Santander UK plc
STNDF 20-F Report ended Dec. 31, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31
,
2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report
For the transition period from
to
Commission file number
001-14928
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Tel:
+44
(0)
800 085 1491
E-mail:
lee.grant@santander.co.uk
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by
the annual report
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Ordinary shares of nominal value of £0.10 each*
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10 3/8% Non-cumulative Preference Shares of nominal value of £1 each
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8 5/8% Non-cumulative Preference Shares of nominal value of £1 each
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*
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All of the issued and outstanding ordinary shares of Santander UK plc are held by Santander UK Group Holdings plc.
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☒
No
☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Yes
☐
No
☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
☒
No
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files).
Yes
☒
No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth
company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Emerging growth company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards
†
provided pursuant to
Section 13(a) of the Exchange Act.
☐
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†
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The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP
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issued by the International Accounting
Standards Board
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Other
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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17
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Item 18
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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
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No
☒
Santander UK plc
2024 Annual Report
Part of the Banco Santander group
Important information for readers
Santander UK plc (the Company) and its subsidiaries (collectively Santander UK or the Santander UK group) operate primarily in the UK, and are part of the
Banco Santander group (comprising Banco Santander SA and its subsidiaries). Santander UK plc is regulated by the UK Prudential Regulation Authority (PRA)
and the Financial Conduct Authority (FCA) and certain other companies within the Santander UK group are regulated by the FCA and the PRA.
This Annual Report contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained
Santander UK Group Holdings plc is the immediate parent company of Santander UK plc. The two companies operate on the basis of a unified business strategy,
albeit the principal business activities of the Santander UK Group Holdings plc group are carried on by Santander UK plc and its subsidiaries.
The Santander UK Group Holdings plc Corporate Governance and Risk Frameworks have been adopted by the Company and its subsidiaries to ensure
consistency of application.
None of the websites referred to in this Annual Report on Form 20-F for the year ended 31 December 2024 (the Form 20-F), including where a link is provided,nor
any of the information contained on such websites, is incorporated by reference in the Form 20-F.
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Annual Report 2024
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Santander UK plc
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Strategic Report
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Sustainability
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Governance
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Risk review
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Financial statements
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Shareholder information
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Strategic report
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In this section
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Strategic report
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The strategic report outlines the key elements of the Annual Report and
provides context for the related financial statements.
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Our business model and overview
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The report highlights key financial and non-financial metrics which help to
explain our performance over the past year. It also highlights the external
environmental factors affecting the business along with Santander UK’s
positions in the UK banking market.
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Financial overview
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Sustainability overview
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Sustainability
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William Vereker
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Chair
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Financial statements
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7 March 2025
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Annual Report 2024
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Santander UK plc
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Strategic Report
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Sustainability
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Governance
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Risk review
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Financial statements
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Shareholder information
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Our business model and overview
We follow the Santander Way
Our aim
:
to be the
best open financial services platform
, by acting
responsibly
and earning the
lasting
loyalty
of our people, customers, shareholders
and communities.
Our purpose
:
to
help people and businesses prosper
.
Our how
:
everything we do should be
Simple, Personal and Fair
.
We create value for all
An engaged and talented
team
generates...
customer
loyalty
leading to...
strong financial results for our
shareholders
so we deliver...
support for our
communities
which motivates...
an engaged and talented
team
...
Santander UK
We provide financial products and services
Mortgages, consumer auto finance, unsecured loans, credit cards, banking and savings accounts, investment and insurance products for individuals and
growth-focused support and services for companies
Competitive advantage
Scaled
and established bank in the UK.
Strong balance sheet
with a prudent approach to risk.
Part of a
global banking group
.
A
talented
and
motivated team
.
Strategic priorities
Be
customer
centric
and increase customer activity.
Focus on
simplification
,
automation
and
digitalisation
.
Create
value
and be
disciplined
with capital allocation.
