Price Index.
The inputs used to determine the value of the reversionary property derivatives are HPI spot, HPI forward growth and mortality rates. The principal pricing
parameter is HPI forward growth.
2. FVTPL assets \u2013 Loans and advances to customers \u2013 roll-up mortgage portfolio
These represent roll-up mortgages (sometimes referred to as lifetime mortgages), which are an equity release scheme under which a property owner takes out a
loan secured against their home. The owner does not have to make any interest payments during their lifetime in which case the fixed interest payments are rolled
up into the mortgage. The loan or mortgage (capital and rolled-up interest) is repaid upon the owner\u2019s vacation of the property and the value of the loan is only
repaid from the value of the property. This is known as a \u2018no negative equity guarantee\u2019. Santander UK suffers a loss if the sale proceeds from the property are
insufficient to repay the loan, as it is unable to pursue the homeowner\u2019s estate or beneficiaries for the shortfall.
The value of the mortgage \u2018rolls up\u2019 or accretes until the owner vacates the property. In order to value the roll-up mortgages, Santander UK uses a probability-
weighted set of European option prices (puts) determined using the Black-Scholes model, in which the \u2018no negative equity guarantee\u2019 are valued as short put
options. The probability weighting applied is calculated from mortality rates and acceleration rates as a function of age and gender, taken from mortality tables.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth, HPI volatility, mortality rates and repayment rates. The principal
pricing parameter is HPI forward growth. The HPI forward growth rate used is unobservable and is the same as used in the valuation of Instrument 1 above. The
other parameters do not have a significant effect on the value of the instruments.
3. FVTPL assets \u2013 Loans and advances to customers \u2013 other loans
These relate to loans to transport and education companies. The fair value of these loans is estimated using the \u2018present value\u2019 model based on a credit curve
derived from current market spreads. Loan specific credit data is unobservable, so a proxy population is applied based on industry sector and credit rating.
4. FVTPL assets \u2013 Debt securities
These consist of reversionary property securities and are an equity release scheme, where the property owner receives an upfront lump sum in return for paying a
fixed percentage of the sales proceeds of the property when the owner vacates the property. These reversionary property securities are valued using a probability-
weighted set of HPI forward prices which are assumed to be a reasonable representation of the increase in value of Santander UK\u2019s reversionary interest portfolio
underlying the derivatives. The probability weighting used reflects the probability of the homeowner vacating the property through death or moving into care and is
calculated from mortality rates and acceleration factors which are a function of age and gender, obtained from the relevant mortality table.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth and mortality rates. The principal pricing parameter is HPI forward
growth. Discussion of the HPI spot rate, HPI forward growth rate and mortality rates for this financial instrument is the same as Instrument 1 above. An adjustment
is also made to reflect the specific property risk. Specific property risk is from the difference between the specific properties in the portfolio, and the average price as
expressed in the regionally weighted house price index.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives (Level 3)
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are
not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the inputs to the valuation models to reasonably possible alternative assumptions would change the
fair values significantly. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions.
Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable
input as described in the table below. The potential effects do not take into effect any hedged positions.
Group
Significant unobservable input
Sensitivity
Assumption value
Favourable
changes
Unfavourable
changes
Fair value
Range (1)
Weighted
average
Shift
2023
\u00a3m
Assumption description
\u00a3m
\u00a3m
1. Derivative assets \u2013 Equity and credit contracts:
35
HPI Forward growth rate
-5% to 5%
(0.20)%
1.0%
2
(2)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
2
(4)
2. FVTPL \u2013 Loans and advances to customers:
24
HPI Forward growth rate
-5% to 5%
1.31%
1.0%
\u2014
\u2014
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
22
Credit spreads
0.13% - 2.54%
0.97%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
49
HPI Forward growth rate
-5% to 5%
-0.20%
1.0%
\u2014
\u2014
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
2
(2)
2022
1. Derivative assets \u2013 Equity and credit contracts:
30
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
4
(4)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
4
(4)
2. FVTPL \u2013 Loans and advances to customers:
28
HPI Forward growth rate
-5% to 5%
1.39%
1.0%
1
(1)
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
17
Credit spreads
0.19% to 2.04%
0.98%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
70
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
1
(1)
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
3
(3)
5. Derivative liabilities \u2013 Equity contracts:
(8)
HPI Forward growth rate
-5% to 5%
(0.92)%
1.0%
1
(1)
\u2013 Property-related options and forwards
HPI Spot rate(2)
n/a
491
10.0%
2
(3)
(1) The range of actual assumption values used to calculate the weighted average disclosure.
(2) The HPI spot rate in the weighted average column represents the HPI spot rate index level at 31 December 2023 and 2022.
No sensitivities are presented for FVTPL assets \u2013 Debt securities (credit linked securities) or FVTPL liabilities - Financial guarantees, as the terms of these
instruments are fully matched. As a result, any changes in the valuation of the credit linked notes would be offset by an equal and opposite change in the valuation
of the financial guarantees.
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-616": { "value": "
13. LOANS AND ADVANCES TO CUSTOMERS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Loans secured on residential properties
172,854
184,317
172,854
184,317
Corporate loans
18,267
19,057
17,794
18,525
Finance leases
4,530
4,645
\u2014
\u2014
Other unsecured loans
7,232
7,742
7,065
7,447
Accrued interest and other adjustments
943
688
882
687
Amounts due from fellow Banco Santander subsidiaries and joint ventures
4,489
4,220
4
69
Amounts due from Santander UK Group Holdings plc
55
\u2014
55
\u2014
Amounts due from subsidiaries
\u2014
\u2014
25,903
25,089
Loans and advances to customers
208,370
220,669
224,557
236,134
Credit impairment loss allowances on loans and advances to customers
(914)
(931)
(1,046)
(1,063)
Residual value and voluntary termination provisions on finance leases
(21)
(22)
\u2014
\u2014
Net loans and advances to customers
207,435
219,716
223,511
235,071
For movements in expected credit losses, see the 'Movement in total exposures and the corresponding ECL' table in the Santander UK group level - Credit risk
review section of the Risk review.
Finance lease and hire purchase contract receivables may be analysed as follows:
Group
2023
2022
Gross
investment
Unearned
finance
income
Net
investment
Gross
investment
Unearned
finance income
Net
investment
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
No later than one year
1,502
(216)
1,286
1,493
(182)
1,311
Later than one year and not later than two years
1,426
(208)
1,218
1,367
(168)
1,199
Later than two years and not later than three years
1,331
(194)
1,137
1,190
(147)
1,043
Later than three years and not later than four years
882
(129)
753
1,044
(129)
915
Later than four years and not later than five years
99
(14)
85
143
(18)
125
Later than five years
60
(9)
51
59
(7)
52
5,300
(770)
4,530
5,296
(651)
4,645
At 31 December 2023 and 2022, the Company had no finance lease and hire purchase contract receivables.The Santander UK group enters into finance leasing
arrangements primarily for the financing of motor vehicles and a range of assets for its corporate customers. Included in the carrying value of net investment in
finance leases and hire purchase contracts is \u00a31,830m (2022: \u00a31,761m) of unguaranteed RV at the end of the current lease terms, which is expected to be
recovered through re-payment, re-financing or sale. Contingent rent income of nil (2022: \u00a3nil, 2021: \u00a3nil) was earned in the year, which was classified in \u2018Interest
and similar income\u2019. Finance income on the net investment in finance leases was \u00a3266m (2022: \u00a3230m, 2021: \u00a3243m).
Finance lease receivable balances are secured over the asset leased. The Santander UK group is not permitted to sell or repledge the asset in the absence of default
by the lessee. The Directors consider that the carrying amount of the finance lease receivables approximates to their fair value.
Included within loans and advances to customers are advances assigned to bankruptcy remote structured entities and Abbey Covered Bonds LLP. These loans
provide security to issues of covered bonds and mortgage-backed or other asset-backed securities issued by the Santander UK group. For more, see Note 14.
At 31 December 2023 and 2022, the Santander UK group had contracted with lessees for the following future undiscounted minimum lease payments receivable
under operating leases.
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
No later than one year
28
31
27
30
Later than one year and not later than two years
26
27
24
26
Later than two years and not later than three years
18
22
17
22
Later than three years and not later than four years
14
13
13
12
Later than four years and not later than five years
7
11
6
10
Later than five years
18
21
13
15
111
125
100
115
18. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Debt securities
8,481
6,024
8,481
6,024
8,481
6,024
8,481
6,024
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. Detailed disclosures can
be found in the 'Liquidity risk' section of the Risk review.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
e) Fair values of financial instruments measured at fair value
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 31 December 2023 and 31 December 2022,
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
Group
2023
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Valuation
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
technique
Assets
Derivative financial instruments
Exchange rate contracts
\u2014
1,129
\u2014
1,129
\u2014
2,044
\u2014
2,044
A
Interest rate contracts
\u2014
2,216
1
2,217
\u2014
2,399
7
2,406
A & C
Equity and credit contracts
\u2014
98
35
133
\u2014
100
30
130
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
1,396
36
1,432
\u2014
2,370
37
2,407
Other financial assets at FVTPL
Loans and advances to customers
\u2014
\u2014
46
46
\u2014
\u2014
45
45
A
Debt securities
\u2014
167
49
216
\u2014
12
72
84
A, B & D
\u2014
167
95
262
\u2014
12
117
129
Financial assets at FVOCI
Debt securities
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
D
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
Total assets at fair value
8,293
1,751
131
10,175
5,996
2,410
154
8,560
Liabilities
Derivative financial instruments
Exchange rate contracts
\u2014
508
\u2014
508
\u2014
471
\u2014
471
A
Interest rate contracts
\u2014
2,336
1
2,337
\u2014
2,624
4
2,628
A & C
Equity and credit contracts
\u2014
11
9
20
\u2014
17
8
25
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
808
10
818
\u2014
939
12
951
Other financial liabilities at FVTPL
Debt securities in issue
\u2014
369
\u2014
369
\u2014
372
3
375
A
Structured deposits
\u2014
426
\u2014
426
\u2014
321
\u2014
321
A
Zero Amortising Guaranteed Notes
\u2014
104
\u2014
104
\u2014
107
\u2014
107
D
\u2014
899
\u2014
899
\u2014
800
3
803
Total liabilities at fair value
\u2014
1,707
10
1,717
\u2014
1,739
15
1,754
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToCustomersExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-617": { "value": "
18. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Debt securities
8,481
6,024
8,481
6,024
8,481
6,024
8,481
6,024
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. Detailed disclosures can
be found in the 'Liquidity risk' section of the Risk review.
a) Fair value measurement and hierarchy
(i) Fair value measurement
The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal, or in its absence, the most advantageous market to which Santander UK has access at that date. The fair value
of a liability reflects its non-performance risk.
Financial instruments valued using observable market prices
If a quoted market price in an active market is available for an instrument, the fair value is calculated as the current bid price multiplied by the number of units of the
instrument held.
Financial instruments valued using a valuation technique
In the absence of a quoted market price in an active market, management uses internal models to make its best estimate of the price that the market would set for
that financial instrument. In order to make these estimations, various techniques are employed, including extrapolation from observable market data and
observation of similar financial instruments with similar characteristics. Wherever possible, valuation parameters for each product are based on prices directly
observable in active markets or that can be derived from directly observable market prices. Chosen valuation techniques incorporate all the factors that market
participants would take into account in pricing transactions.
Santander UK manages certain groups of financial assets and liabilities on the basis of its net exposure to either market risks or credit risk. As a result, it has elected
to use the exception under IFRS 13 which permits the fair value measurement of a group of financial assets and financial liabilities on the basis of the price that
would be received to sell a net long position for a particular risk exposure or paid to transfer a net short position for a particular risk exposure in an orderly
transaction between market participants at the measurement date under current market conditions.
(ii) Fair value hierarchy
Santander UK applies the following fair value hierarchy that prioritises the inputs to valuation techniques used in measuring fair value. The hierarchy establishes
three categories for valuing financial instruments, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The three categories are: quoted prices in active markets (Level 1), internal models based on observable market data (Level
2) and internal models based on other than observable market data (Level 3). If the inputs used to measure an asset or a liability fall to different levels within the
hierarchy, the classification of the entire asset or liability will be based on the lowest level input that is significant to the overall fair value measurement of the asset
or liability.
Santander UK categorises assets and liabilities measured at fair value within the fair value hierarchy based on the inputs to the valuation techniques as follows:
Level 1Unadjusted quoted prices for identical assets or liabilities in an active market that Santander UK can access at the measurement date. Active markets are
assessed by reference to average daily trading volumes in absolute terms and, where applicable, by reference to market capitalisation for the instrument.
Level 2Quoted prices in inactive markets, quoted prices for similar assets or liabilities, recent market transactions, inputs other than quoted market prices for the
asset or liability that are observable either directly or indirectly for substantially the full term, and inputs to valuation techniques that are derived principally from or
corroborated by observable market data through correlation or other statistical means for substantially the full term of the asset or liability.
Level 3Significant inputs to the pricing or valuation techniques are unobservable. These unobservable inputs reflect the assumptions that market participants
would use when pricing assets or liabilities and are considered significant to the overall valuation.
Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy.
The Santander UK group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level
of observability of the inputs to the valuation techniques at the end of the reporting period.
b) Valuation techniques
The main valuation techniques employed in internal models to measure the fair value of the financial instruments at 31 December 2023 and 2022 are set out
below. In substantially all cases, the principal inputs into these models are derived from observable market data. Santander UK did not make any material changes
to the valuation techniques and internal models it used in 2023, 2022 and 2021.
A. In the valuation of financial instruments requiring static hedging (for example interest rate, currency derivatives and property derivatives) and in the valuation
of loans and advances and deposits, the \u2018present value\u2019 method is used. Expected future cash flows are discounted using the interest rate curves of the
applicable currencies or forward house price index levels, as well as credit spreads. The interest rate curves are generally observable market data and
reference yield curves derived from quoted interest rates in appropriate time bandings, which match the timings of the cash flows and maturities of the
instruments.
B. In the valuation of equity financial instruments requiring dynamic hedging (principally equity securities, options and other structured instruments), proprietary
local volatility and stochastic volatility models are used. These types of models are widely accepted in the financial services industry. Observable market inputs
used in these models include the bid-offer spread, foreign currency exchange rates, volatility and correlation between indices. In limited circumstances, other
inputs may be used in these models that are based on unobservable market data, such as the Halifax\u2019s UK HPI volatility, HPI forward growth, HPI spot rate,
mortality and mean reversion.
C. In the valuation of financial instruments exposed to interest rate risk that require either static or dynamic hedging (such as interest rate futures, caps and
floors, and options), the present value method (futures), Black\u2019s model (caps/floors) and the Hull/White and Markov functional models (Bermudan options) are
used. These types of models are widely accepted in the financial services industry. The significant inputs used in these models are observable market data,
including appropriate interest rate curves, volatilities, correlations and exchange rates. In limited circumstances, other inputs may be used in these models that
are based on unobservable market data, such as HPI volatility, HPI forward growth, HPI spot rate and mortality.
D. In the valuation of linear instruments such as credit risk and fixed-income derivatives, credit risk is measured using dynamic models similar to those used in the
measurement of interest rate risk. In the case of non-linear instruments, if the portfolio is exposed to credit risk such as credit derivatives, the probability of
default is determined using the credit default spread market. The main inputs used to determine the underlying cost of credit of credit derivatives are quoted
credit risk premiums and the correlation between the quoted credit derivatives of various issuers.
The fair values of the financial instruments arising from Santander UK\u2019s internal models take into account, among other things, contract terms and observable
market data, which include such factors as bid-offer spread, interest rates, credit risk, exchange rates, the quoted market price of equity securities, volatility and
prepayments. In all cases, when it is not possible to derive a valuation for a particular feature of an instrument, management uses judgement to determine the fair
value of the particular feature. In exercising this judgement, a variety of tools are used including proxy observable data, historical data and extrapolation techniques.
Extrapolation techniques take into account behavioural characteristics of equity markets that have been observed over time, and for which there is a strong case to
support an expectation of a continuing trend in the future. Estimates are calibrated to observable market prices when they become available.
Santander UK believes its valuation methods are appropriate and consistent with other market participants. Nevertheless, the use of different valuation methods or
assumptions, including imprecision in estimating unobservable market inputs, to determine the fair value of certain financial instruments could result in different
estimates of fair value at the reporting date and the amount of gain or loss recorded for a particular instrument. Most of the valuation models are not significantly
subjective, because they can be tested and, if necessary, recalibrated by the internal calculation of and subsequent comparison to market prices of actively traded
securities, where available.
c) Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk-taker. To this
end, ultimate responsibility for the determination of fair values lies with the Risk Department. For all financial instruments where fair values are determined by
reference to externally quoted prices or observable pricing inputs to models, independent price determination or verification is utilised. In inactive markets, direct
observation of a traded price may not be possible. In these circumstances, Santander UK will source alternative market information to validate the financial
instrument\u2019s fair value, with greater weight given to information that is considered to be more relevant and reliable.
The factors that are considered in this regard include:
\u2013 The extent to which prices may be expected to represent genuine traded or tradeable prices
\u2013 The degree of similarity between financial instruments
\u2013 The degree of consistency between different sources
\u2013 The process followed by the pricing provider to derive the data
\u2013 The elapsed time between the date to which the market data relates and the balance sheet date
\u2013 The manner in which the data was sourced.
The source of pricing data is considered as part of the process that determines the classification of the level of a financial instrument. Consideration is given to the
quality of the information available that provides the current mark-to-model valuation and estimates of how different these valuations could be on an actual trade,
taking into consideration how active the market is. For spot assets that cannot be sold due to illiquidity, forward estimates are discounted to estimate a realisable
value over time. Adjustments for illiquid positions are regularly reviewed to reflect changing market conditions.
For fair values determined using a valuation model, the control framework may include as applicable, independent development and / or validation of: (i) the logic
within the models; (ii) the inputs to those models; and (iii) any adjustments required outside the models. Internal valuation models are validated independently
within the Risk Department. A validation report is produced for each model-derived valuation that assesses the mathematical assumptions behind the model, the
implementation of the model and its integration within the trading system.
d) Fair values of financial instruments carried at amortised cost
The following tables analyse the fair value of the financial instruments carried at amortised cost at 31 December 2023 and 2022, including their levels in the fair
value hierarchy - Level 1, Level 2 and Level 3. Cash and balances at central banks, which consist of demand deposits with the Bank of England, together with cash in
tills and ATMs, have been excluded from the table as the carrying amount is deemed an appropriate approximation of fair value.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
The carrying value above of any financial assets and liabilities that are designated as hedged items in a portfolio (or macro) fair value hedge relationship excludes
gains and losses attributable to the hedged risk, as this is included as a separate line item on the balance sheet.
Valuation methodology for financial instruments carried at amortised cost
The valuation approach to specific categories of financial instruments is described below.
Assets:
Loans and advances to customers
The approach to estimating the fair value of loans and advances to customers has been determined by discounting expected cash flows to reflect either current
market rates or credit spreads relevant to the specific industry of the borrower. The determination of their fair values is an area of considerable estimation and
uncertainty as there is no observable market and values are significantly affected by customer behaviour.
i) Advances secured on residential property
The fair value of the mortgage portfolio is calculated by discounting contractual cash flows by different spreads for each LTV Band, after taking account of expected
customer prepayment rates. The spread is based on new business interest rates derived from publicly available competitor market information.
ii) Corporate loans
The determination of the fair values of performing loans is calculated by discounting the contractual cash flows and also deducting other costs relating to expected
credit losses, cost of capital, credit risk capital, operational risk capital, cost of funding and operating costs.
iii) Other loans
These consist of unsecured personal loans, credit cards, overdrafts and consumer (auto) finance. The weighted average lives of these portfolios are typically short
and relate to relatively new business. For unsecured personal loans and consumer (auto) finance loans, a small surplus or deficit has been recognised based on the
differential between existing portfolio margins and the current contractual interest rates.
Loans and advances to banks
These comprise secured loans, short-term placements with banks including collateral and unsettled financial transactions. The secured loans have been valued
based on a discounted spread for the term of the loans using valuation technique A as described above. The carrying amount of the other items is deemed a
reasonable approximation of their fair value, as the transactions are very short-term in duration.
Reverse repurchase agreements - non-trading
The fair value of the reverse repurchase agreements - non trading has been estimated using valuation technique A as described above, using a spread appropriate to
the underlying collateral.
Other financial assets at amortised cost
These consist of asset backed securities and debt securities. The asset backed securities can be complex products and in some instances are valued with the
assistance of an independent, specialist valuation firm. These fair values are determined using industry-standard valuation techniques, including discounted cash
flow models. The inputs to these models used in these valuation techniques include quotes from market makers, prices of similar assets, adjustments for
differences in credit spreads, and additional quantitative and qualitative research. The debt security investments consist of a portfolio of government debt securities.
The fair value of this portfolio has been determined using quoted market prices.
Liabilities:
Deposits by customers
The majority of deposit liabilities are payable on demand and therefore can be deemed short-term in nature with the fair value equal to the carrying value. Certain
of the deposit liabilities are at a fixed rate until maturity. The deficit/surplus of fair value over carrying value of these liabilities has been estimated by reference to
the market rates available at the balance sheet date for similar deposit liabilities of similar maturities. The fair value of such deposit liabilities has been estimated
using valuation technique A as described above.
Deposits by banks
The fair value of deposits by banks, including repos, has been estimated using valuation technique A as described above, discounted at the appropriate credit spread.
Repurchase agreements - non trading
The fair value of the repurchase agreements - non trading has been estimated using valuation technique A as described above, discounted at a spread appropriate
to the underlying collateral.
Debt securities in issue and subordinated liabilities
Where reliable prices are available, the fair value of debt securities in issue and subordinated liabilities has been calculated using quoted market prices. Where
reliable prices are not available, internal models have been used to determine fair values, which take into account, among other things, contract terms and
observable market data, which include such factors as interest rates, credit risk and exchange rates. In all cases, when it is not possible to derive a valuation for a
particular feature of an instrument, management uses judgement to determine the fair value of the particular feature. In exercising this judgement, a variety of
tools are used including proxy observable data.
e) Fair values of financial instruments measured at fair value
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 31 December 2023 and 31 December 2022,
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
Group
2023
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Valuation
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
technique
Assets
Derivative financial instruments
Exchange rate contracts
\u2014
1,129
\u2014
1,129
\u2014
2,044
\u2014
2,044
A
Interest rate contracts
\u2014
2,216
1
2,217
\u2014
2,399
7
2,406
A & C
Equity and credit contracts
\u2014
98
35
133
\u2014
100
30
130
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
1,396
36
1,432
\u2014
2,370
37
2,407
Other financial assets at FVTPL
Loans and advances to customers
\u2014
\u2014
46
46
\u2014
\u2014
45
45
A
Debt securities
\u2014
167
49
216
\u2014
12
72
84
A, B & D
\u2014
167
95
262
\u2014
12
117
129
Financial assets at FVOCI
Debt securities
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
D
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
Total assets at fair value
8,293
1,751
131
10,175
5,996
2,410
154
8,560
Liabilities
Derivative financial instruments
Exchange rate contracts
\u2014
508
\u2014
508
\u2014
471
\u2014
471
A
Interest rate contracts
\u2014
2,336
1
2,337
\u2014
2,624
4
2,628
A & C
Equity and credit contracts
\u2014
11
9
20
\u2014
17
8
25
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
808
10
818
\u2014
939
12
951
Other financial liabilities at FVTPL
Debt securities in issue
\u2014
369
\u2014
369
\u2014
372
3
375
A
Structured deposits
\u2014
426
\u2014
426
\u2014
321
\u2014
321
A
Zero Amortising Guaranteed Notes
\u2014
104
\u2014
104
\u2014
107
\u2014
107
D
\u2014
899
\u2014
899
\u2014
800
3
803
Total liabilities at fair value
\u2014
1,707
10
1,717
\u2014
1,739
15
1,754
Transfers between levels of the fair value hierarchy
In 2023 there were \u00a322m (2022: no significant) transfers of financial instruments between levels of the fair value hierarchy.
f) Fair value adjustments
The internal models incorporate assumptions that Santander UK believes would be made by a market participant to establish fair value. Fair value adjustments are
adopted when Santander UK considers that there are additional factors that would be considered by a market participant that are not incorporated in the valuation
model.
Santander UK classifies fair value adjustments as either \u2018risk-related\u2019 or \u2018model-related\u2019. The fair value adjustments form part of the portfolio fair value and are
included in the balance sheet values of the product types to which they have been applied.
The fair value adjustments are set out in the following table:
Group
2023
2022
\u00a3m
\u00a3m
Risk-related:
- Bid-offer and trade specific adjustments
(6)
(12)
- Uncertainty
6
12
- Credit risk adjustment
1
2
- Funding fair value adjustment
1
1
2
3
Day One profit
1
1
3
4
Risk-related adjustments
Risk-related adjustments are driven, in part, by the magnitude of Santander UK\u2019s market or credit risk exposure, and by external market factors, such as the size of
market spreads.
(i) Bid-offer and trade specific adjustments
Portfolios are marked at bid or offer, as appropriate. Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the cost that
would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the
position. For debt securities, the bid-offer spread is based on a market price at an individual security level. For other products, the major risk types are identified. For
each risk type, the net portfolio risks are first classified into buckets, and then a bid-offer spread is applied to each risk bucket based upon the market bid-offer
spread for the relevant hedging instrument.
(ii) Uncertainty
Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more subjective. In these circumstances, a range
of possible values exists that the financial instrument or market parameter may assume, and an adjustment may be needed to reflect the likelihood that in
estimating the fair value of the financial instrument, market participants would adopt more conservative values for uncertain parameters and/or model
assumptions than those used in the valuation model.
(iii) Credit risk adjustment
Credit risk adjustments comprise credit and debit valuation adjustments. The credit valuation adjustment (CVA) is an adjustment to the valuation of OTC derivative
contracts to reflect within fair value the possibility that the counterparty may default, and Santander UK may not receive the full market value of the transactions.
The debit valuation adjustment (DVA) is an adjustment to the valuation of the OTC derivative contracts to reflect within the fair value the possibility that Santander
UK may default, and that Santander UK may not pay full market value of the transactions.
Santander UK calculates a separate CVA and DVA for each Santander UK legal entity, and within each entity for each counterparty to which the entity has exposure.
Santander UK calculates the CVA by applying the probability of default of the counterparty to the expected positive exposure to the counterparty, and multiplying
the result by the loss expected in the event of default i.e. LGD. Conversely, Santander UK calculates the DVA by applying the PD of the Santander UK group, to the
expected positive exposure of the counterparty to Santander UK and multiplying the result by the LGD. Both calculations are performed over the life of the potential
exposure.
For most products Santander UK uses a simulation methodology to calculate the expected positive exposure to a counterparty. This incorporates a range of
potential exposures across the portfolio of transactions with the counterparty over the life of the portfolio. The simulation methodology includes credit mitigants
such as counterparty netting agreements and collateral agreements with the counterparty.
(iv) Funding fair value adjustment (FFVA)
The FFVA is an adjustment to the valuation of OTC derivative positions to include the net cost of funding uncollateralised derivative positions. This is calculated by
applying a suitable funding cost to the expected future funding exposure of any uncollateralised component of the OTC derivative portfolio.
Model-related adjustments
Models used for portfolio valuation purposes may be based upon a simplifying set of assumptions that do not capture all material market characteristics.
Additionally, markets evolve, and models that were adequate in the past may require development to capture all material market characteristics in current market
conditions. In these circumstances, model limitation adjustments are adopted. As model development progresses, model limitations are addressed within the core
revaluation models and a model limitation adjustment is no longer needed.
Day One profit adjustments
Day One profit adjustments are adopted where the fair value estimated by a valuation model is based on one or more significant unobservable inputs. Day One
profit adjustments are calculated and reported on a portfolio basis.
The timing of recognition of deferred Day One profit and loss is determined individually. It is deferred until either the instrument\u2019s fair value can be determined
using market observable inputs or is realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred Day
One profit and loss. Subsequent changes in fair value are recognised immediately in the Income Statement without immediate reversal of deferred Day One profits
and losses.
g) Internal models based on information other than market data (Level 3)
The table below provides an analysis of financial instruments valued using internal models based on information other than market data together with further
details on the valuation techniques used for each type of instrument. Each instrument is initially valued at transaction price:
Group
Balance sheet value
Fair value movements recognised
in profit/(loss)
2023
2022
2023
2022
2021
Balance sheet line item
Category
Financial instrument product type
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
1. Derivative assets
Equity and credit contracts
Reversionary property interests
35
30
12
(8)
\u2014
2. FVTPL assets
Loans and advances to customers
Roll-up mortgage portfolio
24
28
(2)
(18)
(5)
3. FVTPL assets
Loans and advances to customers
Other loans
22
17
4
(4)
(2)
4. FVTPL assets
Debt securities
Reversionary property securities
49
70
(3)
\u2014
5
130
145
11
(30)
(2)
Other Level 3 assets
1
9
(1)
10
(9)
Other Level 3 liabilities
(10)
(15)
(2)
3
7
Total net assets
121
139
Total income/(expense)
8
(17)
(4)
Valuation techniques (Group)
1. Derivative assets \u2013 Equity and credit contracts
These are valued using a probability weighted set of HPI forward prices, which are assumed to be a reasonable representation of the increase in value of the
Santander UK group\u2019s reversionary interest portfolio underlying the derivatives. The probability used reflects the likelihood of the homeowner vacating the property
and is calculated from mortality rates and acceleration rates which are a function of age and gender, obtained from the relevant mortality tables. Indexing is felt to
be appropriate due to the size and geographical dispersion of the reversionary interest portfolio. These are determined using HPI Spot Rates adjusted to reflect
estimated forward growth. Non-seasonally adjusted (NSA) national and regional HPI are used in the valuation model to avoid any subjective judgement in the
adjustment process, which is made by Markit, which publishes the Halifax House Price Index.
The inputs used to determine the value of the reversionary property derivatives are HPI spot, HPI forward growth and mortality rates. The principal pricing
parameter is HPI forward growth.
2. FVTPL assets \u2013 Loans and advances to customers \u2013 roll-up mortgage portfolio
These represent roll-up mortgages (sometimes referred to as lifetime mortgages), which are an equity release scheme under which a property owner takes out a
loan secured against their home. The owner does not have to make any interest payments during their lifetime in which case the fixed interest payments are rolled
up into the mortgage. The loan or mortgage (capital and rolled-up interest) is repaid upon the owner\u2019s vacation of the property and the value of the loan is only
repaid from the value of the property. This is known as a \u2018no negative equity guarantee\u2019. Santander UK suffers a loss if the sale proceeds from the property are
insufficient to repay the loan, as it is unable to pursue the homeowner\u2019s estate or beneficiaries for the shortfall.
The value of the mortgage \u2018rolls up\u2019 or accretes until the owner vacates the property. In order to value the roll-up mortgages, Santander UK uses a probability-
weighted set of European option prices (puts) determined using the Black-Scholes model, in which the \u2018no negative equity guarantee\u2019 are valued as short put
options. The probability weighting applied is calculated from mortality rates and acceleration rates as a function of age and gender, taken from mortality tables.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth, HPI volatility, mortality rates and repayment rates. The principal
pricing parameter is HPI forward growth. The HPI forward growth rate used is unobservable and is the same as used in the valuation of Instrument 1 above. The
other parameters do not have a significant effect on the value of the instruments.
3. FVTPL assets \u2013 Loans and advances to customers \u2013 other loans
These relate to loans to transport and education companies. The fair value of these loans is estimated using the \u2018present value\u2019 model based on a credit curve
derived from current market spreads. Loan specific credit data is unobservable, so a proxy population is applied based on industry sector and credit rating.
4. FVTPL assets \u2013 Debt securities
These consist of reversionary property securities and are an equity release scheme, where the property owner receives an upfront lump sum in return for paying a
fixed percentage of the sales proceeds of the property when the owner vacates the property. These reversionary property securities are valued using a probability-
weighted set of HPI forward prices which are assumed to be a reasonable representation of the increase in value of Santander UK\u2019s reversionary interest portfolio
underlying the derivatives. The probability weighting used reflects the probability of the homeowner vacating the property through death or moving into care and is
calculated from mortality rates and acceleration factors which are a function of age and gender, obtained from the relevant mortality table.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth and mortality rates. The principal pricing parameter is HPI forward
growth. Discussion of the HPI spot rate, HPI forward growth rate and mortality rates for this financial instrument is the same as Instrument 1 above. An adjustment
is also made to reflect the specific property risk. Specific property risk is from the difference between the specific properties in the portfolio, and the average price as
expressed in the regionally weighted house price index.
Reconciliation of fair value measurement in Level 3 of the fair value hierarchy
The following table sets out the movements in Level 3 financial instruments in 2023:
Group
Assets
Liabilities
Derivatives
Other
financial
assets at
FVTPL
Financial
assets at
FVOCI
Total
Derivatives
Other
financial
liabilities
at FVTPL
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
37
117
\u2014
154
(12)
(3)
(15)
Total gains/(losses) recognised:
Fair value movements(2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
Purchases
\u2014
1
\u2014
1
\u2014
\u2014
\u2014
Netting(1)
\u2014
(3)
\u2014
(3)
\u2014
\u2014
\u2014
Settlements
(11)
(20)
\u2014
(31)
4
3
7
At 31 December 2023
36
95
\u2014
131
(10)
\u2014
(10)
Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
At 1 January 2022
46
185
18
249
(32)
(6)
(38)
Total (losses)/gains recognised:
Fair value movements(2)
(2)
(18)
\u2014
(20)
2
1
3
Transfers in
\u2014
\u2014
\u2014
\u2014
(2)
\u2014
(2)
Netting(1)
\u2014
(8)
\u2014
(8)
\u2014
\u2014
\u2014
Sales
\u2014
(5)
\u2014
(5)
\u2014
\u2014
\u2014
Settlements
(7)
(37)
(18)
(62)
20
2
22
At 31 December 2022
37
117
\u2014
154
(12)
(3)
(15)
(Losses)/gains recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
(2)
(18)
\u2014
(20)
2
1
3
This relates to the effect of netting on the fair value of the credit linked notes due to a legal right of set-off between the principal amounts of the senior notes and the associated cash deposits. For more, see \u2018ii)
Credit protection entities\u2019 in Note 19
(2) Fair value movements relating to derivatives and other financial assets at FVTPL are recognised in other operating income in the income statement.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives (Level 3)
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are
not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the inputs to the valuation models to reasonably possible alternative assumptions would change the
fair values significantly. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions.
Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable
input as described in the table below. The potential effects do not take into effect any hedged positions.
Group
Significant unobservable input
Sensitivity
Assumption value
Favourable
changes
Unfavourable
changes
Fair value
Range (1)
Weighted
average
Shift
2023
\u00a3m
Assumption description
\u00a3m
\u00a3m
1. Derivative assets \u2013 Equity and credit contracts:
35
HPI Forward growth rate
-5% to 5%
(0.20)%
1.0%
2
(2)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
2
(4)
2. FVTPL \u2013 Loans and advances to customers:
24
HPI Forward growth rate
-5% to 5%
1.31%
1.0%
\u2014
\u2014
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
22
Credit spreads
0.13% - 2.54%
0.97%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
49
HPI Forward growth rate
-5% to 5%
-0.20%
1.0%
\u2014
\u2014
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
2
(2)
2022
1. Derivative assets \u2013 Equity and credit contracts:
30
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
4
(4)
\u2013 Reversionary property derivatives
HPI Spot rate(2)
n/a
513
10.0%
4
(4)
2. FVTPL \u2013 Loans and advances to customers:
28
HPI Forward growth rate
-5% to 5%
1.39%
1.0%
1
(1)
\u2013 Roll-up mortgage portfolio
3. FVTPL \u2013 Loans and advances to customers:
17
Credit spreads
0.19% to 2.04%
0.98%
20.0%
\u2014
\u2014
\u2013 Other loans
4. FVTPL \u2013 Debt securities:
70
HPI Forward growth rate
-5% to 5%
0.53%
1.0%
1
(1)
\u2013 Reversionary property securities
HPI Spot rate(2)
n/a
513
10.0%
3
(3)
5. Derivative liabilities \u2013 Equity contracts:
(8)
HPI Forward growth rate
-5% to 5%
(0.92)%
1.0%
1
(1)
\u2013 Property-related options and forwards
HPI Spot rate(2)
n/a
491
10.0%
2
(3)
(1) The range of actual assumption values used to calculate the weighted average disclosure.
(2) The HPI spot rate in the weighted average column represents the HPI spot rate index level at 31 December 2023 and 2022.
No sensitivities are presented for FVTPL assets \u2013 Debt securities (credit linked securities) or FVTPL liabilities - Financial guarantees, as the terms of these
instruments are fully matched. As a result, any changes in the valuation of the credit linked notes would be offset by an equal and opposite change in the valuation
of the financial guarantees.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-618": { "value": "
19. INTERESTS IN OTHER ENTITIES
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Subsidiaries
\u2014
\u2014
1,220
1,232
Joint Ventures
245
252
\u2014
\u2014
0
245
252
1,220
1,232
The Santander UK group consists of a parent company, Santander UK plc, incorporated and domiciled in the UK and a number of subsidiaries and joint ventures held
directly and indirectly by it.
Details of subsidiaries and joint ventures are set out in the Shareholder Information section and form an integral part of these financial statements.
Details of subsidiaries benefitting from an audit exemption according to section 479A of the Companies Act 2006 are also set out in the Shareholder Information
section and form an integral part of these financial statements.
a) Interests in subsidiaries
The Company holds directly or indirectly 100% of the issued ordinary share capital of its principal subsidiaries. All companies operate principally in their country of
incorporation or registration.
Interests in consolidated structured entities
Structured entities are formed by Santander UK to accomplish specific and well-defined objectives. Santander UK consolidated these structured entities when the
substance of the relationship indicates control, as described in Note 1. In addition to the structured entities disclosed in Note 14 which are used for securitisation
and covered bond programmes, the only other structured entities consolidated by Santander UK are described below. All the external assets and liabilities in these
entities are included in the financial statements and in relevant Notes. Other than as set out below, no significant judgements were required with respect to control
or significant influence.
Motor Securities 2018-1 Designated Activity Company (Motor 2018)
Motor 2018 is a credit protection entity, and a Designated Activity Company limited by shares, incorporated in Ireland. It issued a series of credit linked notes varying
in seniority which referenced a portfolio of Santander UK group auto loans. Concurrently, this entity sold credit protection to SCUK in respect of the referenced loans
and, in return for a fee, was liable to make protection payments to SCUK upon the occurrence of a credit event in relation to any of the referenced loans. Motor 2018
is consolidated as Santander UK held a variable interest by retaining the junior tranche of notes issued by the entity. The outstanding notes were redeemed and the
transaction terminated in 2023.
b) Interests in joint ventures
Santander UK does not have any individually material interests in joint ventures. In 2023 , Santander UK\u2019s share in the profit after tax of its joint ventures was \u00a343m
(2022: \u00a336m) before elimination of transactions between Santander UK and the joint ventures. At 31 December 2023, the carrying amount of Santander UK\u2019s
interest was \u00a3245m (2022: \u00a3252m ). At 31 December 2023 and 2022, the joint ventures had no commitments and contingent liabilities.
c) Interests in unconsolidated structured entities
Structured entities sponsored by the Santander UK group
Santander UK has interests in structured entities which it sponsors but does not control. Santander UK considers itself a sponsor of a structured entity when it
facilitates the establishment of the structured entity. Other than as set out below, no significant judgements were required with respect to control or significant
influence. The structured entities sponsored but not consolidated by Santander UK are as follows:
i) Santander (UK) Common Investment Fund (the Fund)
The Fund is a common investment fund that was established to hold the assets of the Santander (UK) Group Pension Scheme. The Fund is not consolidated by
Santander UK, but its assets of \u00a38,551m (2022: \u00a38,646m) are accounted for as part of the defined benefit assets and obligations recognised on Santander UK\u2019s
balance sheet. For more on the Fund, see Note 30. As the Fund holds the assets of the pension scheme, it is outside the scope of IFRS 10. Santander UK\u2019s maximum
exposure to loss is the carrying amount of the assets held.
ii) Credit protection entities
Santander UK has established four (2022: four) unconsolidated credit protection entities, which are Designated Activity Companies limited by shares, incorporated in
Ireland. Each entity has issued a series of credit linked notes varying in seniority which reference portfolios of Santander UK group loans. Concurrently, these entities
sell credit protection to Santander UK in respect of the referenced loans and, in return for a fee, are liable to make protection payments to Santander UK upon the
occurrence of a credit event in relation to any of the referenced loans.
Santander UK has no holdings in senior credit linked notes (2022: \u00a3180m). Junior credit linked notes, which amounted to \u00a3185m (2022: \u00a3465m), are all held by
third party investors and suffer the first losses incurred in the referenced portfolios. Funds raised by the sale of the credit linked notes are deposited with Santander
UK as collateral for the credit protection.
The senior credit linked notes, along with the deposits and associated guarantees, are presented on a net basis, to reflect a legal right of set-off between the
principal amounts of senior notes and the cash deposits. Deposits and associated guarantees in respect of the junior credit linked notes are included in \u2018Deposits by
customers\u2019 (see Note 23).
The entities are not consolidated by Santander UK because the third-party investors have the exposure, or rights, to all of the variability of returns from the
performance of the entities. No assets are transferred to, or income received from, these entities. Since the credit linked notes (including those held by Santander
UK) are fully cash collateralised, Santander UK\u2019s maximum exposure to loss is equal to any unamortised fees paid to the entities in connection with the credit
protection outlined above.
Structured entities not sponsored by the Santander UK group
Santander UK also has interests in structured entities which it does not sponsor or control. These consist of holdings of mortgage and other asset backed securities
issued by entities that were established and/or sponsored by other unrelated financial institutions. These securities comprise the asset backed securities included in
Note 17. Management has concluded that the Santander UK group has no control or significant influence over these entities and that the carrying value of the
interests held in these entities represents the maximum exposure to loss.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestsInOtherEntitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-619": { "value": "UK", "dimensions": { "concept": "ifrs-full:DomicileOfEntity", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-620": { "value": "
a) Interests in subsidiaries
The Company holds directly or indirectly 100% of the issued ordinary share capital of its principal subsidiaries. All companies operate principally in their country of
incorporation or registration.
Interests in consolidated structured entities
Structured entities are formed by Santander UK to accomplish specific and well-defined objectives. Santander UK consolidated these structured entities when the
substance of the relationship indicates control, as described in Note 1. In addition to the structured entities disclosed in Note 14 which are used for securitisation
and covered bond programmes, the only other structured entities consolidated by Santander UK are described below. All the external assets and liabilities in these
entities are included in the financial statements and in relevant Notes. Other than as set out below, no significant judgements were required with respect to control
or significant influence.", "dimensions": { "concept": "ifrs-full:DisclosureOfSignificantInvestmentsInSubsidiariesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-622": { "value": "
b) Interests in joint ventures
Santander UK does not have any individually material interests in joint ventures. In 2023 , Santander UK\u2019s share in the profit after tax of its joint ventures was \u00a343m
(2022: \u00a336m) before elimination of transactions between Santander UK and the joint ventures. At 31 December 2023, the carrying amount of Santander UK\u2019s
interest was \u00a3245m (2022: \u00a3252m ). At 31 December 2023 and 2022, the joint ventures had no commitments and contingent liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfJointVenturesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-621": { "value": "
b) Interests in joint ventures
Santander UK does not have any individually material interests in joint ventures. In 2023 , Santander UK\u2019s share in the profit after tax of its joint ventures was \u00a343m
(2022: \u00a336m) before elimination of transactions between Santander UK and the joint ventures. At 31 December 2023, the carrying amount of Santander UK\u2019s
interest was \u00a3245m (2022: \u00a3252m ). At 31 December 2023 and 2022, the joint ventures had no commitments and contingent liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentsAccountedForUsingEquityMethodExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-623": { "value": "
c) Interests in unconsolidated structured entities
Structured entities sponsored by the Santander UK group
Santander UK has interests in structured entities which it sponsors but does not control. Santander UK considers itself a sponsor of a structured entity when it
facilitates the establishment of the structured entity. Other than as set out below, no significant judgements were required with respect to control or significant
influence. The structured entities sponsored but not consolidated by Santander UK are as follows:
i) Santander (UK) Common Investment Fund (the Fund)
The Fund is a common investment fund that was established to hold the assets of the Santander (UK) Group Pension Scheme. The Fund is not consolidated by
Santander UK, but its assets of \u00a38,551m (2022: \u00a38,646m) are accounted for as part of the defined benefit assets and obligations recognised on Santander UK\u2019s
balance sheet. For more on the Fund, see Note 30. As the Fund holds the assets of the pension scheme, it is outside the scope of IFRS 10. Santander UK\u2019s maximum
exposure to loss is the carrying amount of the assets held.
ii) Credit protection entities
Santander UK has established four (2022: four) unconsolidated credit protection entities, which are Designated Activity Companies limited by shares, incorporated in
Ireland. Each entity has issued a series of credit linked notes varying in seniority which reference portfolios of Santander UK group loans. Concurrently, these entities
sell credit protection to Santander UK in respect of the referenced loans and, in return for a fee, are liable to make protection payments to Santander UK upon the
occurrence of a credit event in relation to any of the referenced loans.
Santander UK has no holdings in senior credit linked notes (2022: \u00a3180m). Junior credit linked notes, which amounted to \u00a3185m (2022: \u00a3465m), are all held by
third party investors and suffer the first losses incurred in the referenced portfolios. Funds raised by the sale of the credit linked notes are deposited with Santander
UK as collateral for the credit protection.