Be a
responsible
and
sustainable bank
.
Our behaviours
We live our values of Simple, Personal and Fair through great behaviours and our people leaders.
T - Think Customer
E - Embrace Change
A - Act Now
M - Move Together
S - Speak Up
At a glance
14 million active UK customers
.
444 branches
c18,000 full time equivalent employees
£
165.2
bn in mortgage lending
£
176.7
bn in customer deposits
Our sustainability strategy
Environment
:
Supporting our customers’ transition, aligning our activities with the Paris Agreement and embed climate risk
Social
:
Promote inclusive and sustainable growth and help people gain the skills they need to thrive
Governance
:
Act responsibly through strong culture, governance and conduct
A significant part of the Santander UK Group Holdings plc group
The Company and its subsidiaries represent almost all the business and operations of its immediate parent Santander UK Group Holdings plc. More information
on the Santander UK Group Holdings plc group, including the role of the Company as a ring-fenced bank, can be found in the Santander UK Group Holdings plc
2024 Annual Report, which does not form part of this report.
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Annual Report 2024
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Strategic Report
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Sustainability
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Governance
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Risk review
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Financial statements
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Shareholder information
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Our market overview
Improving economic environment
What we have seen
In the UK, we saw economic conditions improve despite another year of slow growth (0.9% in 2024 based on the latest data available, 0.4% in 2023).
Inflation fell towards the Bank of England’s target rate over the year. The housing market in the UK performed better than expected in 2024 (House Price Index:
4%) and showed signs of increased activity as the year progressed.
This led to the Monetary Policy Committee (MPC) cutting the Bank Rate twice in the second half of 2024 to 4.75% (50bps below 2023).
Our response and looking ahead
As we exit two years of high inflation and continue the rate-cut cycle, cost management became a significant focus industry-wide. We continued to deliver
our transformation through simplifying, automating and digitising processes, helping to manage our operating expenses in line with CPI for the year.
We remained focused on supporting our customers and delivering products and services that help them make the most of their money, and for those who needed
extra help we continued to provide the support they needed.
Looking ahead, we expect the Bank of England to cut the Bank Rate over 2025 by 100bps (including the 25bps cut in Feb-25) to support growth. As this occurs
and affordability improves for our customers, we expect to see activity in the mortgage market increase further.
Competitive UK market
What we have seen
MA increased in the UK in 2024 and the banking sector is likely to see further consolidation in the near term.
Nationwide and Barclays completed acquisitions of Virgin Money and Tesco’s retail banking arms respectively in 2024, while Coventry Building Society’s
acquisition of Co-op Bank’s retail banking arm completed in early 2025, with NatWest’s acquisition of Sainsbury’s retail banking arm due for completion in 2025.
Nonetheless, the market remained highly competitive while operating in a higher rate environment. Established international and digital challengers continued to
compete for deposits and lending in the market in addition to our traditional peers.
2024 marked the second year in a row of over 1 million customers in the UK using the Current Account Switch Service.
Our response and looking ahead
2024 saw another year of pricing discipline and continuation of the strategic d
eleveraging of our portfolio. Over the year, customer lending decreased b
y £8.6bn
to £
194.5
bn and our
customer deposits decreased by £10.7bn to £
176.7
bn.
We continued to monitor competitors’ products and invested in our multi-channel offerings throughout the year, to bring customers to Santander UK.
Looking forward, we expect large peers to continue investing in their product offerings to retain and attract customers, while we expect digital challengers to
continue in their pursuit of market share.
Customers becoming digital
What we have seen
2024 was another year of customers moving towards digital banking over traditional banking channels.
Our digital customer base grew again in 2024 to 7.2 million users, with 88% of our retail current account openings in the year made through digital channels.
Our response and looking ahead
Following the pilot of our new mobile banking offering in 2023, OneApp became available to all our customers in 2024. OneApp is now being used by over six
million customers in the UK and provides our customers with faster and enhanced functionality, including personal insights into their spending.