The senior credit linked notes, along with the deposits and associated guarantees, are presented on a net basis, to reflect a legal right of set-off between the
principal amounts of senior notes and the cash deposits. Deposits and associated guarantees in respect of the junior credit linked notes are included in \u2018Deposits by
customers\u2019 (see Note 23).
The entities are not consolidated by Santander UK because the third-party investors have the exposure, or rights, to all of the variability of returns from the
performance of the entities. No assets are transferred to, or income received from, these entities. Since the credit linked notes (including those held by Santander
UK) are fully cash collateralised, Santander UK\u2019s maximum exposure to loss is equal to any unamortised fees paid to the entities in connection with the credit
protection outlined above.
Structured entities not sponsored by the Santander UK group
Santander UK also has interests in structured entities which it does not sponsor or control. These consist of holdings of mortgage and other asset backed securities
issued by entities that were established and/or sponsored by other unrelated financial institutions. These securities comprise the asset backed securities included in
Note 17. Management has concluded that the Santander UK group has no control or significant influence over these entities and that the carrying value of the
interests held in these entities represents the maximum exposure to loss.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-624": { "value": "
20. INTANGIBLE ASSETS
a) Goodwill
Group
Company
Cost
Accumulated
impairment
Carrying
amount
Cost
Accumulated
impairment
Carrying
amount
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 31 December 2022 and 1 January 2023 and 31 December 2023
1,269
(70)
1,199
1,194
(4)
1,190
Impairment of goodwill
In 2023 and 2022, no impairment of goodwill was recognised. Goodwill is tested for impairment annually, or more frequently, if reviews identify an impairment
indicator or when events or changes in circumstances dictate. Goodwill is tested for impairment annually at 31 December, with a review for impairment indicators
at 30 June.
The annual review identified that the risks of ongoing global conflicts, places increasing uncertainty on the UK economic trajectory, and its potential impact on the
carrying value of goodwill as impairment indicators for all cash-generating units (CGUs). As a result, management updated the impairment test at 31 December
2023 for all CGUs.
Basis of the recoverable amount
The recoverable amount of all CGUs was determined based on its value in use (VIU) methodology at each testing date. For each CGU, the VIU is calculated by
discounting management\u2019s cash flow projections for the CGU. The cash flow projections also take account of increased internal capital allocations needed to achieve
internal and regulatory capital targets including the leverage ratio. The key assumptions used in the VIU calculation for each CGU are set out below. The Retail &
Business Banking segment consists of the Private Banking CGU and the rest of Retail & Business Banking, known as the Personal Financial Services CGU.
Carrying amount of Goodwill by CGU and key assumptions in the VIU calculation
Goodwill
Discount rate
Growth rate beyond initial cash
flow projections
2023
2022
2023
2022
2023
2022
CGU
\u00a3m
\u00a3m
%
%
%
%
Personal Financial Services
1,169
1,169
16.7
16.6
1.6
1.6
Private Banking
30
30
14.6
15.3
1.6
1.6
1,199
1,199
The CGUs do not carry on their balance sheets any other intangible assets with indefinite useful lives.
Management\u2019s judgement in estimating the cash flows of a CGU
The cash flow projections for the purpose of impairment testing for each CGU are derived from the latest 3-year plan presented to the Board. The Board challenges
and endorses management\u2019s planning assumptions in light of internal capital allocations needed to support Santander UK\u2019s strategy, current market conditions and
the macroeconomic outlook. For the goodwill impairment tests conducted at 31 December 2023, the determination of the carrying amount of the Personal
Financial Services CGU was based on an allocation of regulatory capital and management\u2019s cash flow projections until the end of 2026. The assumptions included in
the cash flow projections reflect an allocation to the cost of capital to support future growth, as well as the expected impact of recent events in the UK economic
environment on the financial outlook within which the CGUs operate. The cash flow projections are supported by Santander UK\u2019s base case economic scenario. For
more on the base case economic scenario, including our forecasting approach and the assumptions in place at 31 December 2023, see the Credit risk \u2013 Santander
UK group level section of the Risk review. The cash flow projections take into account the likely impact of recent changes to the BoE Bank Rate, inflation and also
consider the impact of future climate change.
Cash flow projections for the purpose of impairment testing do not take account of any adverse outcomes arising from contingent liabilities (see Note 31), whose
existence will be confirmed by uncertain future events or where any obligation is not probable or otherwise cannot be measured reliably, nor do they take account
of the benefits arising from Santander UK\u2019s transformation plans that had not yet been implemented or committed at 31 December 2023.
Discount rate
The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a capital asset pricing model (CAPM) and
calculated on a post-tax basis. The CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to
reflect the inherent risk of the business being evaluated. These variables are based on the market\u2019s assessment of the economic variables and management\u2019s
judgement. The inputs to the CAPM are observable on a post-tax basis. In determining the discount rate, management has identified the cost of equity associated
with market participants that closely resemble our CGUs and adjusted them for tax to arrive at the pre-tax equivalent rate. The Private Banking CGU has a different
discount rate compared to the Personal Financial Services CGU because different market participants closely resemble each CGU.
Growth rate beyond initial cash flow projections
The growth rate for periods beyond the initial cash flow projections is used to extrapolate the cash flows in perpetuity because of the long-term perspective of
CGUs. In line with the accounting requirements, management uses the UK Government\u2019s official estimate of UK long-term average GDP growth rate, as this is lower
than management's estimate of the long-term average growth rate of the business. The estimated UK long-term average GDP growth rate has regard to the long-
term impact of inherent uncertainties, such as Brexit, climate change and higher living costs, driven by high inflation and rising interest rates.
Goodwill arising on the acquisition of Personal Financial Services and Private Banking
The VIU of each CGU remains higher than the carrying value of the related goodwill. The VIU review at 31 December 2023 did not indicate the need for an
impairment in the Company\u2019s goodwill balances. Management considered the level of headroom and the uncertainty relating to the respective estimates of the VIU
for those CGUs but determined that there was a sufficient basis to conclude that no impairment was required.
Sensitivities of key assumptions in calculating the value in use
At 31 December 2023 and 31 December 2022, the VIU of the Personal Financial Services CGU was sensitive to reasonably possible changes in the key assumptions
supporting the recoverable amount.
The table below presents a summary of the key assumptions underlying the most sensitive inputs to the model for the Personal Financial Services CGU, the key risks
associated with each and details of a reasonably possible change in assumptions, such as a decrease in mortgage new business. The sensitivity analysis presented
below has been prepared on the basis that a change in each key assumption would not have a consequential impact on other assumptions used in the impairment
review. However, due to the interrelationships between some of the assumptions, a change in one of the assumptions might impact one or more of the other
assumptions and could result in a larger or smaller overall impact.
Reasonably possible changes in key assumptions
CGU
Input
Key assumptions
Associated risks
Reasonably possible change
Personal Financial
Services
Cash flow projections
\u2013 BoE Bank Rate
\u2013 UK house price growth
\u2013 UK mortgage loan market growth
\u2013 UK unemployment rate
\u2013 Position in the market
\u2013 Regulatory capital levels.
\u2013 Uncertain market outlook
\u2013 Higher interest rate environment
impact on customer affordability
\u2013 Customer remediation and
regulatory action outcomes
\u2013 Uncertain regulatory capital
requirements.
\u2013 Cash flow projections
decrease by 10% (2022:
5%).
Discount rate
\u2013 Discount rate used is a reasonable estimate
of a suitable market rate for the profile of
the business.
\u2013 Market rates of interest rise.
\u2013 Discount rate increases
by 100 basis points
(2022: 100 basis
points).
GDP growth rate
\u2013 High oil / gas prices
\u2013 Elevated wage growth
\u2013 Weak productivity
\u2013 Large government debt burden
\u2013 Fragile business and consumer confidence
\u2013 Inflation and interest rates stay higher
for longer, hitting the disposable
income of our customers
\u2013 Affects the profitability of our
customers
\u2013 Limits the scope for tax cuts, hitting
the disposable income of our
customers
\u2013 Affects business and consumer
spending decisions of our customers
\u2013 GDP Growth rate
decreases by 10%
(2022: 10%)
At 31 December 2023 and 31 December 2022, a reasonably possible change in the key assumptions in relation to the VIU calculation for the goodwill balance in the
Personal Financial Services CGU would have resulted in a reduction in headroom as follows.
Reduction in headroom
2023
2022
CGU
Reasonably possible change
\u00a3m
\u00a3m
Personal Financial Services
Cash flow projections decrease by 10% (2022: 5%)
(818)
(538)
Discount rate increases by 100 basis points (2022: 100 basis points)
(663)
(887)
GDP Growth rate decreases by 10% (2022: 10%)
(19)
(31)
Sensitivity of Value in use changes to current assumptions to achieve nil headroom
Although there was no impairment of goodwill relating to the Personal Financial Services CGU or the Private Banking CGU at 31 December 2023, the test for the
Personal Financial Services CGU remains sensitive to some of the assumptions used, as described above. In addition, the changes in assumptions detailed below for
the discount rate and cash flow projections would eliminate the current headroom. As a result, there is a risk of impairment in the future should business
performance or economic factors diverge from forecasts.
In 2023, there was a decrease in headroom arising from a decline in cash flow forecasts, this is partially offset by a decrease to RWAs which has led to a reduction in
the required CET1 capital requirement.
The sensitivity analysis presented below has been prepared on the basis that a change in each key assumption would not have a consequential impact on other
assumptions used in the impairment review. However, due to the interrelationships between some of the assumptions, a change in one of the assumptions might
impact one or more of the other assumptions and could result in a larger or smaller overall impact.
2023
Carrying value
Value in use
Headroom
Increase in
discount rate
Decrease in
GDP growth
rate
Decrease in
cash flows
CGU
\u00a3m
\u00a3m
\u00a3m
bps
%
%
Personal Financial Services
7,513
8,178
665
101
4
8
2022
Personal Financial Services
8,860
10,752
1,892
239
13
18
b) Other intangibles
Group
Company
Cost
Accumulated
amortisation/
impairment
Carrying
amount
Cost
Accumulated
amortisation/
impairment
Carrying
amount
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
1,261
(910)
351
1,309
(970)
339
Additions
114
\u2014
114
109
\u2014
109
Disposals
(36)
36
\u2014
(36)
36
\u2014
Charge
\u2014
(116)
(116)
\u2014
(113)
(113)
At 31 December 2023
1,339
(990)
349
1,382
(1,047)
335
At 1 January 2022
1,334
(992)
342
1,373
(1,043)
330
Additions
112
\u2014
112
109
\u2014
109
Disposals
(185)
185
\u2014
(173)
173
\u2014
Charge
\u2014
(100)
(100)
\u2014
(97)
(97)
Impairment
\u2014
(3)
(3)
\u2014
(3)
(3)
At 31 December 2022
1,261
(910)
351
1,309
(970)
339
Other intangibles which consist of computer software, include computer software under development of \u00a3157m (2022: \u00a3149m), of which \u00a335m is internally
generated (2022: \u00a333m). For the Company, \u00a326m of computer software under development is internally generated (2022: \u00a311m).
The impairment charge of \u00a3nil (2022: \u00a33m) relates to computer software no longer expected to yield future economic benefits as it has become obsolete.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-625": { "value": "
a) Goodwill
Group
Company
Cost
Accumulated
impairment
Carrying
amount
Cost
Accumulated
impairment
Carrying
amount
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 31 December 2022 and 1 January 2023 and 31 December 2023
1,269
(70)
1,199
1,194
(4)
1,190
Impairment of goodwill
In 2023 and 2022, no impairment of goodwill was recognised. Goodwill is tested for impairment annually, or more frequently, if reviews identify an impairment
indicator or when events or changes in circumstances dictate. Goodwill is tested for impairment annually at 31 December, with a review for impairment indicators
at 30 June.
The annual review identified that the risks of ongoing global conflicts, places increasing uncertainty on the UK economic trajectory, and its potential impact on the
carrying value of goodwill as impairment indicators for all cash-generating units (CGUs). As a result, management updated the impairment test at 31 December
2023 for all CGUs.
Basis of the recoverable amount
The recoverable amount of all CGUs was determined based on its value in use (VIU) methodology at each testing date. For each CGU, the VIU is calculated by
discounting management\u2019s cash flow projections for the CGU. The cash flow projections also take account of increased internal capital allocations needed to achieve
internal and regulatory capital targets including the leverage ratio. The key assumptions used in the VIU calculation for each CGU are set out below. The Retail &
Business Banking segment consists of the Private Banking CGU and the rest of Retail & Business Banking, known as the Personal Financial Services CGU.
Carrying amount of Goodwill by CGU and key assumptions in the VIU calculation
Goodwill
Discount rate
Growth rate beyond initial cash
flow projections
2023
2022
2023
2022
2023
2022
CGU
\u00a3m
\u00a3m
%
%
%
%
Personal Financial Services
1,169
1,169
16.7
16.6
1.6
1.6
Private Banking
30
30
14.6
15.3
1.6
1.6
1,199
1,199
The CGUs do not carry on their balance sheets any other intangible assets with indefinite useful lives.
Management\u2019s judgement in estimating the cash flows of a CGU
The cash flow projections for the purpose of impairment testing for each CGU are derived from the latest 3-year plan presented to the Board. The Board challenges
and endorses management\u2019s planning assumptions in light of internal capital allocations needed to support Santander UK\u2019s strategy, current market conditions and
the macroeconomic outlook. For the goodwill impairment tests conducted at 31 December 2023, the determination of the carrying amount of the Personal
Financial Services CGU was based on an allocation of regulatory capital and management\u2019s cash flow projections until the end of 2026. The assumptions included in
the cash flow projections reflect an allocation to the cost of capital to support future growth, as well as the expected impact of recent events in the UK economic
environment on the financial outlook within which the CGUs operate. The cash flow projections are supported by Santander UK\u2019s base case economic scenario. For
more on the base case economic scenario, including our forecasting approach and the assumptions in place at 31 December 2023, see the Credit risk \u2013 Santander
UK group level section of the Risk review. The cash flow projections take into account the likely impact of recent changes to the BoE Bank Rate, inflation and also
consider the impact of future climate change.
Cash flow projections for the purpose of impairment testing do not take account of any adverse outcomes arising from contingent liabilities (see Note 31), whose
existence will be confirmed by uncertain future events or where any obligation is not probable or otherwise cannot be measured reliably, nor do they take account
of the benefits arising from Santander UK\u2019s transformation plans that had not yet been implemented or committed at 31 December 2023.
Discount rate
The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a capital asset pricing model (CAPM) and
calculated on a post-tax basis. The CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to
reflect the inherent risk of the business being evaluated. These variables are based on the market\u2019s assessment of the economic variables and management\u2019s
judgement. The inputs to the CAPM are observable on a post-tax basis. In determining the discount rate, management has identified the cost of equity associated
with market participants that closely resemble our CGUs and adjusted them for tax to arrive at the pre-tax equivalent rate. The Private Banking CGU has a different
discount rate compared to the Personal Financial Services CGU because different market participants closely resemble each CGU.
Growth rate beyond initial cash flow projections
The growth rate for periods beyond the initial cash flow projections is used to extrapolate the cash flows in perpetuity because of the long-term perspective of
CGUs. In line with the accounting requirements, management uses the UK Government\u2019s official estimate of UK long-term average GDP growth rate, as this is lower
than management's estimate of the long-term average growth rate of the business. The estimated UK long-term average GDP growth rate has regard to the long-
term impact of inherent uncertainties, such as Brexit, climate change and higher living costs, driven by high inflation and rising interest rates.
Goodwill arising on the acquisition of Personal Financial Services and Private Banking
The VIU of each CGU remains higher than the carrying value of the related goodwill. The VIU review at 31 December 2023 did not indicate the need for an
impairment in the Company\u2019s goodwill balances. Management considered the level of headroom and the uncertainty relating to the respective estimates of the VIU
for those CGUs but determined that there was a sufficient basis to conclude that no impairment was required.
Sensitivities of key assumptions in calculating the value in use
At 31 December 2023 and 31 December 2022, the VIU of the Personal Financial Services CGU was sensitive to reasonably possible changes in the key assumptions
supporting the recoverable amount.
The table below presents a summary of the key assumptions underlying the most sensitive inputs to the model for the Personal Financial Services CGU, the key risks
associated with each and details of a reasonably possible change in assumptions, such as a decrease in mortgage new business. The sensitivity analysis presented
below has been prepared on the basis that a change in each key assumption would not have a consequential impact on other assumptions used in the impairment
review. However, due to the interrelationships between some of the assumptions, a change in one of the assumptions might impact one or more of the other
assumptions and could result in a larger or smaller overall impact.
Reasonably possible changes in key assumptions
CGU
Input
Key assumptions
Associated risks
Reasonably possible change
Personal Financial
Services
Cash flow projections
\u2013 BoE Bank Rate
\u2013 UK house price growth
\u2013 UK mortgage loan market growth
\u2013 UK unemployment rate
\u2013 Position in the market
\u2013 Regulatory capital levels.
\u2013 Uncertain market outlook
\u2013 Higher interest rate environment
impact on customer affordability
\u2013 Customer remediation and
regulatory action outcomes
\u2013 Uncertain regulatory capital
requirements.
\u2013 Cash flow projections
decrease by 10% (2022:
5%).
Discount rate
\u2013 Discount rate used is a reasonable estimate
of a suitable market rate for the profile of
the business.
\u2013 Market rates of interest rise.
\u2013 Discount rate increases
by 100 basis points
(2022: 100 basis
points).
GDP growth rate
\u2013 High oil / gas prices
\u2013 Elevated wage growth
\u2013 Weak productivity
\u2013 Large government debt burden
\u2013 Fragile business and consumer confidence
\u2013 Inflation and interest rates stay higher
for longer, hitting the disposable
income of our customers
\u2013 Affects the profitability of our
customers
\u2013 Limits the scope for tax cuts, hitting
the disposable income of our
customers
\u2013 Affects business and consumer
spending decisions of our customers
\u2013 GDP Growth rate
decreases by 10%
(2022: 10%)
At 31 December 2023 and 31 December 2022, a reasonably possible change in the key assumptions in relation to the VIU calculation for the goodwill balance in the
Personal Financial Services CGU would have resulted in a reduction in headroom as follows.
Reduction in headroom
2023
2022
CGU
Reasonably possible change
\u00a3m
\u00a3m
Personal Financial Services
Cash flow projections decrease by 10% (2022: 5%)
(818)
(538)
Discount rate increases by 100 basis points (2022: 100 basis points)
(663)
(887)
GDP Growth rate decreases by 10% (2022: 10%)
(19)
(31)
Sensitivity of Value in use changes to current assumptions to achieve nil headroom
Although there was no impairment of goodwill relating to the Personal Financial Services CGU or the Private Banking CGU at 31 December 2023, the test for the
Personal Financial Services CGU remains sensitive to some of the assumptions used, as described above. In addition, the changes in assumptions detailed below for
the discount rate and cash flow projections would eliminate the current headroom. As a result, there is a risk of impairment in the future should business
performance or economic factors diverge from forecasts.
In 2023, there was a decrease in headroom arising from a decline in cash flow forecasts, this is partially offset by a decrease to RWAs which has led to a reduction in
the required CET1 capital requirement.
The sensitivity analysis presented below has been prepared on the basis that a change in each key assumption would not have a consequential impact on other
assumptions used in the impairment review. However, due to the interrelationships between some of the assumptions, a change in one of the assumptions might
impact one or more of the other assumptions and could result in a larger or smaller overall impact.
2023
Carrying value
Value in use
Headroom
Increase in
discount rate
Decrease in
GDP growth
rate
Decrease in
cash flows
CGU
\u00a3m
\u00a3m
\u00a3m
bps
%
%
Personal Financial Services
7,513
8,178
665
101
4
8
2022
Personal Financial Services
8,860
10,752
1,892
239
13
18
", "dimensions": { "concept": "ifrs-full:DisclosureOfGoodwillExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-626": { "value": "
b) Other intangibles
Group
Company
Cost
Accumulated
amortisation/
impairment
Carrying
amount
Cost
Accumulated
amortisation/
impairment
Carrying
amount
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
1,261
(910)
351
1,309
(970)
339
Additions
114
\u2014
114
109
\u2014
109
Disposals
(36)
36
\u2014
(36)
36
\u2014
Charge
\u2014
(116)
(116)
\u2014
(113)
(113)
At 31 December 2023
1,339
(990)
349
1,382
(1,047)
335
At 1 January 2022
1,334
(992)
342
1,373
(1,043)
330
Additions
112
\u2014
112
109
\u2014
109
Disposals
(185)
185
\u2014
(173)
173
\u2014
Charge
\u2014
(100)
(100)
\u2014
(97)
(97)
Impairment
\u2014
(3)
(3)
\u2014
(3)
(3)
At 31 December 2022
1,261
(910)
351
1,309
(970)
339
Other intangibles which consist of computer software, include computer software under development of \u00a3157m (2022: \u00a3149m), of which \u00a335m is internally
generated (2022: \u00a333m). For the Company, \u00a326m of computer software under development is internally generated (2022: \u00a311m).
The impairment charge of \u00a3nil (2022: \u00a33m) relates to computer software no longer expected to yield future economic benefits as it has become obsolete.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-628": { "value": "
21. PROPERTY, PLANT AND EQUIPMENT
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2023
889
823
72
722
267
2,773
Additions
87
83
\u2014
85
31
286
Reclassification (to)/from assets held for sale
8
\u2014
\u2014
\u2014
\u2014
8
Disposals
(66)
(29)
(5)
(172)
(35)
(307)
At 31 December 2023
918
877
67
635
263
2,760
Accumulated depreciation:
At 1 January 2023
270
618
72
145
155
1,260
Charge for the period
17
62
\u2014
64
30
173
Impairment during the period
\u2014
\u2014
\u2014
\u2014
(11)
(11)
Disposals
(61)
(27)
(5)
(62)
(1)
(156)
At 31 December 2023
226
653
67
147
173
1,266
Carrying amount
692
224
\u2014
488
90
1,494
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2022
978
1,049
434
755
254
3,470
Additions
61
86
\u2014
185
38
370
Reclassification to assets held for sale
(98)
(13)
\u2014
\u2014
\u2014
(111)
Disposals
(52)
(299)
(362)
(218)
(25)
(956)
At 31 December 2022
889
823
72
722
267
2,773
Accumulated depreciation:
At 1 January 2022
334
857
434
160
137
1,922
Charge for the year
18
68
1
73
19
179
Impairment during the year
8
2
\u2014
\u2014
\u2014
10
Reclassification to assets held for sale
(49)
(13)
\u2014
\u2014
\u2014
(62)
Disposals
(41)
(296)
(363)
(88)
(1)
(789)
At 31 December 2022
270
618
72
145
155
1,260
Carrying amount
619
205
\u2014
577
112
1,513
(1) Property includes investment properties of \u00a317m (2022: \u00a317m ) and assets under construction of \u00a3nil (2022: \u00a3204m). In September 2023, we completed the construction of a new head office in Milton Keynes.
In 2023, right-of-use assets were impaired as a result of our multi-year transformation project. The impairment relates to leasehold properties within the scope of
our branch network restructuring programme and head office sites which are either closing or consolidating.
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Lease liabilities
111
125
100
115
Other
2,368
2,456
2,271
2,281
2,479
2,581
2,371
2,396
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
", "dimensions": { "concept": "ifrs-full:DisclosureOfLeasesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-627": { "value": "
21. PROPERTY, PLANT AND EQUIPMENT
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2023
889
823
72
722
267
2,773
Additions
87
83
\u2014
85
31
286
Reclassification (to)/from assets held for sale
8
\u2014
\u2014
\u2014
\u2014
8
Disposals
(66)
(29)
(5)
(172)
(35)
(307)
At 31 December 2023
918
877
67
635
263
2,760
Accumulated depreciation:
At 1 January 2023
270
618
72
145
155
1,260
Charge for the period
17
62
\u2014
64
30
173
Impairment during the period
\u2014
\u2014
\u2014
\u2014
(11)
(11)
Disposals
(61)
(27)
(5)
(62)
(1)
(156)
At 31 December 2023
226
653
67
147
173
1,266
Carrying amount
692
224
\u2014
488
90
1,494
Group
Property
Office fixtures and
equipment
Computer software
Operating lease
assets
Right-of-use assets
Total(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Cost:
At 1 January 2022
978
1,049
434
755
254
3,470
Additions
61
86
\u2014
185
38
370
Reclassification to assets held for sale
(98)
(13)
\u2014
\u2014
\u2014
(111)
Disposals
(52)
(299)
(362)
(218)
(25)
(956)
At 31 December 2022
889
823
72
722
267
2,773
Accumulated depreciation:
At 1 January 2022
334
857
434
160
137
1,922
Charge for the year
18
68
1
73
19
179
Impairment during the year
8
2
\u2014
\u2014
\u2014
10
Reclassification to assets held for sale
(49)
(13)
\u2014
\u2014
\u2014
(62)
Disposals
(41)
(296)
(363)
(88)
(1)
(789)
At 31 December 2022
270
618
72
145
155
1,260
Carrying amount
619
205
\u2014
577
112
1,513
(1) Property includes investment properties of \u00a317m (2022: \u00a317m ) and assets under construction of \u00a3nil (2022: \u00a3204m). In September 2023, we completed the construction of a new head office in Milton Keynes.
In 2023, right-of-use assets were impaired as a result of our multi-year transformation project. The impairment relates to leasehold properties within the scope of
our branch network restructuring programme and head office sites which are either closing or consolidating.
", "dimensions": { "concept": "ifrs-full:DisclosureOfPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-629": { "value": "
23. DEPOSITS BY CUSTOMERS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Demand and time deposits(1)
188,004
189,587
183,010
184,244
Amounts due to other Santander UK Group Holdings plc subsidiaries
114
67
22,524
19,890
Amounts due to Santander UK Group Holdings plc(2)
1,772
4,759
1,772
4,759
Amounts due to fellow Banco Santander subsidiaries and joint ventures
960
1,155
210
201
190,850
195,568
207,516
209,094
(1) Includes capital amount guaranteed / protected equity index-linked deposits of \u00a3304m (2022: \u00a3408m ).
(2) Includes downstreamed funding from our immediate parent company Santander UK Group Holdings plc.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepositsFromCustomersExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-630": { "value": "
24. DEPOSITS BY BANKS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Items in the course of transmission
732
701
719
694
Deposits held as collateral
860
1,741
860
1,741
Other deposits(1)
18,737
26,082
18,733
26,076
Amounts due to Santander UK subsidiaries
3
1
5,387
5,673
20,332
28,525
25,699
34,184
(1) Includes drawdown from the TFSME of \u00a317.0bn (2022: \u00a325.0bn).
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepositsFromBanksExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-631": { "value": "
27. SUBORDINATED LIABILITIES
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3325m Sterling preference shares
343
344
343
344
Undated subordinated liabilities
205
219
205
220
Dated subordinated liabilities
1,838
1,769
1,839
1,772
2,386
2,332
2,387
2,336
In 2023, certain subordinated liabilities were repurchased as part of ongoing liability management exercises, resulting in a profit of \u00a34m (2022: a loss of \u00a35m).
The above securities will, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer, other than
creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The subordination amongst each of the
subordinated liabilities upon a winding up of the issuer is specified in their respective terms and conditions.
In 2023 and 2022, the Santander UK group had no defaults of principal, interest or other breaches with respect to its subordinated liabilities. No repayment or
purchase by the issuer of the subordinated liabilities may be made prior to their stated maturity without the consent of the PRA.
Undated subordinated liabilities
Group
Company
2023
2022
2023
2022
First call date
\u00a3m
\u00a3m
\u00a3m
\u00a3m
10.0625% Exchangeable capital securities
n/a
205
205
205
205
7.125% 30 Year Step-up perpetual callable subordinated notes
2030
\u2014
14
\u2014
15
205
219
205
220
In common with other debt securities issued by Santander UK group companies and notwithstanding the issuer\u2019s first call dates in the table above, in the event of
certain tax changes affecting the treatment of payments of interest on subordinated liabilities in the UK, the 7.125% 30 Year Step-up perpetual callable
subordinated notes are redeemable at any time, and the 10.0625% Exchangeable capital securities are redeemable on any interest payment date \u2013 each in whole at
the option of Santander UK, at their principal amount together with any accrued interest.
The 10.0625% Exchangeable capital securities are exchangeable into fully paid 10.375% non-cumulative non-redeemable sterling preference shares of \u00a31 each, at
the option of Santander UK, on the business day immediately following any interest payment date.
Dated subordinated liabilities
Group
Company
2023
2022
2023
2022
Maturity
\u00a3m
\u00a3m
\u00a3m
\u00a3m
5% Subordinated notes
2023
\u2014
591
\u2014
591
4.75% Subordinated notes
2025
326
608
326
608
7.95% Subordinated notes
2029
193
207
193
207
6.50% Subordinated notes
2030
1
22
1
24
5.875% Subordinated notes
2031
7
7
8
8
5.625%Subordinated notes
2045
222
334
222
334
7.869% Subordinated notes
2033
321
\u2014
321
\u2014
8.296% Subordinated notes
2033
768
\u2014
768
\u2014
1,838
1,769
1,839
1,772
The dated subordinated liabilities are redeemable in whole at the option of Santander UK in the event of certain tax changes affecting the treatment of payments of
interest on the subordinated liabilities in the UK, at their principal amount together with any accrued interest.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
h) Maturities of financial liabilities and off-balance sheet commitments
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities and off-balance sheet commitments of Santander UK based
on the remaining period to the contractual maturity date at the balance sheet date. Deposits by customers largely consist of retail deposits. This table is not
intended to show the liquidity of Santander UK.
Group
On demand
Not later than
3 months
Later than 3
months and
not later than
1 year
Later than 1
year and not
later than 5
years
Later than 5
years
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Financial liabilities
Derivative financial instruments
1
192
52
478
183
906
Other financial liabilities at fair value through profit or loss
\u2014
8
7
538
520
1,073
Deposits by customers
179,732
3,217
3,447
4,690
288
191,374
Deposits by banks
1,454
1,749
573
18,084
\u2014
21,860
Repurchase agreements \u2013 non trading
\u2014
8,418
8
\u2014
\u2014
8,426
Debt securities in issue
\u2014
6,380
4,908
17,029
12,216
40,533
Subordinated liabilities
\u2014
27
83
876
2,470
3,456
Lease liabilities
\u2014
\u2014
29
70
23
122
Total financial liabilities
181,187
19,991
9,107
41,765
15,700
267,750
Off-balance sheet commitments given
3,795
15,205
1,408
7,399
3,621
31,428
2022
Financial liabilities
Derivative financial instruments
\u2014
206
120
496
255
1,077
Other financial liabilities at fair value through profit or loss
\u2014
\u2014
98
443
438
979
Deposits by customers
180,218
3,875
7,077
4,295
335
195,800
Deposits by banks
2,048
1,309
298
26,141
\u2014
29,796
Repurchase agreements \u2013 non trading
\u2014
7,984
3
\u2014
\u2014
7,987
Debt securities in issue
\u2014
5,814
1,485
16,672
9,921
33,892
Subordinated liabilities
\u2014
35
691
1,149
1,400
3,275
Lease liabilities
\u2014
\u2014
32
80
26
138
Total financial liabilities
182,266
19,223
9,804
49,276
12,375
272,944
Off-balance sheet commitments given
19,089
787
898
7,508
3,554
31,836
", "dimensions": { "concept": "ifrs-full:DisclosureOfSubordinatedLiabilitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-633": { "value": "
28. OTHER LIABILITIES
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Lease liabilities
111
125
100
115
Other
2,368
2,456
2,271
2,281
2,479
2,581
2,371
2,396
", "dimensions": { "concept": "ifrs-full:DisclosureOfAccruedExpensesAndOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-632": { "value": "
28. OTHER LIABILITIES
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Lease liabilities
111
125
100
115
Other
2,368
2,456
2,271
2,281
2,479
2,581
2,371
2,396
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-637": { "value": "
31. CONTINGENT LIABILITIES AND COMMITMENTS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Guarantees given to subsidiaries
\u2014
\u2014
5,052
5,361
Guarantees given to third parties
452
448
452
448
Formal standby facilities, credit lines and other commitments
30,976
31,388
30,954
31,030
31,428
31,836
36,458
36,839
At 31 December 2023, the Santander UK group had credit impairment loss provisions relating to guarantees given to third parties and undrawn loan commitments.
See Note 29 for more details.
Where the items set out below can be reliably estimated, they are disclosed in the table above.
Guarantees given to subsidiaries
Santander UK plc has agreed to guarantee the payment of any obligations or liabilities (whether actual or contingent, or for the payment of any amount or delivery
of any property) incurred by Cater Allen Limited (whether as principal or surety) to any person on or before 31 December 2025 under or in respect of any dealing,
transaction or engagement whatsoever, including without prejudice to the generality of the foregoing, subject to specific exceptions set out in the deed poll
guarantee.
Santander UK plc has also undertaken, for the purposes of section 479C of the Companies Act 2006 (the Act), the guarantee of the payment of all outstanding
liabilities to which certain direct or indirect subsidiaries were subject at 31 December 2023, until they are satisfied in full, in order to allow those subsidiaries to
benefit from the audit exemption provided for by Section 479A of the Act for the year ended 31 December 2023. The subsidiaries benefiting from this guarantee are
listed in the Shareholder information section of this Annual Report.
Guarantees given to third parties
Guarantees given to third parties consist primarily of letters of credit, bonds and guarantees granted as part of normal product facilities which are offered to
customers.
Loan representations and warranties
In connection with the securitisations and covered bond transactions described in Note 14, the Santander UK group entities selling the relevant loans into the
applicable securitisation or covered bond portfolios make representations and warranties with respect to such loans, in each case as of the date of the sale of the
loans into the applicable portfolio. These representations and warranties cover, among other things, the ownership of the loan by the relevant Santander UK group
entity, absence of a material breach or default by the relevant borrower under the loan, the loan\u2019s compliance with applicable laws and absence of material
disputes with respect to the relevant borrower, asset and loan. The specific representations and warranties made by Santander UK group companies which act as
sellers of loans in these securitisations and covered bond transactions depend in each case on the nature of the transaction and the requirements of the transaction
structure.
In the event that there is a material breach of the representations and warranties given by Santander UK plc as seller of loans under the residential mortgage-
backed securitisations or the covered bond programmes included in Note 14, or if such representations and warranties prove to be materially untrue at the date
when they were given (being the sale date of the relevant mortgage loans), Santander UK plc may be required to repurchase the affected mortgage loans (generally
at their outstanding principal balance plus accrued interest). These securitisations and covered bond programmes are collateralised by prime residential mortgage
loans. Santander UK plc is principally a retail prime lender and has no appetite or product offering for any type of sub-prime business.
Similarly, under the auto loan securitisations in Note 14, in the event that there is a breach or inaccuracy in respect of a representation or warranty relating to the
loans, the relevant Santander UK group entity who sold the auto loans into the securitisation portfolio will be required to repurchase such loans from the structure
(also at their outstanding principal balance plus accrued interest). In addition to breaches of representation and warranties, under the auto loan securitisations, the
seller may also have a repurchase obligation if certain portfolio limits are breached (which include, amongst other things, limits as to the size of a loan given to an
individual customer, LTV ratio, average term to maturity and average seasoning).
In the case of a repurchase of a loan from the relevant securitisation or covered bond programmes, the Santander UK group may bear any subsequent credit loss on
such loan. The Santander UK group manages and monitors its securitisation and covered bond activities closely to minimise potential claims.
Other legal actions and regulatory matters
Santander UK engages in discussion, and co-operates, with the FCA, PRA, CMA and other regulators and government agencies in various jurisdictions in their
supervision and review of Santander UK including reviews exercised under statutory powers, regarding its interaction with past and present customers, both as part
of general thematic work and in relation to specific products, services and activities. During the ordinary course of business, Santander UK is also subject to
complaints and threatened legal proceedings brought by or on behalf of current or former employees, customers, investors or other third parties, in addition to
legal and regulatory reviews, challenges and tax or enforcement investigations or proceedings by relevant regulators or government agencies in various
jurisdictions. All such matters are assessed periodically to determine the likelihood of Santander UK incurring a liability.
In those instances where it is concluded that it is not yet probable that a quantifiable payment will be made, for example because the facts are unclear or further
time is required to fully assess the merits of the case or to reasonably quantify the expected payment, no provision is made. In addition, where it is not currently
practicable to estimate the possible financial effect of these matters, no provision is made.
Payment Protection Insurance
AXA France IARD and AXA France Vie (former GE Capital Corporation Group entities (GE Capital), known as Financial Insurance Company Ltd (FICL) and Financial
Assurance Company Ltd (FACL), acquired by AXA SA in 2015) (together, AXA France) have brought a claim for \u00a3552m (plus interest) against (i) Santander Cards UK
Limited (former GE Capital entity known as GE Capital Bank Limited (GECB), which was acquired by Banco Santander SA in 2008 and subsequently transferred to
Santander UK plc); and (ii) Santander Insurance Services UK Limited (a Banco Santander SA subsidiary) (together the Santander Entities). The claim relates to the
allocation of liability for compensation and associated costs in respect of a large number of PPI policies distributed by GECB pre-2005, which were underwritten by
FICL and FACL. AXA France reduced their claim from \u00a3670m (plus interest) to \u00a3552m (plus interest) in their Re-Re-Amended Particulars of Claim dated 29 June
2023. The Santander Entities strongly refute the claim. Trial has been fixed for six weeks, beginning on 3 March 2025.
There are ongoing factual issues to be resolved which may have legal consequences including in relation to liability. These issues create uncertainties which mean
that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The litigation and other regulatory provision in Note 29 includes our
best estimate of the Santander Entities\u2019 liability to the specific portfolio. Further information has not been provided on the basis that it would be seriously prejudicial
to the Santander Entities\u2019 interests in connection with the dispute.
In addition, and in relation to PPI more generally, the PPI provision includes an amount relating to legal claims challenging the FCA\u2019s industry guidance on the
treatment of Plevin / recurring non-disclosure assessments. This provision is based on current stock levels, future projected claims, and average redress. There
remains a risk that volumes received in future may be higher than forecast. The provision in Note 29 includes our best estimate of Santander UK\u2019s liability for the
specific issue. The actual cost of customer compensation could differ from the amount provided. It is not currently practicable to provide an estimate of the risk and
amount of any further financial impact.
German dividend tax arbitrage transactions
In June 2018 the Cologne Criminal Prosecution Office and the German Federal Tax Office commenced an investigation in relation to the historical involvement of
Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax
arbitrage transactions (known as cum/ex transactions). These transactions allegedly exploited a loophole of a specific German settlement mechanism through
short-selling and complex derivative structuring which resulted in the German government either refunding withholding tax where such tax had not been paid or
refunding it more than once. The German authorities are investigating numerous institutions and individuals in connection with alleged transactions and practices
which may be found to be illegal under German law.
During 2023 we continued to cooperate with the German authorities and, with the assistance of external experts, to progress an internal investigation into the
matters in question. From Santander UK plc\u2019s perspective, the investigation is focused principally on the period 2009-2011 and remains on-going. There remain
factual issues to be resolved which may have legal consequences including potentially material financial penalties. These issues create uncertainties which mean
that it is difficult to predict the resolution of the matter including timing or the significance of the possible impact. These uncertainties mean it is not currently
practicable to make a reliable assessment of the size of any related potential liability.
SCUK - Motor Finance Broker Commissions
Following the FCA\u2019s Motor Market review in 2019 which resulted in a change in rules in January 2021, Santander Consumer (UK) plc (SCUK) has received a number
of county court claims and complaints in respect of its historical use of discretionary commission arrangements (DCAs) prior to the 2021 rule changes. In the context
of the complaints made to the Financial Ombudsman Service relating to such commission arrangements, the FCA announced on 11 January 2024 that it intends to
use its powers under s166 of the Financial Services and Markets Act 2000 to review the historical use of DCAs between lenders and credit brokers (the \u201cFCA
Review\u201d) and whether redress should be payable. In line with the FCA's announcement, we have paused the response to customer complaints until at least 20
November 2024. A claim has been issued against SCUK, Santander UK plc and others in the Competition Appeal Tribunal (CAT), alleging that SCUK\u2019s historical
commission arrangements in respect of used car financing operated in breach of the Competition Act 1998. While it is possible that certain charges may be incurred
in relation to existing or future county court claims, Financial Ombudsman Service (FOS) complaints and the CAT proceedings, it is not considered that a legal or
constructive obligation has been incurred in relation to these matters that would require a provision to be recognised at this stage. The resolution of such matters is
not possible to predict with any certainty and there remain significant inherent uncertainties regarding the existence, scope and timing of any possible outflow
which make it impracticable to disclose the extent of any potential financial impact.
Capital support arrangements
At 31 December 2023, Santander UK plc, Cater Allen Limited, Santander ISA Managers Limited and certain other non-regulated subsidiaries of Santander UK plc
were party to a capital support deed entered into on 17 December 2021 and effective from 1 January 2022 (the RFB Sub-Group Capital Support Deed). These parties
were permitted by the PRA to form a core UK group as defined in the PRA Rulebook, a permission which expires on 31 December 2024. Exposures of each of the
regulated entities to other members of the core UK group are exempt from large exposure limits that would otherwise apply and these exposures are risk-weighted
at 0%. Where applicable this permission also provides for intra-group exposures to be excluded from the leverage exposure measure. The purpose of the RFB Sub-
Group Capital Support Deed is to facilitate the prompt transfer of available capital resources from, or repayment of liabilities by, the non-regulated parties to any of
the regulated parties in the event that one of the regulated parties breached or was at risk of breaching its capital resources or risk concentrations requirements.
Liquidity support arrangements
Under the PRA\u2019s liquidity rules, Santander UK plc and its subsidiary Cater Allen Limited form the RFB Domestic Liquidity Sub-group (the RFB DoLSub), which allows
the entities to collectively meet regulatory requirements for the purpose of managing liquidity risk. Each member of the RFB DoLSub will support the other by
transferring surplus liquidity in times of stress.
", "dimensions": { "concept": "ifrs-full:DisclosureOfContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-636": { "value": "
31. CONTINGENT LIABILITIES AND COMMITMENTS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Guarantees given to subsidiaries
\u2014
\u2014
5,052
5,361
Guarantees given to third parties
452
448
452
448
Formal standby facilities, credit lines and other commitments
30,976
31,388
30,954
31,030
31,428
31,836
36,458
36,839
At 31 December 2023, the Santander UK group had credit impairment loss provisions relating to guarantees given to third parties and undrawn loan commitments.
See Note 29 for more details.
Where the items set out below can be reliably estimated, they are disclosed in the table above.
Formal standby facilities, credit lines and other commitments
Standby facilities, credit lines and other commitments are also granted as part of normal product facilities which are offered to customers. Retail facilities comprise
undrawn facilities granted on flexible mortgages, bank overdrafts and credit cards. On flexible mortgages, the credit limit is set at the point of granting the loan
through property value and affordability assessments.
Ongoing assessments are made to ensure that credit limits remain appropriate considering any change in the security value or the customer\u2019s financial
circumstances. For unsecured overdraft facilities and credit cards, the facilities are granted based on new business risk assessment and are reviewed more
frequently based on internal, as well as external data. Corporate facilities can comprise standby and revolving facilities which are subject to ongoing compliance
with covenants and may require the provision of agreed security.
FSCS
The FSCS is the UK\u2019s independent statutory compensation fund for customers of authorised financial services firms and pays compensation if a firm is unable to pay
certain claims against it. The FSCS is funded by levies on the industry and recoveries and borrowings where appropriate.
Loan representations and warranties
In connection with the securitisations and covered bond transactions described in Note 14, the Santander UK group entities selling the relevant loans into the
applicable securitisation or covered bond portfolios make representations and warranties with respect to such loans, in each case as of the date of the sale of the
loans into the applicable portfolio. These representations and warranties cover, among other things, the ownership of the loan by the relevant Santander UK group
entity, absence of a material breach or default by the relevant borrower under the loan, the loan\u2019s compliance with applicable laws and absence of material
disputes with respect to the relevant borrower, asset and loan. The specific representations and warranties made by Santander UK group companies which act as
sellers of loans in these securitisations and covered bond transactions depend in each case on the nature of the transaction and the requirements of the transaction
structure.
In the event that there is a material breach of the representations and warranties given by Santander UK plc as seller of loans under the residential mortgage-
backed securitisations or the covered bond programmes included in Note 14, or if such representations and warranties prove to be materially untrue at the date
when they were given (being the sale date of the relevant mortgage loans), Santander UK plc may be required to repurchase the affected mortgage loans (generally
at their outstanding principal balance plus accrued interest). These securitisations and covered bond programmes are collateralised by prime residential mortgage
loans. Santander UK plc is principally a retail prime lender and has no appetite or product offering for any type of sub-prime business.
Similarly, under the auto loan securitisations in Note 14, in the event that there is a breach or inaccuracy in respect of a representation or warranty relating to the
loans, the relevant Santander UK group entity who sold the auto loans into the securitisation portfolio will be required to repurchase such loans from the structure
(also at their outstanding principal balance plus accrued interest). In addition to breaches of representation and warranties, under the auto loan securitisations, the
seller may also have a repurchase obligation if certain portfolio limits are breached (which include, amongst other things, limits as to the size of a loan given to an
individual customer, LTV ratio, average term to maturity and average seasoning).
In the case of a repurchase of a loan from the relevant securitisation or covered bond programmes, the Santander UK group may bear any subsequent credit loss on
such loan. The Santander UK group manages and monitors its securitisation and covered bond activities closely to minimise potential claims.