We also launched new products to support our customers’ changing needs, including the latest edition of our Edge offerings – the Edge Credit Card.
Whilst digital banking is becoming embedded in our customers’ everyday lives, we remain committed to delivering customer engagement through our branch and
telephony channels.
In 2024, we completed 50 branch refurbishments, and made significant progress with planning two new Work Cafés in support of this commitment.
Looking ahead to 2025, we look forward to the opening of those two new Work Cafés as we continue to review our customers’ needs and provide them with
products and services that meet their requirements, while continuing to evolve our digital offerings and in person services.
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Deployment of AI technology
What we have seen
The market has evolved rapidly, which has provided opportunities to accelerate deployment of AI as well as challenges in how we manage risk.
Across the industry, banks have adopted a cautious approach, focusing on initial use cases with a ‘human in the loop’ to ensure outputs are reviewed before being
communicated to customers.
Most of these use cases have helped improve productivity without introducing material risk to our operations.
Our response and looking ahead
We delivered several new machine learning and generative AI solutions in 2024, including Agent Assist and Sandi.
Agent Assist gives our people access to knowledge bases through generative AI, allowing them to provide faster and more accurate responses to customers.
Sandi is our internal AI search tool helping our employees search and find answers to People Culture related questions. Since its launch in November 2024, it
has answered 98% of the questions asked, with only 2% requiring additional ‘human touch’.
An internal working group supported the deployment of this technology and developed a stringent governance framework with the right controls.
In 2025, we expect industry use of AI to continue to grow and we plan to expand our use of it, allowing our colleagues to focus on the more complex customer
cases.
Evolving regulatory landscape
What we have seen
Regulatory change continues to be significant within the financial services sector, with 2024 seeing new proposals and interventions from UK regulators.
The FCA remained particularly active, continuing to monitor and engage with firms on Consumer Duty, while introducing new rules and guidance to address
issues on wider access to banking.
The Payments Systems Regulator (PSR) introduced mandatory reimbursement for Authorised Push Payment (APP) fraud, providing significantly increased
protections to consumers. The publication of a National Payments Vision and wider exploration of innovation in the payments sector helped contribute to the
regulatory space in 2024.
While there has been substantial activity, there has also been a wider recognition of the burden of regulation on the industry and the impact this has on economic
growth.
Our response and looking ahead
Phase 2 of the FCA’s Consumer Duty was implemented for closed book products in July 2024, in addition to our work to meet new Basel capital requirements.
We welcome the UK government’s commitment to improving the balance of regulation, with a focus on driving growth and international competitiveness, we look
forward to continue working closely with the regulators to help drive growth in 2025.
The FCA’s review of its rulebook is a positive start to simplifying the current regulatory landscape.
Delivering on our ESG ambitions
What we have seen
Customers, governments, regulators, NGOs, and investors continue to scrutinise ESG activities with a real focus on the say-do gap of organisations, which in turn
is beginning to drive real-world action.
Our response and looking ahead
In 2024, we advanced our climate strategy by launching six retail green finance propositions to support our customers. We also enhanced our portfolio analysis,
reporting financed emissions from commercial real estate lending for the first time, in addition to focusing on aligning our activities with the UN Paris Agreement.
In the social space, we continued to proactively reach out to over 2.6 million customers showing potential early signs of financial difficulty and strengthened
our focus on education, employability, and entrepreneurship. This includes the launch of a free adult education initiative which aims to equip people above the age
of 18 with the skills needed to power the economy of the future. Within our business, we increased our gender and ethnicity senior level representation with senior
female representation at 34.1% and senior minority ethnic representation at 14.7%.
In 2024, we approved our new Governance Strategy focused on clear and robust governance with well-defined accountability promoting the success of our
business, customers, and stakeholders.
Looking ahead, we will continue to evolve how we report on ESG matters. This involves updating our ambitions with a focus on real world impact.