Other legal actions and regulatory matters
Santander UK engages in discussion, and co-operates, with the FCA, PRA, CMA and other regulators and government agencies in various jurisdictions in their
supervision and review of Santander UK including reviews exercised under statutory powers, regarding its interaction with past and present customers, both as part
of general thematic work and in relation to specific products, services and activities. During the ordinary course of business, Santander UK is also subject to
complaints and threatened legal proceedings brought by or on behalf of current or former employees, customers, investors or other third parties, in addition to
legal and regulatory reviews, challenges and tax or enforcement investigations or proceedings by relevant regulators or government agencies in various
jurisdictions. All such matters are assessed periodically to determine the likelihood of Santander UK incurring a liability.
In those instances where it is concluded that it is not yet probable that a quantifiable payment will be made, for example because the facts are unclear or further
time is required to fully assess the merits of the case or to reasonably quantify the expected payment, no provision is made. In addition, where it is not currently
practicable to estimate the possible financial effect of these matters, no provision is made.
Payment Protection Insurance
AXA France IARD and AXA France Vie (former GE Capital Corporation Group entities (GE Capital), known as Financial Insurance Company Ltd (FICL) and Financial
Assurance Company Ltd (FACL), acquired by AXA SA in 2015) (together, AXA France) have brought a claim for \u00a3552m (plus interest) against (i) Santander Cards UK
Limited (former GE Capital entity known as GE Capital Bank Limited (GECB), which was acquired by Banco Santander SA in 2008 and subsequently transferred to
Santander UK plc); and (ii) Santander Insurance Services UK Limited (a Banco Santander SA subsidiary) (together the Santander Entities). The claim relates to the
allocation of liability for compensation and associated costs in respect of a large number of PPI policies distributed by GECB pre-2005, which were underwritten by
FICL and FACL. AXA France reduced their claim from \u00a3670m (plus interest) to \u00a3552m (plus interest) in their Re-Re-Amended Particulars of Claim dated 29 June
2023. The Santander Entities strongly refute the claim. Trial has been fixed for six weeks, beginning on 3 March 2025.
There are ongoing factual issues to be resolved which may have legal consequences including in relation to liability. These issues create uncertainties which mean
that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The litigation and other regulatory provision in Note 29 includes our
best estimate of the Santander Entities\u2019 liability to the specific portfolio. Further information has not been provided on the basis that it would be seriously prejudicial
to the Santander Entities\u2019 interests in connection with the dispute.
In addition, and in relation to PPI more generally, the PPI provision includes an amount relating to legal claims challenging the FCA\u2019s industry guidance on the
treatment of Plevin / recurring non-disclosure assessments. This provision is based on current stock levels, future projected claims, and average redress. There
remains a risk that volumes received in future may be higher than forecast. The provision in Note 29 includes our best estimate of Santander UK\u2019s liability for the
specific issue. The actual cost of customer compensation could differ from the amount provided. It is not currently practicable to provide an estimate of the risk and
amount of any further financial impact.
German dividend tax arbitrage transactions
In June 2018 the Cologne Criminal Prosecution Office and the German Federal Tax Office commenced an investigation in relation to the historical involvement of
Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax
arbitrage transactions (known as cum/ex transactions). These transactions allegedly exploited a loophole of a specific German settlement mechanism through
short-selling and complex derivative structuring which resulted in the German government either refunding withholding tax where such tax had not been paid or
refunding it more than once. The German authorities are investigating numerous institutions and individuals in connection with alleged transactions and practices
which may be found to be illegal under German law.
During 2023 we continued to cooperate with the German authorities and, with the assistance of external experts, to progress an internal investigation into the
matters in question. From Santander UK plc\u2019s perspective, the investigation is focused principally on the period 2009-2011 and remains on-going. There remain
factual issues to be resolved which may have legal consequences including potentially material financial penalties. These issues create uncertainties which mean
that it is difficult to predict the resolution of the matter including timing or the significance of the possible impact. These uncertainties mean it is not currently
practicable to make a reliable assessment of the size of any related potential liability.
SCUK - Motor Finance Broker Commissions
Following the FCA\u2019s Motor Market review in 2019 which resulted in a change in rules in January 2021, Santander Consumer (UK) plc (SCUK) has received a number
of county court claims and complaints in respect of its historical use of discretionary commission arrangements (DCAs) prior to the 2021 rule changes. In the context
of the complaints made to the Financial Ombudsman Service relating to such commission arrangements, the FCA announced on 11 January 2024 that it intends to
use its powers under s166 of the Financial Services and Markets Act 2000 to review the historical use of DCAs between lenders and credit brokers (the \u201cFCA
Review\u201d) and whether redress should be payable. In line with the FCA's announcement, we have paused the response to customer complaints until at least 20
November 2024. A claim has been issued against SCUK, Santander UK plc and others in the Competition Appeal Tribunal (CAT), alleging that SCUK\u2019s historical
commission arrangements in respect of used car financing operated in breach of the Competition Act 1998. While it is possible that certain charges may be incurred
in relation to existing or future county court claims, Financial Ombudsman Service (FOS) complaints and the CAT proceedings, it is not considered that a legal or
constructive obligation has been incurred in relation to these matters that would require a provision to be recognised at this stage. The resolution of such matters is
not possible to predict with any certainty and there remain significant inherent uncertainties regarding the existence, scope and timing of any possible outflow
which make it impracticable to disclose the extent of any potential financial impact.
Other
On 2 November 2015, Visa Europe Ltd agreed to sell 100% of its share capital to Visa Inc. The deal closed on 21 June 2016. As a member and shareholder of Visa
Europe Ltd, Santander UK received upfront consideration made up of cash and convertible preferred stock. Conversion of the preferred stock into Class A Common
Stock of Visa Inc. depends on the outcome of litigation against Visa involving UK & Ireland multilateral interchange fees (UK&I MIFs).The convertible preferred stock
is now held by Santander Equity Investments Limited (SEIL), outside the ring-fenced bank.
In addition, Santander UK plc and certain other UK&I banks have agreed to indemnify Visa Inc. in the event that the preferred stock is insufficient to meet the costs of
this litigation. Visa Inc. has recourse to this indemnity once more than \u20ac1bn of losses relating to UK&I MIFs have arisen or once the total value of the preferred stock
issued to UK&I banks on closing has been reduced to nil. Santander UK plc's liability under this indemnity is capped at \u20ac39.85m. At this stage, it is unclear whether
the litigation will give rise to more than \u20ac1bn of losses relating to UK&I MIFs which means it is not practicable to predict the resolution of the matter including the
timing or the significance of the possible impact.
As part of the sale of subsidiaries, businesses and other entities, and as is normal in such circumstances, entities within the Santander UK group have given
warranties and/or indemnities to the purchasers.
Obligations under stock borrowing and lending agreements
Obligations under stock borrowing and lending agreements represent contractual commitments to return stock borrowed. These obligations are offset by a
contractual right to receive stock under other contractual agreements. See Note 35.
Other off-balance sheet commitments
The Santander UK group has commitments to lend at fixed interest rates which expose us to interest rate risk. For more, see the Risk review.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-635": { "value": "
31. CONTINGENT LIABILITIES AND COMMITMENTS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Guarantees given to subsidiaries
\u2014
\u2014
5,052
5,361
Guarantees given to third parties
452
448
452
448
Formal standby facilities, credit lines and other commitments
30,976
31,388
30,954
31,030
31,428
31,836
36,458
36,839
At 31 December 2023, the Santander UK group had credit impairment loss provisions relating to guarantees given to third parties and undrawn loan commitments.
See Note 29 for more details.
Where the items set out below can be reliably estimated, they are disclosed in the table above.
Guarantees given to subsidiaries
Santander UK plc has agreed to guarantee the payment of any obligations or liabilities (whether actual or contingent, or for the payment of any amount or delivery
of any property) incurred by Cater Allen Limited (whether as principal or surety) to any person on or before 31 December 2025 under or in respect of any dealing,
transaction or engagement whatsoever, including without prejudice to the generality of the foregoing, subject to specific exceptions set out in the deed poll
guarantee.
Santander UK plc has also undertaken, for the purposes of section 479C of the Companies Act 2006 (the Act), the guarantee of the payment of all outstanding
liabilities to which certain direct or indirect subsidiaries were subject at 31 December 2023, until they are satisfied in full, in order to allow those subsidiaries to
benefit from the audit exemption provided for by Section 479A of the Act for the year ended 31 December 2023. The subsidiaries benefiting from this guarantee are
listed in the Shareholder information section of this Annual Report.
Guarantees given to third parties
Guarantees given to third parties consist primarily of letters of credit, bonds and guarantees granted as part of normal product facilities which are offered to
customers.
Formal standby facilities, credit lines and other commitments
Standby facilities, credit lines and other commitments are also granted as part of normal product facilities which are offered to customers. Retail facilities comprise
undrawn facilities granted on flexible mortgages, bank overdrafts and credit cards. On flexible mortgages, the credit limit is set at the point of granting the loan
through property value and affordability assessments.
Ongoing assessments are made to ensure that credit limits remain appropriate considering any change in the security value or the customer\u2019s financial
circumstances. For unsecured overdraft facilities and credit cards, the facilities are granted based on new business risk assessment and are reviewed more
frequently based on internal, as well as external data. Corporate facilities can comprise standby and revolving facilities which are subject to ongoing compliance
with covenants and may require the provision of agreed security.
FSCS
The FSCS is the UK\u2019s independent statutory compensation fund for customers of authorised financial services firms and pays compensation if a firm is unable to pay
certain claims against it. The FSCS is funded by levies on the industry and recoveries and borrowings where appropriate.
Loan representations and warranties
In connection with the securitisations and covered bond transactions described in Note 14, the Santander UK group entities selling the relevant loans into the
applicable securitisation or covered bond portfolios make representations and warranties with respect to such loans, in each case as of the date of the sale of the
loans into the applicable portfolio. These representations and warranties cover, among other things, the ownership of the loan by the relevant Santander UK group
entity, absence of a material breach or default by the relevant borrower under the loan, the loan\u2019s compliance with applicable laws and absence of material
disputes with respect to the relevant borrower, asset and loan. The specific representations and warranties made by Santander UK group companies which act as
sellers of loans in these securitisations and covered bond transactions depend in each case on the nature of the transaction and the requirements of the transaction
structure.
In the event that there is a material breach of the representations and warranties given by Santander UK plc as seller of loans under the residential mortgage-
backed securitisations or the covered bond programmes included in Note 14, or if such representations and warranties prove to be materially untrue at the date
when they were given (being the sale date of the relevant mortgage loans), Santander UK plc may be required to repurchase the affected mortgage loans (generally
at their outstanding principal balance plus accrued interest). These securitisations and covered bond programmes are collateralised by prime residential mortgage
loans. Santander UK plc is principally a retail prime lender and has no appetite or product offering for any type of sub-prime business.
Similarly, under the auto loan securitisations in Note 14, in the event that there is a breach or inaccuracy in respect of a representation or warranty relating to the
loans, the relevant Santander UK group entity who sold the auto loans into the securitisation portfolio will be required to repurchase such loans from the structure
(also at their outstanding principal balance plus accrued interest). In addition to breaches of representation and warranties, under the auto loan securitisations, the
seller may also have a repurchase obligation if certain portfolio limits are breached (which include, amongst other things, limits as to the size of a loan given to an
individual customer, LTV ratio, average term to maturity and average seasoning).
In the case of a repurchase of a loan from the relevant securitisation or covered bond programmes, the Santander UK group may bear any subsequent credit loss on
such loan. The Santander UK group manages and monitors its securitisation and covered bond activities closely to minimise potential claims.
Other legal actions and regulatory matters
Santander UK engages in discussion, and co-operates, with the FCA, PRA, CMA and other regulators and government agencies in various jurisdictions in their
supervision and review of Santander UK including reviews exercised under statutory powers, regarding its interaction with past and present customers, both as part
of general thematic work and in relation to specific products, services and activities. During the ordinary course of business, Santander UK is also subject to
complaints and threatened legal proceedings brought by or on behalf of current or former employees, customers, investors or other third parties, in addition to
legal and regulatory reviews, challenges and tax or enforcement investigations or proceedings by relevant regulators or government agencies in various
jurisdictions. All such matters are assessed periodically to determine the likelihood of Santander UK incurring a liability.
In those instances where it is concluded that it is not yet probable that a quantifiable payment will be made, for example because the facts are unclear or further
time is required to fully assess the merits of the case or to reasonably quantify the expected payment, no provision is made. In addition, where it is not currently
practicable to estimate the possible financial effect of these matters, no provision is made.
Payment Protection Insurance
AXA France IARD and AXA France Vie (former GE Capital Corporation Group entities (GE Capital), known as Financial Insurance Company Ltd (FICL) and Financial
Assurance Company Ltd (FACL), acquired by AXA SA in 2015) (together, AXA France) have brought a claim for \u00a3552m (plus interest) against (i) Santander Cards UK
Limited (former GE Capital entity known as GE Capital Bank Limited (GECB), which was acquired by Banco Santander SA in 2008 and subsequently transferred to
Santander UK plc); and (ii) Santander Insurance Services UK Limited (a Banco Santander SA subsidiary) (together the Santander Entities). The claim relates to the
allocation of liability for compensation and associated costs in respect of a large number of PPI policies distributed by GECB pre-2005, which were underwritten by
FICL and FACL. AXA France reduced their claim from \u00a3670m (plus interest) to \u00a3552m (plus interest) in their Re-Re-Amended Particulars of Claim dated 29 June
2023. The Santander Entities strongly refute the claim. Trial has been fixed for six weeks, beginning on 3 March 2025.
There are ongoing factual issues to be resolved which may have legal consequences including in relation to liability. These issues create uncertainties which mean
that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The litigation and other regulatory provision in Note 29 includes our
best estimate of the Santander Entities\u2019 liability to the specific portfolio. Further information has not been provided on the basis that it would be seriously prejudicial
to the Santander Entities\u2019 interests in connection with the dispute.
In addition, and in relation to PPI more generally, the PPI provision includes an amount relating to legal claims challenging the FCA\u2019s industry guidance on the
treatment of Plevin / recurring non-disclosure assessments. This provision is based on current stock levels, future projected claims, and average redress. There
remains a risk that volumes received in future may be higher than forecast. The provision in Note 29 includes our best estimate of Santander UK\u2019s liability for the
specific issue. The actual cost of customer compensation could differ from the amount provided. It is not currently practicable to provide an estimate of the risk and
amount of any further financial impact.
German dividend tax arbitrage transactions
In June 2018 the Cologne Criminal Prosecution Office and the German Federal Tax Office commenced an investigation in relation to the historical involvement of
Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax
arbitrage transactions (known as cum/ex transactions). These transactions allegedly exploited a loophole of a specific German settlement mechanism through
short-selling and complex derivative structuring which resulted in the German government either refunding withholding tax where such tax had not been paid or
refunding it more than once. The German authorities are investigating numerous institutions and individuals in connection with alleged transactions and practices
which may be found to be illegal under German law.
During 2023 we continued to cooperate with the German authorities and, with the assistance of external experts, to progress an internal investigation into the
matters in question. From Santander UK plc\u2019s perspective, the investigation is focused principally on the period 2009-2011 and remains on-going. There remain
factual issues to be resolved which may have legal consequences including potentially material financial penalties. These issues create uncertainties which mean
that it is difficult to predict the resolution of the matter including timing or the significance of the possible impact. These uncertainties mean it is not currently
practicable to make a reliable assessment of the size of any related potential liability.
SCUK - Motor Finance Broker Commissions
Following the FCA\u2019s Motor Market review in 2019 which resulted in a change in rules in January 2021, Santander Consumer (UK) plc (SCUK) has received a number
of county court claims and complaints in respect of its historical use of discretionary commission arrangements (DCAs) prior to the 2021 rule changes. In the context
of the complaints made to the Financial Ombudsman Service relating to such commission arrangements, the FCA announced on 11 January 2024 that it intends to
use its powers under s166 of the Financial Services and Markets Act 2000 to review the historical use of DCAs between lenders and credit brokers (the \u201cFCA
Review\u201d) and whether redress should be payable. In line with the FCA's announcement, we have paused the response to customer complaints until at least 20
November 2024. A claim has been issued against SCUK, Santander UK plc and others in the Competition Appeal Tribunal (CAT), alleging that SCUK\u2019s historical
commission arrangements in respect of used car financing operated in breach of the Competition Act 1998. While it is possible that certain charges may be incurred
in relation to existing or future county court claims, Financial Ombudsman Service (FOS) complaints and the CAT proceedings, it is not considered that a legal or
constructive obligation has been incurred in relation to these matters that would require a provision to be recognised at this stage. The resolution of such matters is
not possible to predict with any certainty and there remain significant inherent uncertainties regarding the existence, scope and timing of any possible outflow
which make it impracticable to disclose the extent of any potential financial impact.
Other
On 2 November 2015, Visa Europe Ltd agreed to sell 100% of its share capital to Visa Inc. The deal closed on 21 June 2016. As a member and shareholder of Visa
Europe Ltd, Santander UK received upfront consideration made up of cash and convertible preferred stock. Conversion of the preferred stock into Class A Common
Stock of Visa Inc. depends on the outcome of litigation against Visa involving UK & Ireland multilateral interchange fees (UK&I MIFs).The convertible preferred stock
is now held by Santander Equity Investments Limited (SEIL), outside the ring-fenced bank.
In addition, Santander UK plc and certain other UK&I banks have agreed to indemnify Visa Inc. in the event that the preferred stock is insufficient to meet the costs of
this litigation. Visa Inc. has recourse to this indemnity once more than \u20ac1bn of losses relating to UK&I MIFs have arisen or once the total value of the preferred stock
issued to UK&I banks on closing has been reduced to nil. Santander UK plc's liability under this indemnity is capped at \u20ac39.85m. At this stage, it is unclear whether
the litigation will give rise to more than \u20ac1bn of losses relating to UK&I MIFs which means it is not practicable to predict the resolution of the matter including the
timing or the significance of the possible impact.
As part of the sale of subsidiaries, businesses and other entities, and as is normal in such circumstances, entities within the Santander UK group have given
warranties and/or indemnities to the purchasers.
Obligations under stock borrowing and lending agreements
Obligations under stock borrowing and lending agreements represent contractual commitments to return stock borrowed. These obligations are offset by a
contractual right to receive stock under other contractual agreements. See Note 35.
Other off-balance sheet commitments
The Santander UK group has commitments to lend at fixed interest rates which expose us to interest rate risk. For more, see the Risk review.
Capital support arrangements
At 31 December 2023, Santander UK plc, Cater Allen Limited, Santander ISA Managers Limited and certain other non-regulated subsidiaries of Santander UK plc
were party to a capital support deed entered into on 17 December 2021 and effective from 1 January 2022 (the RFB Sub-Group Capital Support Deed). These parties
were permitted by the PRA to form a core UK group as defined in the PRA Rulebook, a permission which expires on 31 December 2024. Exposures of each of the
regulated entities to other members of the core UK group are exempt from large exposure limits that would otherwise apply and these exposures are risk-weighted
at 0%. Where applicable this permission also provides for intra-group exposures to be excluded from the leverage exposure measure. The purpose of the RFB Sub-
Group Capital Support Deed is to facilitate the prompt transfer of available capital resources from, or repayment of liabilities by, the non-regulated parties to any of
the regulated parties in the event that one of the regulated parties breached or was at risk of breaching its capital resources or risk concentrations requirements.
Liquidity support arrangements
Under the PRA\u2019s liquidity rules, Santander UK plc and its subsidiary Cater Allen Limited form the RFB Domestic Liquidity Sub-group (the RFB DoLSub), which allows
the entities to collectively meet regulatory requirements for the purpose of managing liquidity risk. Each member of the RFB DoLSub will support the other by
transferring surplus liquidity in times of stress.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-634": { "value": "
31. CONTINGENT LIABILITIES AND COMMITMENTS
Group
Company
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Guarantees given to subsidiaries
\u2014
\u2014
5,052
5,361
Guarantees given to third parties
452
448
452
448
Formal standby facilities, credit lines and other commitments
30,976
31,388
30,954
31,030
31,428
31,836
36,458
36,839
At 31 December 2023, the Santander UK group had credit impairment loss provisions relating to guarantees given to third parties and undrawn loan commitments.
See Note 29 for more details.
Where the items set out below can be reliably estimated, they are disclosed in the table above.
Guarantees given to subsidiaries
Santander UK plc has agreed to guarantee the payment of any obligations or liabilities (whether actual or contingent, or for the payment of any amount or delivery
of any property) incurred by Cater Allen Limited (whether as principal or surety) to any person on or before 31 December 2025 under or in respect of any dealing,
transaction or engagement whatsoever, including without prejudice to the generality of the foregoing, subject to specific exceptions set out in the deed poll
guarantee.
Santander UK plc has also undertaken, for the purposes of section 479C of the Companies Act 2006 (the Act), the guarantee of the payment of all outstanding
liabilities to which certain direct or indirect subsidiaries were subject at 31 December 2023, until they are satisfied in full, in order to allow those subsidiaries to
benefit from the audit exemption provided for by Section 479A of the Act for the year ended 31 December 2023. The subsidiaries benefiting from this guarantee are
listed in the Shareholder information section of this Annual Report.
Guarantees given to third parties
Guarantees given to third parties consist primarily of letters of credit, bonds and guarantees granted as part of normal product facilities which are offered to
customers.
Formal standby facilities, credit lines and other commitments
Standby facilities, credit lines and other commitments are also granted as part of normal product facilities which are offered to customers. Retail facilities comprise
undrawn facilities granted on flexible mortgages, bank overdrafts and credit cards. On flexible mortgages, the credit limit is set at the point of granting the loan
through property value and affordability assessments.
Ongoing assessments are made to ensure that credit limits remain appropriate considering any change in the security value or the customer\u2019s financial
circumstances. For unsecured overdraft facilities and credit cards, the facilities are granted based on new business risk assessment and are reviewed more
frequently based on internal, as well as external data. Corporate facilities can comprise standby and revolving facilities which are subject to ongoing compliance
with covenants and may require the provision of agreed security.
FSCS
The FSCS is the UK\u2019s independent statutory compensation fund for customers of authorised financial services firms and pays compensation if a firm is unable to pay
certain claims against it. The FSCS is funded by levies on the industry and recoveries and borrowings where appropriate.
Loan representations and warranties
In connection with the securitisations and covered bond transactions described in Note 14, the Santander UK group entities selling the relevant loans into the
applicable securitisation or covered bond portfolios make representations and warranties with respect to such loans, in each case as of the date of the sale of the
loans into the applicable portfolio. These representations and warranties cover, among other things, the ownership of the loan by the relevant Santander UK group
entity, absence of a material breach or default by the relevant borrower under the loan, the loan\u2019s compliance with applicable laws and absence of material
disputes with respect to the relevant borrower, asset and loan. The specific representations and warranties made by Santander UK group companies which act as
sellers of loans in these securitisations and covered bond transactions depend in each case on the nature of the transaction and the requirements of the transaction
structure.
In the event that there is a material breach of the representations and warranties given by Santander UK plc as seller of loans under the residential mortgage-
backed securitisations or the covered bond programmes included in Note 14, or if such representations and warranties prove to be materially untrue at the date
when they were given (being the sale date of the relevant mortgage loans), Santander UK plc may be required to repurchase the affected mortgage loans (generally
at their outstanding principal balance plus accrued interest). These securitisations and covered bond programmes are collateralised by prime residential mortgage
loans. Santander UK plc is principally a retail prime lender and has no appetite or product offering for any type of sub-prime business.
Similarly, under the auto loan securitisations in Note 14, in the event that there is a breach or inaccuracy in respect of a representation or warranty relating to the
loans, the relevant Santander UK group entity who sold the auto loans into the securitisation portfolio will be required to repurchase such loans from the structure
(also at their outstanding principal balance plus accrued interest). In addition to breaches of representation and warranties, under the auto loan securitisations, the
seller may also have a repurchase obligation if certain portfolio limits are breached (which include, amongst other things, limits as to the size of a loan given to an
individual customer, LTV ratio, average term to maturity and average seasoning).
In the case of a repurchase of a loan from the relevant securitisation or covered bond programmes, the Santander UK group may bear any subsequent credit loss on
such loan. The Santander UK group manages and monitors its securitisation and covered bond activities closely to minimise potential claims.
Other legal actions and regulatory matters
Santander UK engages in discussion, and co-operates, with the FCA, PRA, CMA and other regulators and government agencies in various jurisdictions in their
supervision and review of Santander UK including reviews exercised under statutory powers, regarding its interaction with past and present customers, both as part
of general thematic work and in relation to specific products, services and activities. During the ordinary course of business, Santander UK is also subject to
complaints and threatened legal proceedings brought by or on behalf of current or former employees, customers, investors or other third parties, in addition to
legal and regulatory reviews, challenges and tax or enforcement investigations or proceedings by relevant regulators or government agencies in various
jurisdictions. All such matters are assessed periodically to determine the likelihood of Santander UK incurring a liability.
In those instances where it is concluded that it is not yet probable that a quantifiable payment will be made, for example because the facts are unclear or further
time is required to fully assess the merits of the case or to reasonably quantify the expected payment, no provision is made. In addition, where it is not currently
practicable to estimate the possible financial effect of these matters, no provision is made.
Payment Protection Insurance
AXA France IARD and AXA France Vie (former GE Capital Corporation Group entities (GE Capital), known as Financial Insurance Company Ltd (FICL) and Financial
Assurance Company Ltd (FACL), acquired by AXA SA in 2015) (together, AXA France) have brought a claim for \u00a3552m (plus interest) against (i) Santander Cards UK
Limited (former GE Capital entity known as GE Capital Bank Limited (GECB), which was acquired by Banco Santander SA in 2008 and subsequently transferred to
Santander UK plc); and (ii) Santander Insurance Services UK Limited (a Banco Santander SA subsidiary) (together the Santander Entities). The claim relates to the
allocation of liability for compensation and associated costs in respect of a large number of PPI policies distributed by GECB pre-2005, which were underwritten by
FICL and FACL. AXA France reduced their claim from \u00a3670m (plus interest) to \u00a3552m (plus interest) in their Re-Re-Amended Particulars of Claim dated 29 June
2023. The Santander Entities strongly refute the claim. Trial has been fixed for six weeks, beginning on 3 March 2025.
There are ongoing factual issues to be resolved which may have legal consequences including in relation to liability. These issues create uncertainties which mean
that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The litigation and other regulatory provision in Note 29 includes our
best estimate of the Santander Entities\u2019 liability to the specific portfolio. Further information has not been provided on the basis that it would be seriously prejudicial
to the Santander Entities\u2019 interests in connection with the dispute.
In addition, and in relation to PPI more generally, the PPI provision includes an amount relating to legal claims challenging the FCA\u2019s industry guidance on the
treatment of Plevin / recurring non-disclosure assessments. This provision is based on current stock levels, future projected claims, and average redress. There
remains a risk that volumes received in future may be higher than forecast. The provision in Note 29 includes our best estimate of Santander UK\u2019s liability for the
specific issue. The actual cost of customer compensation could differ from the amount provided. It is not currently practicable to provide an estimate of the risk and
amount of any further financial impact.
German dividend tax arbitrage transactions
In June 2018 the Cologne Criminal Prosecution Office and the German Federal Tax Office commenced an investigation in relation to the historical involvement of
Santander UK plc, Santander Financial Services plc and Cater Allen International Limited (all subsidiaries of Santander UK Group Holdings plc) in German dividend tax
arbitrage transactions (known as cum/ex transactions). These transactions allegedly exploited a loophole of a specific German settlement mechanism through
short-selling and complex derivative structuring which resulted in the German government either refunding withholding tax where such tax had not been paid or
refunding it more than once. The German authorities are investigating numerous institutions and individuals in connection with alleged transactions and practices
which may be found to be illegal under German law.
During 2023 we continued to cooperate with the German authorities and, with the assistance of external experts, to progress an internal investigation into the
matters in question. From Santander UK plc\u2019s perspective, the investigation is focused principally on the period 2009-2011 and remains on-going. There remain
factual issues to be resolved which may have legal consequences including potentially material financial penalties. These issues create uncertainties which mean
that it is difficult to predict the resolution of the matter including timing or the significance of the possible impact. These uncertainties mean it is not currently
practicable to make a reliable assessment of the size of any related potential liability.
SCUK - Motor Finance Broker Commissions
Following the FCA\u2019s Motor Market review in 2019 which resulted in a change in rules in January 2021, Santander Consumer (UK) plc (SCUK) has received a number
of county court claims and complaints in respect of its historical use of discretionary commission arrangements (DCAs) prior to the 2021 rule changes. In the context
of the complaints made to the Financial Ombudsman Service relating to such commission arrangements, the FCA announced on 11 January 2024 that it intends to
use its powers under s166 of the Financial Services and Markets Act 2000 to review the historical use of DCAs between lenders and credit brokers (the \u201cFCA
Review\u201d) and whether redress should be payable. In line with the FCA's announcement, we have paused the response to customer complaints until at least 20
November 2024. A claim has been issued against SCUK, Santander UK plc and others in the Competition Appeal Tribunal (CAT), alleging that SCUK\u2019s historical
commission arrangements in respect of used car financing operated in breach of the Competition Act 1998. While it is possible that certain charges may be incurred
in relation to existing or future county court claims, Financial Ombudsman Service (FOS) complaints and the CAT proceedings, it is not considered that a legal or
constructive obligation has been incurred in relation to these matters that would require a provision to be recognised at this stage. The resolution of such matters is
not possible to predict with any certainty and there remain significant inherent uncertainties regarding the existence, scope and timing of any possible outflow
which make it impracticable to disclose the extent of any potential financial impact.
Other
On 2 November 2015, Visa Europe Ltd agreed to sell 100% of its share capital to Visa Inc. The deal closed on 21 June 2016. As a member and shareholder of Visa
Europe Ltd, Santander UK received upfront consideration made up of cash and convertible preferred stock. Conversion of the preferred stock into Class A Common
Stock of Visa Inc. depends on the outcome of litigation against Visa involving UK & Ireland multilateral interchange fees (UK&I MIFs).The convertible preferred stock
is now held by Santander Equity Investments Limited (SEIL), outside the ring-fenced bank.
In addition, Santander UK plc and certain other UK&I banks have agreed to indemnify Visa Inc. in the event that the preferred stock is insufficient to meet the costs of
this litigation. Visa Inc. has recourse to this indemnity once more than \u20ac1bn of losses relating to UK&I MIFs have arisen or once the total value of the preferred stock
issued to UK&I banks on closing has been reduced to nil. Santander UK plc's liability under this indemnity is capped at \u20ac39.85m. At this stage, it is unclear whether
the litigation will give rise to more than \u20ac1bn of losses relating to UK&I MIFs which means it is not practicable to predict the resolution of the matter including the
timing or the significance of the possible impact.
As part of the sale of subsidiaries, businesses and other entities, and as is normal in such circumstances, entities within the Santander UK group have given
warranties and/or indemnities to the purchasers.
Obligations under stock borrowing and lending agreements
Obligations under stock borrowing and lending agreements represent contractual commitments to return stock borrowed. These obligations are offset by a
contractual right to receive stock under other contractual agreements. See Note 35.
Other off-balance sheet commitments
The Santander UK group has commitments to lend at fixed interest rates which expose us to interest rate risk. For more, see the Risk review.
Capital support arrangements
At 31 December 2023, Santander UK plc, Cater Allen Limited, Santander ISA Managers Limited and certain other non-regulated subsidiaries of Santander UK plc
were party to a capital support deed entered into on 17 December 2021 and effective from 1 January 2022 (the RFB Sub-Group Capital Support Deed). These parties
were permitted by the PRA to form a core UK group as defined in the PRA Rulebook, a permission which expires on 31 December 2024. Exposures of each of the
regulated entities to other members of the core UK group are exempt from large exposure limits that would otherwise apply and these exposures are risk-weighted
at 0%. Where applicable this permission also provides for intra-group exposures to be excluded from the leverage exposure measure. The purpose of the RFB Sub-
Group Capital Support Deed is to facilitate the prompt transfer of available capital resources from, or repayment of liabilities by, the non-regulated parties to any of
the regulated parties in the event that one of the regulated parties breached or was at risk of breaching its capital resources or risk concentrations requirements.
Liquidity support arrangements
Under the PRA\u2019s liquidity rules, Santander UK plc and its subsidiary Cater Allen Limited form the RFB Domestic Liquidity Sub-group (the RFB DoLSub), which allows
the entities to collectively meet regulatory requirements for the purpose of managing liquidity risk. Each member of the RFB DoLSub will support the other by
transferring surplus liquidity in times of stress.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherProvisionsContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-639": { "value": "
32. SHARE CAPITAL
Group and Company
Ordinary shares of \u00a30.10 each
Total
Issued and fully paid share capital
No.
\u00a3m
\u00a3m
At 31 December 2022, 1 January 2023 and 31 December 2023
31,051,768,866
3,105
3,105
Group and Company
2023
2022
Share premium
\u00a3m
\u00a3m
At 1 January and 31 December
5,620
5,620
The Company has one class of ordinary shares which carries no right to fixed income. The Company\u2019s \u00a3325m\u00a0 sterling preference shares are classified as
Subordinated Liabilities as described in Note 27.
33. OTHER EQUITY INSTRUMENTS
Group and Company
Interest rate
2023
2022
%
Next call date
\u00a3m
\u00a3m
AT1 securities:
- \u00a3500m Perpetual Capital Securities
6.75
June 2024
496
496
- \u00a3500m Perpetual Capital Securities
6.30
March 2025
500
500
- \u00a3210m Perpetual Capital Securities
4.25
March 2026
210
210
- \u00a3750m Perpetual Capital Securities
6.50
June 2027
750
750
1,956
1,956
AT1 securities
The AT1 securities issued by the Company were subscribed for by its immediate parent company, Santander UK Group Holdings plc. The AT1 securities are perpetual
and pay a quarterly distribution. At each distribution payment date, the Company can decide whether to pay the distribution, which is non-cumulative, in whole or in
part. The distribution rate resets every five years . The securities will be automatically written down and the investors will lose their entire investment in the
securities should the CET1 capital ratio of the Santander UK prudential consolidation group , or the Company (calculated on a solo basis), fall below 7% .
All AT1 securities are redeemable at the option of the Company, and only with the consent of the PRA.", "dimensions": { "concept": "ifrs-full:DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-638": { "value": "
32. SHARE CAPITAL
Group and Company
Ordinary shares of \u00a30.10 each
Total
Issued and fully paid share capital
No.
\u00a3m
\u00a3m
At 31 December 2022, 1 January 2023 and 31 December 2023
31,051,768,866
3,105
3,105
Group and Company
2023
2022
Share premium
\u00a3m
\u00a3m
At 1 January and 31 December
5,620
5,620
The Company has one class of ordinary shares which carries no right to fixed income. The Company\u2019s \u00a3325m\u00a0 sterling preference shares are classified as
Subordinated Liabilities as described in Note 27.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIssuedCapitalExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-640": { "value": "
33. OTHER EQUITY INSTRUMENTS
Group and Company
Interest rate
2023
2022
%
Next call date
\u00a3m
\u00a3m
AT1 securities:
- \u00a3500m Perpetual Capital Securities
6.75
June 2024
496
496
- \u00a3500m Perpetual Capital Securities
6.30
March 2025
500
500
- \u00a3210m Perpetual Capital Securities
4.25
March 2026
210
210
- \u00a3750m Perpetual Capital Securities
6.50
June 2027
750
750
1,956
1,956
AT1 securities
The AT1 securities issued by the Company were subscribed for by its immediate parent company, Santander UK Group Holdings plc. The AT1 securities are perpetual
and pay a quarterly distribution. At each distribution payment date, the Company can decide whether to pay the distribution, which is non-cumulative, in whole or in
part. The distribution rate resets every five years . The securities will be automatically written down and the investors will lose their entire investment in the
securities should the CET1 capital ratio of the Santander UK prudential consolidation group , or the Company (calculated on a solo basis), fall below 7% .
All AT1 securities are redeemable at the option of the Company, and only with the consent of the PRA.", "dimensions": { "concept": "ifrs-full:DisclosureOfReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-641": { "value": "
34. NOTES TO CASH FLOWS
Changes in liabilities arising from financing activities
The table below shows the changes in liabilities arising from financing activities. The changes in equity arising from financing activities are set out in the
Consolidated Statement of Changes in Equity.
Group
Balance sheet line item
Debt securities in
issue
Subordinated
liabilities
Other equity
instruments
Lease liabilities
Dividends paid
Total
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January
31,531
2,332
1,956
125
\u2014
35,944
Proceeds from issue of debt securities
4,208
\u2014
\u2014
\u2014
\u2014
4,208
Repayment of debt securities
(2,568)
\u2014
\u2014
\u2014
\u2014
(2,568)
Proceeds from issue of subordinated liabilities
\u2014
1,050
\u2014
\u2014
\u2014
1,050
Repayment of subordinated liabilities
\u2014
(971)
\u2014
\u2014
\u2014
(971)
Principal elements of lease payments
\u2014
\u2014
\u2014
(47)
\u2014
(47)
Dividends paid
\u2014
\u2014
\u2014
\u2014
(1,653)
(1,653)
Liability-related other changes
1,004
25
\u2014
33
\u2014
1,062
Non-cash changes:
\u2013 Unrealised foreign exchange
(651)
(22)
\u2014
\u2014
\u2014
(673)
\u2013 Other changes
386
(28)
\u2014
\u2014
1,653
2,011
At 31 December
33,910
2,386
1,956
111
\u2014
38,363
2022
At 1 January
25,520
2,228
2,191
132
\u2014
30,071
Proceeds from issue of debt securities
4,778
\u2014
\u2014
\u2014
\u2014
4,778
Repayment of debt securities
(3,036)
\u2014
\u2014
\u2014
\u2014
(3,036)
Repayment of subordinated liabilities
\u2014
(40)
\u2014
\u2014
\u2014
(40)
Issue of other equity instruments
\u2014
\u2014
750
\u2014
\u2014
750
Repurchase of other equity instruments
\u2014
\u2014
(985)
\u2014
\u2014
(985)
Principal elements of lease payments
\u2014
\u2014
\u2014
(26)
\u2014
(26)
Dividends paid
\u2014
\u2014
\u2014
\u2014
(1,164)
(1,164)
Liability-related other changes
3,155
2
\u2014
19
\u2014
3,176
Non-cash changes:
\u2013 Unrealised foreign exchange
1,554
87
\u2014
\u2014
\u2014
1,641
\u2013 Other changes
(440)
55
\u2014
\u2014
1,164
779
At 31 December
31,531
2,332
1,956
125
\u2014
35,944
2021
At 1 January
35,566
2,556
2,191
97
\u2014
40,410
Proceeds from issue of debt securities
2,872
\u2014
\u2014
\u2014
\u2014
2,872
Repayment of debt securities
(11,910)
\u2014
\u2014
\u2014
\u2014
(11,910)
Repayment of subordinated liabilities
\u2014
(4)
\u2014
\u2014
\u2014
(4)
Issue of other equity instruments
\u2014
\u2014
210
\u2014
\u2014
210
Repurchase of other equity instruments
\u2014
\u2014
(210)
\u2014
\u2014
(210)
Principal elements of lease payments
\u2014
\u2014
\u2014
(25)
\u2014
(25)
Dividends paid
\u2014
\u2014
\u2014
\u2014
(1,505)
(1,505)
Liability-related other changes
(447)
(4)
\u2014
60
\u2014
(391)
Non-cash changes:
\u2013 Unrealised foreign exchange
(806)
6
\u2014
\u2014
\u2014
(800)
\u2013 Other changes
245
(326)
\u2014
\u2014
1,505
1,424
At 31 December
25,520
2,228
2,191
132
\u2014
30,071
Footnotes to the consolidated cash flow statement
Net cash flows from operating activities includes interest received of \u00a311,395m (2022: \u00a36,508m, 2021: \u00a34,806m), interest paid of \u00a36,326m (2022: \u00a32,089m, 2021:
\u00a31,064m) and dividends received of \u00a3nil (2022: \u00a3nil, 2021: \u00a3nil).
Total cash outflow for leases was \u00a350m (2022: \u00a328m, 2021: \u00a328m).
Other matters
In 2021, there was a disposal of non-controlling interests of \u00a3181m.", "dimensions": { "concept": "ifrs-full:DisclosureOfCashFlowStatementExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-642": { "value": "
36. SHARE-BASED COMPENSATION
The Santander UK group operates share schemes and arrangements for eligible employees. The main current schemes are the Sharesave Schemes, the Deferred
Shares Bonus Plan, the Partnership Shares scheme and the Transformation Incentive Plan. All the share options and awards relate to shares in Banco Santander SA.
The amount charged to the income statement in respect of share-based payment transactions is set out in Note 6.
At 31 December 2023, the carrying amount of liabilities arising from share-based payment transactions, excluding any cash element was \u00a314.7m (2022: \u00a36.6m), of
which \u00a31.1m had vested at 31 December 2023 (2022: \u00a30.1m).
a) Sharesave Schemes
The Santander UK group launched its sixteenth HM Revenue & Customs approved Sharesave invitation under Banco Santander SA sponsorship in September 2023.
Sharesave invitations have been offered since 2008 under broadly similar terms. Under the Sharesave Scheme\u2019s HMRC-approved savings limits, eligible employees
may enter into contracts to save between \u00a35 and \u00a3500 per month. For all schemes, at the end of a fixed term of three or five years after the grant date, the
employees can use these savings to buy shares in Banco Santander SA at a discount, calculated in accordance with the rules of the scheme. The option price is
calculated as the average middle market quoted price of Banco Santander SA shares over the first three dealing days prior to invitation and discounted by up to 20%.
This year a 10% discount was applied. The vesting of awards under the scheme depends on continued employment with the Banco Santander group. Participants in
the scheme have six months from the date of vesting to exercise the option.
The table below summarises movements in the number of options, and changes in weighted average exercise price over the same period.
2023
2022
Number of options
Weighted average
exercise price
Number of options
Weighted average
exercise price
\u2018000
\u00a3
\u2018000
\u00a3
Outstanding at 1 January
29,988
2.00
25,993
2.25
Granted
7,175
2.78
13,068
1.89
Exercised
(5,980)
1.70
(242)
1.69
Forfeited/expired
(4,044)
2.53
(8,831)
2.59
Outstanding at 31 December
27,139
2.19
29,988
2.00
Exercisable at 31 December
868
1.84
3,439
3.22
The weighted average share price at the date the options were exercised was \u00a33.22 (2022: \u00a32.34).
The following table summarises the range of exercise prices and weighted average remaining contractual life of the options at 31 December 2023 and 2022.
2023
2022
Range of exercise prices
Weighted average
remaining
contractual life
Weighted average
exercise price
Weighted average
remaining
contractual life
Weighted average
exercise price
Years
\u00a3
Years
\u00a3
\u00a31 to \u00a32
3
1.84
3
1.79
\u00a32 to \u00a33
3
2.65
2
2.56
\u00a33 to \u00a34
0
3.46
1
3.46
\u00a34 to \u00a35
0
\u2014
0
4.02
The fair value of each option at the date of grant is estimated using an analytical model that also reflects the correlation between EUR and GBP. This model uses
assumptions on the share price, the EUR/GBP FX rate, the EUR/GBP risk-free interest rate, dividend yields, the expected volatilities of both the underlying shares and
EUR/GBP for the expected lives of options granted. The weighted average grant-date fair value of options granted during the year was \u00a30.33 (2022: \u00a30.23).
b) Deferred shares bonus plan
Deferred bonus awards are designed to align employee performance with shareholder value and encourage increased retention of senior employees. Those
employees who are designated as Material Risk Takers receive part of their annual bonus as a deferred award comprising 50% in shares and 50% in cash. Either
40% (for any variable pay award of less than \u00a3500,000) or 60% (for any variable pay award greater than \u00a3500,000) is deferred over a four-, five- or seven- year
period from the anniversary of the initial award. Deferred bonus awards in shares or share options are subject to an additional one-year retention period from the
point of delivery. Any deferred awards are dependent on continued employment and subject to Santander UK's discretion, and the vesting of deferred bonus awards
is subject to potential performance adjustment.
c) Partnership Shares scheme
A Partnership Shares scheme is operated for eligible employees under the Share Incentive Plan (SIP) umbrella. Participants can choose to invest up to \u00a31,800 per tax
year (or no more than 10% of an employee\u2019s salary for the tax year) from pre-tax salary to buy Banco Santander SA shares. Shares are held in trust for the
participants. There are no vesting conditions attached to these shares, and no restrictions as to when the shares can be removed from the trust. However, if a
participant chooses to sell the shares before the end of five years, they will be liable for the taxable benefit received when the shares are taken out of the trust. The
shares can be released from trust after five years free of income tax and national insurance contributions. 3,937,473 shares were outstanding at 31 December 2023
(2022: 3,974,698 shares).
d) Transformation Incentive Plan
This one-off long-term incentive plan was designed to recognise the achievement of financial targets and an enhanced customer experience, whilst maintaining
appropriate conduct controls and risk management, over the course of our transformation period.
Awards under the plan were granted in 2021, 2022 and 2023 with performance assessed over the period 1 January 2021 to 31 December 2023. Awards for
Material Risk Takers were granted half in cash and half in share based awards (linked to the Banco Santander SA share price), and will vest in accordance with
regulatory requirements. The total value of share-based awards granted in 2023 was \u00a31.3m (2022: \u00a31m) and the liability arising from share-based payment
transactions, excluding any cash element was \u00a33.8m (2022: \u00a31.8m).
", "dimensions": { "concept": "ifrs-full:DisclosureOfSharebasedPaymentArrangementsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-644": { "value": "
37. TRANSACTIONS WITH DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
a) Remuneration of Directors and Other Key Management Personnel
The remuneration of the Directors and Other Key Management Personnel (KMP) of the Santander UK group is set out in aggregate below.