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Our strategic priorities
Focused on customer loyalty, improved efficiency and sustainable growth
Customer centric customer activity
Initiatives focused to better serve and engage our customers by leveraging technological and operations synergies from the global Banco Santander group,
enabling access to financial services for our customers through several channels.
2024 progress:
expanded our Edge portfolio for our customers through the launch of Edge Credit Card and Edge Home which enables live mortgage tracking for
all our broker partners. For our corporate customers, we launched a Virtual Account Management platform supporting the needs of our clients in the legal, real
estate, property and pensions sectors.
Simplification, automation digitalisation
Reduce complexity, decrease friction and increase automation to streamline our products and processes. This is supported by becoming a ‘digital bank with a
human touch’.
2024 progress:
launched OneApp which is now being used by over six million customers and achieved a customer rating of above 4.7 stars out of 5. We merged
our four legacy mortgage platforms into one and simplified payments operations by moving to Banco Santander’s PagoNxt platform as part of simplifying our
business. Lastly, we delivered several new AI solutions across the business including Agent Assist and Sandi.
Value creation disciplined capital allocation
Focus on value creation for all (customers, employees, shareholders and communities) while managing risk and profitability and being disciplined with
capital allocation.
2024 progress:
continued strategic deleveraging of our balance sheet delivering profits in line with expectations for our shareholder. We maintained significant
headroom on regulatory capital requirements and delivered substantial dividends back to Banco Santander.
Be a responsible and sustainable bank
Initiatives aimed at supporting our customers with a secure and just transition to a sustainable economy and helping them get the skills they need to thrive.
2024 progress:
continued to develop our new social strategy with a distinct focus on Education and Skills whilst also launching several test and learn initiatives to
support our customers in retrofitting their homes.
Our performance and key performance indicators
The directors of the Company’s immediate parent, Santander UK Group Holdings plc, manage the operations of the Santander UK Group Holdings plc group
(which includes the Santander UK group) on a business division basis. Key performance indicators are not set, monitored or managed at the Santander UK group
level. As a result, the Company’s Directors believe that analysis using key performance indicators for the Company is not necessary or appropriate for an
understanding of the development, performance or position of the Company.
The development, performance and position of the business of the Santander UK group is set out in the Financial review.
The key performance indicators of the Santander UK Group Holdings plc group can be found in its 2024 Annual Report, which does not form part of this report.
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Risk management overview
Supporting our customers and business growth through simpler and improved processes was a key focus throughout 2024 and remains a key priority
in 2025.
By simplifying and automating processes, using digital tools and designing smarter solutions, we are supporting the delivery of good customer outcomes and
business growth
Top Risks
We monitor our Top Risks quarterly at the Executive Risk Control Committee (ERCC) and Board Risk Committee (BRC).
In 2024, our focus shifted away from Inflationary and Supply Chain pressures to Margin Compression, with UK headline inflation falling towards 2% and markets
implying a peak in the UK Bank Rate.
We made further changes to our Top Risks by introducing three new areas (Resiliency, Payments Transformation, and AI/Machine Learning)
and removing
two existing Top Risks (Ring-Fencing and People risk), although we continue to closely monitor human resource impacts as part of Strategic Transformation.
Conduct and Regulatory
In 2024, we continued to have significant regulatory engagement, notable among these were with respect to: Financial Crime, Technology risk, Regulatory
Models, Payments Services regulation, Outsourcing and Third-Party risk, Data Privacy, Operational Resiliency, Consumer Duty embedding, and Historical Motor
Finance Commissions. We have reduced our regulatory risk profile including closing issues related to Financial Crime, IT risk and Change Management projects,
and implementation of Regulatory Capital models.
Economic Crime
Financial Crime (FC) risk remains a key focus area for senior management and the Board. In 2024, we continued to mature our oversight capabilities and Centre
of Excellence operations to further integrate FC risk management into the business. We also continued to