2023
2022
2021
Directors\u2019 remuneration
\u00a3
\u00a3
\u00a3
Salaries and fees
4,733,761
4,696,699
5,488,388
Performance-related payments
1,002,607
3,701,569
3,431,294
Other fixed remuneration (pension and other allowances & non-cash benefits)
222,538
906,201
929,935
Expenses
\u2014
27,715
17,097
Total remuneration
5,958,906
9,332,184
9,866,714
Compensation for loss of office(1)
\u2014
172,856
356,054
2023
2022
2021
Directors' and Other Key Management Personnel compensation
\u00a3
\u00a3
\u00a3
Short-term employee benefits
18,449,360
22,627,595
20,553,672
Post-employment benefits
858,437
1,026,848
988,829
Compensation for loss of office(1)
\u2014
1,713,256
356,054
Total compensation
19,307,797
25,367,699
21,898,555
(1) Compensation for loss of office was not paid to Directors or KMPs in 2023 (2022: two Directors, \u00a3172,856 and three KMPs, \u00a31,540,400; 2021: two Directors, \u00a3356,054).
In 2023, the remuneration, excluding pension contributions, of the highest paid Director, was \u00a32,640,491 (2022: \u00a33,510,441, 2021: \u00a33,740,810) of which
\u00a31,002,607 (2022: \u00a31,900,506, 2021: \u00a31,864,320) was performance related. In 2023, the accrued defined benefit pension relating to the highest paid director was
\u00a3nil (2022: \u00a3nil, 2021: \u00a322,119 per annum for a different individual).
b) Retirement benefits
Defined benefit pension schemes are provided to certain employees. See Note 30 for details of the schemes and the related costs and obligations. No director has a
deferred pension benefit accruing under a defined benefit scheme. Ex-gratia pensions paid to former Directors of Santander UK plc in 2023, which have been
provided for previously, amounted to \u00a3327,462 (2022: \u00a3379,945; 2021: \u00a3370,668). Since the Company became part of the Banco Santander group, the Board has
not awarded any new ex-gratia pensions.
c) Transactions with Directors, Other Key Management Personnel and each of their connected persons
Directors, Other KMP (defined as the Executive Committee of Santander UK plc who served during the year) and their connected persons have undertaken the
following transactions with the Santander UK group in the ordinary course of business.
2023
2022
No.
\u00a3000
No.
\u00a3000
Secured loans, unsecured loans and overdrafts
At 1 January
10
871
6
360
Net movements
(2)
204
4
511
At 31 December
8
1,075
10
871
Deposit, bank and instant access accounts and investments
At 1 January
23
4,133
21
6,552
Net movements
(6)
(2,431)
2
(2,419)
At 31 December
17
1,702
23
4,133
In 2023 and 2022, no Director held any interest in the shares of any company in the Santander UK group and no Director exercised or was granted any rights to
subscribe for shares in any company in the Santander UK group. In addition, in 2023 and 2022, no Directors exercised share options over shares in Banco Santander
SA, the ultimate parent company of the Company.
Secured loans, unsecured loans and overdrafts are made to Directors, Other KMP and their connected persons, in the ordinary course of business, with terms
prevailing for comparable transactions and on the same terms and conditions as applicable to other employees in the Santander UK group. Such loans do not
involve more than the normal risk of collectability or present any unfavourable features. Amounts deposited by Directors, Other KMP and their connected persons
earn interest at the same rates as those offered to the market or on the same terms and conditions applicable to other employees in the Santander UK group.
Deposits, bank and instant access accounts and investments are entered into by Directors, Other KMP and their connected persons on normal market terms and
conditions, or on the same terms and conditions as applicable to other employees in Santander UK group.
In 2023, loans were made to two Directors (2022: six Directors), with a principal amount of \u00a3495,281 outstanding at 31 December 2023 (2022: \u00a3540,450). In
2023, loans were made to six Other KMP (2022: four), with a principal amount of \u00a3579,383 outstanding at 31 December 2023 (2022: \u00a3330,972).
In 2023 and 2022, there were no other transactions, arrangements or agreements with Santander UK in which Directors, Other KMP or their connected persons had
a material interest. In addition, in 2023 and 2022, no Director had a material interest in any contract of significance with Santander UK other than a service contract
or appointment letter, as appropriate.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutKeyManagementPersonnelExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-643": { "value": "
37. TRANSACTIONS WITH DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
a) Remuneration of Directors and Other Key Management Personnel
The remuneration of the Directors and Other Key Management Personnel (KMP) of the Santander UK group is set out in aggregate below.
2023
2022
2021
Directors\u2019 remuneration
\u00a3
\u00a3
\u00a3
Salaries and fees
4,733,761
4,696,699
5,488,388
Performance-related payments
1,002,607
3,701,569
3,431,294
Other fixed remuneration (pension and other allowances & non-cash benefits)
222,538
906,201
929,935
Expenses
\u2014
27,715
17,097
Total remuneration
5,958,906
9,332,184
9,866,714
Compensation for loss of office(1)
\u2014
172,856
356,054
2023
2022
2021
Directors' and Other Key Management Personnel compensation
\u00a3
\u00a3
\u00a3
Short-term employee benefits
18,449,360
22,627,595
20,553,672
Post-employment benefits
858,437
1,026,848
988,829
Compensation for loss of office(1)
\u2014
1,713,256
356,054
Total compensation
19,307,797
25,367,699
21,898,555
(1) Compensation for loss of office was not paid to Directors or KMPs in 2023 (2022: two Directors, \u00a3172,856 and three KMPs, \u00a31,540,400; 2021: two Directors, \u00a3356,054).
In 2023, the remuneration, excluding pension contributions, of the highest paid Director, was \u00a32,640,491 (2022: \u00a33,510,441, 2021: \u00a33,740,810) of which
\u00a31,002,607 (2022: \u00a31,900,506, 2021: \u00a31,864,320) was performance related. In 2023, the accrued defined benefit pension relating to the highest paid director was
\u00a3nil (2022: \u00a3nil, 2021: \u00a322,119 per annum for a different individual).
b) Retirement benefits
Defined benefit pension schemes are provided to certain employees. See Note 30 for details of the schemes and the related costs and obligations. No director has a
deferred pension benefit accruing under a defined benefit scheme. Ex-gratia pensions paid to former Directors of Santander UK plc in 2023, which have been
provided for previously, amounted to \u00a3327,462 (2022: \u00a3379,945; 2021: \u00a3370,668). Since the Company became part of the Banco Santander group, the Board has
not awarded any new ex-gratia pensions.
c) Transactions with Directors, Other Key Management Personnel and each of their connected persons
Directors, Other KMP (defined as the Executive Committee of Santander UK plc who served during the year) and their connected persons have undertaken the
following transactions with the Santander UK group in the ordinary course of business.
2023
2022
No.
\u00a3000
No.
\u00a3000
Secured loans, unsecured loans and overdrafts
At 1 January
10
871
6
360
Net movements
(2)
204
4
511
At 31 December
8
1,075
10
871
Deposit, bank and instant access accounts and investments
At 1 January
23
4,133
21
6,552
Net movements
(6)
(2,431)
2
(2,419)
At 31 December
17
1,702
23
4,133
In 2023 and 2022, no Director held any interest in the shares of any company in the Santander UK group and no Director exercised or was granted any rights to
subscribe for shares in any company in the Santander UK group. In addition, in 2023 and 2022, no Directors exercised share options over shares in Banco Santander
SA, the ultimate parent company of the Company.
Secured loans, unsecured loans and overdrafts are made to Directors, Other KMP and their connected persons, in the ordinary course of business, with terms
prevailing for comparable transactions and on the same terms and conditions as applicable to other employees in the Santander UK group. Such loans do not
involve more than the normal risk of collectability or present any unfavourable features. Amounts deposited by Directors, Other KMP and their connected persons
earn interest at the same rates as those offered to the market or on the same terms and conditions applicable to other employees in the Santander UK group.
Deposits, bank and instant access accounts and investments are entered into by Directors, Other KMP and their connected persons on normal market terms and
conditions, or on the same terms and conditions as applicable to other employees in Santander UK group.
In 2023, loans were made to two Directors (2022: six Directors), with a principal amount of \u00a3495,281 outstanding at 31 December 2023 (2022: \u00a3540,450). In
2023, loans were made to six Other KMP (2022: four), with a principal amount of \u00a3579,383 outstanding at 31 December 2023 (2022: \u00a3330,972).
In 2023 and 2022, there were no other transactions, arrangements or agreements with Santander UK in which Directors, Other KMP or their connected persons had
a material interest. In addition, in 2023 and 2022, no Director had a material interest in any contract of significance with Santander UK other than a service contract
or appointment letter, as appropriate.
38. RELATED PARTY DISCLOSURES
a) Parent undertaking and controlling party
The Company\u2019s immediate parent is Santander UK Group Holdings plc, a company incorporated in England and Wales. Its ultimate parent and controlling party is
Banco Santander SA, a company incorporated in Spain. The smallest and largest groups into which the Santander UK group\u2019s results are included are the group
accounts of Santander UK Group Holdings plc and Banco Santander SA respectively, copies of which may be obtained from Shareholder Relations, 2 Triton Square,
Regent\u2019s Place, London NW1 3AN, on the corporate website (aboutsantander.co.uk) or on the Banco Santander corporate website (santander.com).
b) Transactions with related parties
Transactions with related parties during the year and balances outstanding at the year-end:
Group
Interest, fees and
other income received
Interest, fees and
other expenses paid
Amounts owed by
related parties
Amounts owed to
related parties
2023
2022
2021
2023
2022
2021
2023
2022
2023
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Ultimate parent
(8)
(710)
(164)
414
47
33
800
1,363
(1,062)
(1,673)
Immediate parent
(7)
(6)
(6)
504
308
263
\u2014
1
(13,279)
(14,390)
Fellow subsidiaries
(38)
(69)
(57)
203
177
163
101
108
(370)
(348)
Joint ventures
(183)
(76)
(34)
55
17
4
4,486
4,151
(781)
(973)
(236)
(861)
(261)
1,176
549
463
5,387
5,623
(15,492)
(17,384)
For more on this, see \u2018Balances with other Banco Santander group members\u2019 in the Risk review, Note 13. Loans and advances to customers, Note 23. Deposits by
customers and Note 33. Other Equity Instruments. In addition, transactions with pension schemes operated by the Santander UK group are described in Note 30.
The above transactions were made in the ordinary course of business, on substantially the same terms as for comparable transactions with third party
counterparties, and within limits acceptable to the PRA. Such transactions do not involve more than the normal risk of collectability or present any unfavourable
features.
In 2021, SCUK sold its entire 50% shareholding in PSA Finance UK Limited to PSA Financial Services Spain EFC SA, a joint venture between Santander Consumer
Finance SA, a fellow subsidiary of Banco Santander SA, and Banque PSA Finance SA. In 2021, a significant part of the CIB business of Santander UK was transferred
to the London branch of Banco Santander SA by way of a Part VII banking business transfer scheme. For more details, see Note 42.
In 2021, we sold our then head office site in Triton Square, London to Santander UK Investments Ltd, a wholly owned subsidiary of our ultimate parent. Santander
UK occupies space within the building and paid fees of \u00a39m (2022: \u00a36m) under an occupational licence arrangement.
In May 2022, Santander UK plc transferred a portfolio of mortgage assets with a carrying amount of \u00a3624m to Santander Financial Services plc for a cash
consideration of \u00a3631m, including a purchase price premium of \u00a37m.
In November 2022, Santander (UK) Group Pension Scheme Trustees Limited entered into an unsecured committed liquidity facility with Santander UK plc for
\u00a3600m with a maturity date of 31 December 2024. This facility provides an alternate source of short-term liquidity for day-to-day operational needs. At the balance
sheet date, no drawings had been made from this facility and the entire facility remained undrawn.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRelatedPartyExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-645": { "value": "Santander UK Group Holdings plc", "dimensions": { "concept": "ifrs-full:NameOfParentEntity", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-646": { "value": "Banco Santander SA", "dimensions": { "concept": "ifrs-full:NameOfUltimateParentOfGroup", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-647": { "value": "
a) Fair value measurement and hierarchy
(i) Fair value measurement
The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal, or in its absence, the most advantageous market to which Santander UK has access at that date. The fair value
of a liability reflects its non-performance risk.
Financial instruments valued using observable market prices
If a quoted market price in an active market is available for an instrument, the fair value is calculated as the current bid price multiplied by the number of units of the
instrument held.
Financial instruments valued using a valuation technique
In the absence of a quoted market price in an active market, management uses internal models to make its best estimate of the price that the market would set for
that financial instrument. In order to make these estimations, various techniques are employed, including extrapolation from observable market data and
observation of similar financial instruments with similar characteristics. Wherever possible, valuation parameters for each product are based on prices directly
observable in active markets or that can be derived from directly observable market prices. Chosen valuation techniques incorporate all the factors that market
participants would take into account in pricing transactions.
Santander UK manages certain groups of financial assets and liabilities on the basis of its net exposure to either market risks or credit risk. As a result, it has elected
to use the exception under IFRS 13 which permits the fair value measurement of a group of financial assets and financial liabilities on the basis of the price that
would be received to sell a net long position for a particular risk exposure or paid to transfer a net short position for a particular risk exposure in an orderly
transaction between market participants at the measurement date under current market conditions.
(ii) Fair value hierarchy
Santander UK applies the following fair value hierarchy that prioritises the inputs to valuation techniques used in measuring fair value. The hierarchy establishes
three categories for valuing financial instruments, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The three categories are: quoted prices in active markets (Level 1), internal models based on observable market data (Level
2) and internal models based on other than observable market data (Level 3). If the inputs used to measure an asset or a liability fall to different levels within the
hierarchy, the classification of the entire asset or liability will be based on the lowest level input that is significant to the overall fair value measurement of the asset
or liability.
Santander UK categorises assets and liabilities measured at fair value within the fair value hierarchy based on the inputs to the valuation techniques as follows:
Level 1Unadjusted quoted prices for identical assets or liabilities in an active market that Santander UK can access at the measurement date. Active markets are
assessed by reference to average daily trading volumes in absolute terms and, where applicable, by reference to market capitalisation for the instrument.
Level 2Quoted prices in inactive markets, quoted prices for similar assets or liabilities, recent market transactions, inputs other than quoted market prices for the
asset or liability that are observable either directly or indirectly for substantially the full term, and inputs to valuation techniques that are derived principally from or
corroborated by observable market data through correlation or other statistical means for substantially the full term of the asset or liability.
Level 3Significant inputs to the pricing or valuation techniques are unobservable. These unobservable inputs reflect the assumptions that market participants
would use when pricing assets or liabilities and are considered significant to the overall valuation.
Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy.
The Santander UK group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level
of observability of the inputs to the valuation techniques at the end of the reporting period.
b) Valuation techniques
The main valuation techniques employed in internal models to measure the fair value of the financial instruments at 31 December 2023 and 2022 are set out
below. In substantially all cases, the principal inputs into these models are derived from observable market data. Santander UK did not make any material changes
to the valuation techniques and internal models it used in 2023, 2022 and 2021.
A. In the valuation of financial instruments requiring static hedging (for example interest rate, currency derivatives and property derivatives) and in the valuation
of loans and advances and deposits, the \u2018present value\u2019 method is used. Expected future cash flows are discounted using the interest rate curves of the
applicable currencies or forward house price index levels, as well as credit spreads. The interest rate curves are generally observable market data and
reference yield curves derived from quoted interest rates in appropriate time bandings, which match the timings of the cash flows and maturities of the
instruments.
B. In the valuation of equity financial instruments requiring dynamic hedging (principally equity securities, options and other structured instruments), proprietary
local volatility and stochastic volatility models are used. These types of models are widely accepted in the financial services industry. Observable market inputs
used in these models include the bid-offer spread, foreign currency exchange rates, volatility and correlation between indices. In limited circumstances, other
inputs may be used in these models that are based on unobservable market data, such as the Halifax\u2019s UK HPI volatility, HPI forward growth, HPI spot rate,
mortality and mean reversion.
C. In the valuation of financial instruments exposed to interest rate risk that require either static or dynamic hedging (such as interest rate futures, caps and
floors, and options), the present value method (futures), Black\u2019s model (caps/floors) and the Hull/White and Markov functional models (Bermudan options) are
used. These types of models are widely accepted in the financial services industry. The significant inputs used in these models are observable market data,
including appropriate interest rate curves, volatilities, correlations and exchange rates. In limited circumstances, other inputs may be used in these models that
are based on unobservable market data, such as HPI volatility, HPI forward growth, HPI spot rate and mortality.
D. In the valuation of linear instruments such as credit risk and fixed-income derivatives, credit risk is measured using dynamic models similar to those used in the
measurement of interest rate risk. In the case of non-linear instruments, if the portfolio is exposed to credit risk such as credit derivatives, the probability of
default is determined using the credit default spread market. The main inputs used to determine the underlying cost of credit of credit derivatives are quoted
credit risk premiums and the correlation between the quoted credit derivatives of various issuers.
The fair values of the financial instruments arising from Santander UK\u2019s internal models take into account, among other things, contract terms and observable
market data, which include such factors as bid-offer spread, interest rates, credit risk, exchange rates, the quoted market price of equity securities, volatility and
prepayments. In all cases, when it is not possible to derive a valuation for a particular feature of an instrument, management uses judgement to determine the fair
value of the particular feature. In exercising this judgement, a variety of tools are used including proxy observable data, historical data and extrapolation techniques.
Extrapolation techniques take into account behavioural characteristics of equity markets that have been observed over time, and for which there is a strong case to
support an expectation of a continuing trend in the future. Estimates are calibrated to observable market prices when they become available.
Santander UK believes its valuation methods are appropriate and consistent with other market participants. Nevertheless, the use of different valuation methods or
assumptions, including imprecision in estimating unobservable market inputs, to determine the fair value of certain financial instruments could result in different
estimates of fair value at the reporting date and the amount of gain or loss recorded for a particular instrument. Most of the valuation models are not significantly
subjective, because they can be tested and, if necessary, recalibrated by the internal calculation of and subsequent comparison to market prices of actively traded
securities, where available.
c) Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk-taker. To this
end, ultimate responsibility for the determination of fair values lies with the Risk Department. For all financial instruments where fair values are determined by
reference to externally quoted prices or observable pricing inputs to models, independent price determination or verification is utilised. In inactive markets, direct
observation of a traded price may not be possible. In these circumstances, Santander UK will source alternative market information to validate the financial
instrument\u2019s fair value, with greater weight given to information that is considered to be more relevant and reliable.
The factors that are considered in this regard include:
\u2013 The extent to which prices may be expected to represent genuine traded or tradeable prices
\u2013 The degree of similarity between financial instruments
\u2013 The degree of consistency between different sources
\u2013 The process followed by the pricing provider to derive the data
\u2013 The elapsed time between the date to which the market data relates and the balance sheet date
\u2013 The manner in which the data was sourced.
The source of pricing data is considered as part of the process that determines the classification of the level of a financial instrument. Consideration is given to the
quality of the information available that provides the current mark-to-model valuation and estimates of how different these valuations could be on an actual trade,
taking into consideration how active the market is. For spot assets that cannot be sold due to illiquidity, forward estimates are discounted to estimate a realisable
value over time. Adjustments for illiquid positions are regularly reviewed to reflect changing market conditions.
For fair values determined using a valuation model, the control framework may include as applicable, independent development and / or validation of: (i) the logic
within the models; (ii) the inputs to those models; and (iii) any adjustments required outside the models. Internal valuation models are validated independently
within the Risk Department. A validation report is produced for each model-derived valuation that assesses the mathematical assumptions behind the model, the
implementation of the model and its integration within the trading system.
d) Fair values of financial instruments carried at amortised cost
The following tables analyse the fair value of the financial instruments carried at amortised cost at 31 December 2023 and 2022, including their levels in the fair
value hierarchy - Level 1, Level 2 and Level 3. Cash and balances at central banks, which consist of demand deposits with the Bank of England, together with cash in
tills and ATMs, have been excluded from the table as the carrying amount is deemed an appropriate approximation of fair value.
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
The carrying value above of any financial assets and liabilities that are designated as hedged items in a portfolio (or macro) fair value hedge relationship excludes
gains and losses attributable to the hedged risk, as this is included as a separate line item on the balance sheet.
Valuation methodology for financial instruments carried at amortised cost
The valuation approach to specific categories of financial instruments is described below.
Assets:
Loans and advances to customers
The approach to estimating the fair value of loans and advances to customers has been determined by discounting expected cash flows to reflect either current
market rates or credit spreads relevant to the specific industry of the borrower. The determination of their fair values is an area of considerable estimation and
uncertainty as there is no observable market and values are significantly affected by customer behaviour.
i) Advances secured on residential property
The fair value of the mortgage portfolio is calculated by discounting contractual cash flows by different spreads for each LTV Band, after taking account of expected
customer prepayment rates. The spread is based on new business interest rates derived from publicly available competitor market information.
ii) Corporate loans
The determination of the fair values of performing loans is calculated by discounting the contractual cash flows and also deducting other costs relating to expected
credit losses, cost of capital, credit risk capital, operational risk capital, cost of funding and operating costs.
iii) Other loans
These consist of unsecured personal loans, credit cards, overdrafts and consumer (auto) finance. The weighted average lives of these portfolios are typically short
and relate to relatively new business. For unsecured personal loans and consumer (auto) finance loans, a small surplus or deficit has been recognised based on the
differential between existing portfolio margins and the current contractual interest rates.
Loans and advances to banks
These comprise secured loans, short-term placements with banks including collateral and unsettled financial transactions. The secured loans have been valued
based on a discounted spread for the term of the loans using valuation technique A as described above. The carrying amount of the other items is deemed a
reasonable approximation of their fair value, as the transactions are very short-term in duration.
Reverse repurchase agreements - non-trading
The fair value of the reverse repurchase agreements - non trading has been estimated using valuation technique A as described above, using a spread appropriate to
the underlying collateral.
Other financial assets at amortised cost
These consist of asset backed securities and debt securities. The asset backed securities can be complex products and in some instances are valued with the
assistance of an independent, specialist valuation firm. These fair values are determined using industry-standard valuation techniques, including discounted cash
flow models. The inputs to these models used in these valuation techniques include quotes from market makers, prices of similar assets, adjustments for
differences in credit spreads, and additional quantitative and qualitative research. The debt security investments consist of a portfolio of government debt securities.
The fair value of this portfolio has been determined using quoted market prices.
Liabilities:
Deposits by customers
The majority of deposit liabilities are payable on demand and therefore can be deemed short-term in nature with the fair value equal to the carrying value. Certain
of the deposit liabilities are at a fixed rate until maturity. The deficit/surplus of fair value over carrying value of these liabilities has been estimated by reference to
the market rates available at the balance sheet date for similar deposit liabilities of similar maturities. The fair value of such deposit liabilities has been estimated
using valuation technique A as described above.
Deposits by banks
The fair value of deposits by banks, including repos, has been estimated using valuation technique A as described above, discounted at the appropriate credit spread.
Repurchase agreements - non trading
The fair value of the repurchase agreements - non trading has been estimated using valuation technique A as described above, discounted at a spread appropriate
to the underlying collateral.
Debt securities in issue and subordinated liabilities
Where reliable prices are available, the fair value of debt securities in issue and subordinated liabilities has been calculated using quoted market prices. Where
reliable prices are not available, internal models have been used to determine fair values, which take into account, among other things, contract terms and
observable market data, which include such factors as interest rates, credit risk and exchange rates. In all cases, when it is not possible to derive a valuation for a
particular feature of an instrument, management uses judgement to determine the fair value of the particular feature. In exercising this judgement, a variety of
tools are used including proxy observable data.
e) Fair values of financial instruments measured at fair value
The following tables summarise the fair values of the financial assets and liabilities accounted for at fair value at 31 December 2023 and 31 December 2022,
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
Group
2023
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Valuation
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
technique
Assets
Derivative financial instruments
Exchange rate contracts
\u2014
1,129
\u2014
1,129
\u2014
2,044
\u2014
2,044
A
Interest rate contracts
\u2014
2,216
1
2,217
\u2014
2,399
7
2,406
A & C
Equity and credit contracts
\u2014
98
35
133
\u2014
100
30
130
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
1,396
36
1,432
\u2014
2,370
37
2,407
Other financial assets at FVTPL
Loans and advances to customers
\u2014
\u2014
46
46
\u2014
\u2014
45
45
A
Debt securities
\u2014
167
49
216
\u2014
12
72
84
A, B & D
\u2014
167
95
262
\u2014
12
117
129
Financial assets at FVOCI
Debt securities
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
D
8,293
188
\u2014
8,481
5,996
28
\u2014
6,024
Total assets at fair value
8,293
1,751
131
10,175
5,996
2,410
154
8,560
Liabilities
Derivative financial instruments
Exchange rate contracts
\u2014
508
\u2014
508
\u2014
471
\u2014
471
A
Interest rate contracts
\u2014
2,336
1
2,337
\u2014
2,624
4
2,628
A & C
Equity and credit contracts
\u2014
11
9
20
\u2014
17
8
25
B & D
Netting
\u2014
(2,047)
\u2014
(2,047)
\u2014
(2,173)
\u2014
(2,173)
\u2014
808
10
818
\u2014
939
12
951
Other financial liabilities at FVTPL
Debt securities in issue
\u2014
369
\u2014
369
\u2014
372
3
375
A
Structured deposits
\u2014
426
\u2014
426
\u2014
321
\u2014
321
A
Zero Amortising Guaranteed Notes
\u2014
104
\u2014
104
\u2014
107
\u2014
107
D
\u2014
899
\u2014
899
\u2014
800
3
803
Total liabilities at fair value
\u2014
1,707
10
1,717
\u2014
1,739
15
1,754
Transfers between levels of the fair value hierarchy
In 2023 there were \u00a322m (2022: no significant) transfers of financial instruments between levels of the fair value hierarchy.
f) Fair value adjustments
The internal models incorporate assumptions that Santander UK believes would be made by a market participant to establish fair value. Fair value adjustments are
adopted when Santander UK considers that there are additional factors that would be considered by a market participant that are not incorporated in the valuation
model.
Santander UK classifies fair value adjustments as either \u2018risk-related\u2019 or \u2018model-related\u2019. The fair value adjustments form part of the portfolio fair value and are
included in the balance sheet values of the product types to which they have been applied.
The fair value adjustments are set out in the following table:
Group
2023
2022
\u00a3m
\u00a3m
Risk-related:
- Bid-offer and trade specific adjustments
(6)
(12)
- Uncertainty
6
12
- Credit risk adjustment
1
2
- Funding fair value adjustment
1
1
2
3
Day One profit
1
1
3
4
Risk-related adjustments
Risk-related adjustments are driven, in part, by the magnitude of Santander UK\u2019s market or credit risk exposure, and by external market factors, such as the size of
market spreads.
(i) Bid-offer and trade specific adjustments
Portfolios are marked at bid or offer, as appropriate. Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the cost that
would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the
position. For debt securities, the bid-offer spread is based on a market price at an individual security level. For other products, the major risk types are identified. For
each risk type, the net portfolio risks are first classified into buckets, and then a bid-offer spread is applied to each risk bucket based upon the market bid-offer
spread for the relevant hedging instrument.
(ii) Uncertainty
Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more subjective. In these circumstances, a range
of possible values exists that the financial instrument or market parameter may assume, and an adjustment may be needed to reflect the likelihood that in
estimating the fair value of the financial instrument, market participants would adopt more conservative values for uncertain parameters and/or model
assumptions than those used in the valuation model.
(iii) Credit risk adjustment
Credit risk adjustments comprise credit and debit valuation adjustments. The credit valuation adjustment (CVA) is an adjustment to the valuation of OTC derivative
contracts to reflect within fair value the possibility that the counterparty may default, and Santander UK may not receive the full market value of the transactions.
The debit valuation adjustment (DVA) is an adjustment to the valuation of the OTC derivative contracts to reflect within the fair value the possibility that Santander
UK may default, and that Santander UK may not pay full market value of the transactions.
Santander UK calculates a separate CVA and DVA for each Santander UK legal entity, and within each entity for each counterparty to which the entity has exposure.
Santander UK calculates the CVA by applying the probability of default of the counterparty to the expected positive exposure to the counterparty, and multiplying
the result by the loss expected in the event of default i.e. LGD. Conversely, Santander UK calculates the DVA by applying the PD of the Santander UK group, to the
expected positive exposure of the counterparty to Santander UK and multiplying the result by the LGD. Both calculations are performed over the life of the potential
exposure.
For most products Santander UK uses a simulation methodology to calculate the expected positive exposure to a counterparty. This incorporates a range of
potential exposures across the portfolio of transactions with the counterparty over the life of the portfolio. The simulation methodology includes credit mitigants
such as counterparty netting agreements and collateral agreements with the counterparty.
(iv) Funding fair value adjustment (FFVA)
The FFVA is an adjustment to the valuation of OTC derivative positions to include the net cost of funding uncollateralised derivative positions. This is calculated by
applying a suitable funding cost to the expected future funding exposure of any uncollateralised component of the OTC derivative portfolio.
Model-related adjustments
Models used for portfolio valuation purposes may be based upon a simplifying set of assumptions that do not capture all material market characteristics.
Additionally, markets evolve, and models that were adequate in the past may require development to capture all material market characteristics in current market
conditions. In these circumstances, model limitation adjustments are adopted. As model development progresses, model limitations are addressed within the core
revaluation models and a model limitation adjustment is no longer needed.
Day One profit adjustments
Day One profit adjustments are adopted where the fair value estimated by a valuation model is based on one or more significant unobservable inputs. Day One
profit adjustments are calculated and reported on a portfolio basis.
The timing of recognition of deferred Day One profit and loss is determined individually. It is deferred until either the instrument\u2019s fair value can be determined
using market observable inputs or is realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred Day
One profit and loss. Subsequent changes in fair value are recognised immediately in the Income Statement without immediate reversal of deferred Day One profits
and losses.
Valuation techniques (Group)
1. Derivative assets \u2013 Equity and credit contracts
These are valued using a probability weighted set of HPI forward prices, which are assumed to be a reasonable representation of the increase in value of the
Santander UK group\u2019s reversionary interest portfolio underlying the derivatives. The probability used reflects the likelihood of the homeowner vacating the property
and is calculated from mortality rates and acceleration rates which are a function of age and gender, obtained from the relevant mortality tables. Indexing is felt to
be appropriate due to the size and geographical dispersion of the reversionary interest portfolio. These are determined using HPI Spot Rates adjusted to reflect
estimated forward growth. Non-seasonally adjusted (NSA) national and regional HPI are used in the valuation model to avoid any subjective judgement in the
adjustment process, which is made by Markit, which publishes the Halifax House Price Index.
The inputs used to determine the value of the reversionary property derivatives are HPI spot, HPI forward growth and mortality rates. The principal pricing
parameter is HPI forward growth.
2. FVTPL assets \u2013 Loans and advances to customers \u2013 roll-up mortgage portfolio
These represent roll-up mortgages (sometimes referred to as lifetime mortgages), which are an equity release scheme under which a property owner takes out a
loan secured against their home. The owner does not have to make any interest payments during their lifetime in which case the fixed interest payments are rolled
up into the mortgage. The loan or mortgage (capital and rolled-up interest) is repaid upon the owner\u2019s vacation of the property and the value of the loan is only
repaid from the value of the property. This is known as a \u2018no negative equity guarantee\u2019. Santander UK suffers a loss if the sale proceeds from the property are
insufficient to repay the loan, as it is unable to pursue the homeowner\u2019s estate or beneficiaries for the shortfall.
The value of the mortgage \u2018rolls up\u2019 or accretes until the owner vacates the property. In order to value the roll-up mortgages, Santander UK uses a probability-
weighted set of European option prices (puts) determined using the Black-Scholes model, in which the \u2018no negative equity guarantee\u2019 are valued as short put
options. The probability weighting applied is calculated from mortality rates and acceleration rates as a function of age and gender, taken from mortality tables.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth, HPI volatility, mortality rates and repayment rates. The principal
pricing parameter is HPI forward growth. The HPI forward growth rate used is unobservable and is the same as used in the valuation of Instrument 1 above. The
other parameters do not have a significant effect on the value of the instruments.
3. FVTPL assets \u2013 Loans and advances to customers \u2013 other loans
These relate to loans to transport and education companies. The fair value of these loans is estimated using the \u2018present value\u2019 model based on a credit curve
derived from current market spreads. Loan specific credit data is unobservable, so a proxy population is applied based on industry sector and credit rating.
4. FVTPL assets \u2013 Debt securities
These consist of reversionary property securities and are an equity release scheme, where the property owner receives an upfront lump sum in return for paying a
fixed percentage of the sales proceeds of the property when the owner vacates the property. These reversionary property securities are valued using a probability-
weighted set of HPI forward prices which are assumed to be a reasonable representation of the increase in value of Santander UK\u2019s reversionary interest portfolio
underlying the derivatives. The probability weighting used reflects the probability of the homeowner vacating the property through death or moving into care and is
calculated from mortality rates and acceleration factors which are a function of age and gender, obtained from the relevant mortality table.
The inputs used to determine the value of these instruments are HPI spot, HPI forward growth and mortality rates. The principal pricing parameter is HPI forward
growth. Discussion of the HPI spot rate, HPI forward growth rate and mortality rates for this financial instrument is the same as Instrument 1 above. An adjustment
is also made to reflect the specific property risk. Specific property risk is from the difference between the specific properties in the portfolio, and the average price as
expressed in the regionally weighted house price index.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives (Level 3)
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are
not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the inputs to the valuation models to reasonably possible alternative assumptions would change the
fair values significantly. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions.
Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable
input as described in the table below. The potential effects do not take into effect any hedged positions.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-648": { "value": "
Group
2023
2022
Fair value
Fair
Carrying
Fair value
Fair
Carrying
Level 1
Level 2
Level 3
value
value
Level 1
Level 2
Level 3
value
value
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Loans and advances to customers
\u2014
\u2014
205,917
205,917
207,435
\u2014
\u2014
212,479
212,479
219,716
Loans and advances to banks
\u2014
1,080
\u2014
1,080
1,080
\u2014
992
\u2014
992
992
Reverse repurchase agreements - non
trading
\u2014
12,470
\u2014
12,470
12,468
\u2014
7,341
\u2014
7,341
7,348
Other financial assets at amortised cost
144
\u2014
\u2014
144
152
144
\u2014
\u2014
144
156
144
13,550
205,917
219,611
221,135
144
8,333
212,479
220,956
228,212
Liabilities
Deposits by customers
\u2014
71
190,561
190,632
190,850
\u2014
51
195,483
195,534
195,568
Deposits by banks
\u2014
20,342
40
20,382
20,332
\u2014
27,979
55
28,034
28,525
Repurchase agreements - non trading
\u2014
8,413
\u2014
8,413
8,411
\u2014
7,982
\u2014
7,982
7,982
Debt securities in issue
1,689
30,743
1,189
33,621
33,910
2,574
26,349
1,582
30,505
31,531
Subordinated liabilities
\u2014
2,591
209
2,800
2,386
19
2,358
224
2,601
2,332
1,689
62,160
191,999
255,848
255,889
2,593
64,719
197,344
264,656
265,938
Loans and advances to banks
These comprise secured loans, short-term placements with banks including collateral and unsettled financial transactions. The secured loans have been valued
based on a discounted spread for the term of the loans using valuation technique A as described above. The carrying amount of the other items is deemed a
reasonable approximation of their fair value, as the transactions are very short-term in duration.
40. OFFSETTING FINANCIAL ASSETS AND LIABILITIES
The following table shows the impact of netting arrangements on:
\u2013 All financial assets and liabilities that are reported net on the balance sheet
\u2013 All derivative financial instruments and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable
master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements
(offsetting arrangements and financial collateral) but do not qualify for netting under the requirements described above.
For derivative contracts, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the
ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the
collateral to be realised in an event of default or if other predetermined events occur. For repurchase and reverse repurchase agreements and other similar secured
lending and borrowing, the \u2018Financial instruments\u2019 column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be
offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated if a counterparty defaults.
Santander UK engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts
presented in the tables below do not purport to represent Santander UK\u2019s actual credit exposure.
Group
Amounts subject to enforceable netting arrangements
Assets not
subject to
enforceable
netting
arrangements(2)
Effects of offsetting on balance sheet
Related amounts not offset
Gross
amounts
Amounts
offset
Net amounts
on balance
sheet
Financial
instruments
Financial
collateral (1)
Net
amount
Balance
sheet
total (3)
2023
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
Assets
Derivative financial assets
3,429
(2,047)
1,382
(471)
(823)
88
50
1,432
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
15,625
(3,157)
12,468
(118)
(12,350)
\u2014
\u2014
12,468
Loans and advances to customers and banks\u207d\u2074\u207e
5,363
(790)
4,573
\u2014
\u2014
4,573
203,942
208,515
24,417
(5,994)
18,423
(589)
(13,173)
4,661
203,992
222,415
Liabilities
Derivative financial liabilities
2,838
(2,047)
791
(471)
(161)
159
27
818
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
11,568
(3,157)
8,411
(118)
(8,293)
\u2014
\u2014
8,411
Deposits by customers and banks\u207d\u2074\u207e
4,218
(790)
3,428
\u2014
\u2014
3,428
207,754
211,182
18,624
(5,994)
12,630
(589)
(8,454)
3,587
207,781
220,411
2022
Assets
Derivative financial assets
4,525
(2,173)
2,352
(515)
(1,720)
117
55
2,407
Reverse repurchase, securities borrowing & similar
agreements:
\u2013 Amortised cost
8,826
(1,478)
7,348
(9)
(7,339)
\u2014
\u2014
7,348
Loans and advances to customers and banks\u207d\u2074\u207e
5,169
(908)
4,261
\u2014
\u2014
4,261
216,447
220,708
18,520
(4,559)
13,961
(524)
(9,059)
4,378
216,502
230,463
Liabilities
Derivative financial liabilities
3,085
(2,173)
912
(515)
(115)
282
39
951
Repurchase, securities lending & similar agreements:
\u2013 Amortised cost
9,460
(1,478)
7,982
(9)
(7,973)
\u2014
\u2014
7,982
Deposits by customers and banks\u207d\u2074\u207e
8,077
(908)
7,169
\u2014
\u2014
7,169
216,924
224,093
20,622
(4,559)
16,063
(524)
(8,088)
7,451
216,963
233,026
(1) Financial collateral is reflected at its fair value but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of \u2018Net amounts reported on the balance sheet\u2019 that are subject to enforceable netting arrangements and \u2018Amounts not subject to enforceable netting arrangements\u2019.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to offset mortgages which are classified as either and that are subject to netting.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToBanksExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-649": { "value": "
Reconciliation of fair value measurement in Level 3 of the fair value hierarchy
The following table sets out the movements in Level 3 financial instruments in 2023:
Group
Assets
Liabilities
Derivatives
Other
financial
assets at
FVTPL
Financial
assets at
FVOCI
Total
Derivatives
Other
financial
liabilities
at FVTPL
Total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
At 1 January 2023
37
117
\u2014
154
(12)
(3)
(15)
Total gains/(losses) recognised:
Fair value movements(2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
Purchases
\u2014
1
\u2014
1
\u2014
\u2014
\u2014
Netting(1)
\u2014
(3)
\u2014
(3)
\u2014
\u2014
\u2014
Settlements
(11)
(20)
\u2014
(31)
4
3
7
At 31 December 2023
36
95
\u2014
131
(10)
\u2014
(10)
Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
10
\u2014
\u2014
10
(2)
\u2014
(2)
At 1 January 2022
46
185
18
249
(32)
(6)
(38)
Total (losses)/gains recognised:
Fair value movements(2)
(2)
(18)
\u2014
(20)
2
1
3
Transfers in
\u2014
\u2014
\u2014
\u2014
(2)
\u2014
(2)
Netting(1)
\u2014
(8)
\u2014
(8)
\u2014
\u2014
\u2014
Sales
\u2014
(5)
\u2014
(5)
\u2014
\u2014
\u2014
Settlements
(7)
(37)
(18)
(62)
20
2
22
At 31 December 2022
37
117
\u2014
154
(12)
(3)
(15)
(Losses)/gains recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year (2)
(2)
(18)
\u2014
(20)
2
1
3
This relates to the effect of netting on the fair value of the credit linked notes due to a legal right of set-off between the principal amounts of the senior notes and the associated cash deposits. For more, see \u2018ii)
Credit protection entities\u2019 in Note 19
(2) Fair value movements relating to derivatives and other financial assets at FVTPL are recognised in other operating income in the income statement.", "dimensions": { "concept": "ifrs-full:DisclosureOfEffectOfChangesInForeignExchangeRatesExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-650": { "value": "
42. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued operations
Transfer of the CIB Business
Santander UK plc transferred a significant part of its CIB business to the London branch of Banco Santander SA under a Part VII banking business transfer scheme,
which completed on 11 October 2021. The residual parts of the CIB business were wound down or transferred to other segments. For the periods prior to its sale,
the CIB business met the requirements for presentation as discontinued operations.
The financial performance and cash flow information relating to the discontinued operations were as follows:
For the year ended 31 December
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Net interest income
\u2014
\u2014
32
Net fee and commission income
\u2014
\u2014
35
Other operating income
\u2014
\u2014
2
Total operating income
\u2014
\u2014
69
Operating expenses before credit impairment (charges)/write-backs, provisions and charges
\u2014
\u2014
(33)
Credit impairment (charges)/write-backs
\u2014
\u2014
11
Provisions for other liabilities and charges
\u2014
\u2014
(4)
Total operating credit impairment (charges)/write-backs, provisions and charges
\u2014
\u2014
7
Profit from discontinued operations before tax
\u2014
\u2014
43
Tax on profit from discontinued operations
\u2014
\u2014
(12)
Profit from discontinued operations after tax
\u2014
\u2014
31
There were no gains or losses recognised on the measurement to fair value less costs to sell or on the disposal of the asset groups constituting the discontinued
operations.
In 2023 , the net cash flows attributable to the operating activities in respect of discontinued operations were \u00a3nil outflow (2022: \u00a3nil outflow, 2021: \u00a33,612m
outflow). There were no investing or financing activities in respect of discontinued operations.
Assets held for sale
Sale of property
Management considered the sale of part of Santander House (Milton Keynes) under a proposed transaction with the developer for the construction of Unity Place
and Buckingham House (Bletchley), to be highly probable at the balance sheet date. As such, the Santander UK group classified these properties, which are included
in the Corporate Centre segment and carried at their sales prices, as held for sale. The sale is expected to complete in 2024 with no gain or loss.
At 31 December 2023, assets held for sale comprised:
2023
2022
\u00a3m
\u00a3m
Assets
Property, plant and equipment
13
49
Total assets held for sale
13
49
", "dimensions": { "concept": "ifrs-full:DisclosureOfNoncurrentAssetsHeldForSaleAndDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-651": { "value": "
Discontinued operations
Transfer of the CIB Business
Santander UK plc transferred a significant part of its CIB business to the London branch of Banco Santander SA under a Part VII banking business transfer scheme,
which completed on 11 October 2021. The residual parts of the CIB business were wound down or transferred to other segments. For the periods prior to its sale,
the CIB business met the requirements for presentation as discontinued operations.
The financial performance and cash flow information relating to the discontinued operations were as follows:
For the year ended 31 December
2023
2022
2021
\u00a3m
\u00a3m
\u00a3m
Net interest income
\u2014
\u2014
32
Net fee and commission income
\u2014
\u2014
35
Other operating income
\u2014
\u2014
2
Total operating income
\u2014
\u2014
69
Operating expenses before credit impairment (charges)/write-backs, provisions and charges
\u2014
\u2014
(33)
Credit impairment (charges)/write-backs
\u2014
\u2014
11
Provisions for other liabilities and charges
\u2014
\u2014
(4)
Total operating credit impairment (charges)/write-backs, provisions and charges
\u2014
\u2014
7
Profit from discontinued operations before tax
\u2014
\u2014
43
Tax on profit from discontinued operations
\u2014
\u2014
(12)
Profit from discontinued operations after tax
\u2014
\u2014
31
There were no gains or losses recognised on the measurement to fair value less costs to sell or on the disposal of the asset groups constituting the discontinued
operations.
In 2023 , the net cash flows attributable to the operating activities in respect of discontinued operations were \u00a3nil outflow (2022: \u00a3nil outflow, 2021: \u00a33,612m
outflow). There were no investing or financing activities in respect of discontinued operations.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-652": { "value": "
Assets held for sale
Sale of property
Management considered the sale of part of Santander House (Milton Keynes) under a proposed transaction with the developer for the construction of Unity Place
and Buckingham House (Bletchley), to be highly probable at the balance sheet date. As such, the Santander UK group classified these properties, which are included
in the Corporate Centre segment and carried at their sales prices, as held for sale. The sale is expected to complete in 2024 with no gain or loss.
At 31 December 2023, assets held for sale comprised:
2023
2022
\u00a3m
\u00a3m
Assets
Property, plant and equipment
13
49
Total assets held for sale
13
49
", "dimensions": { "concept": "ifrs-full:DisclosureOfNoncurrentAssetsOrDisposalGroupsClassifiedAsHeldForSaleExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f-653": { "value": "
43. EVENTS AFTER THE BALANCE SHEET DATE
There have been no significant events between 31 December 2023 and the date of approval of these financial statements which would require a change to or
additional disclosure in the financial statements.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEventsAfterReportingPeriodExplanatory", "language": "en", "entity": "scheme:PTCQB104N23FMNK2RZ28", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } } } }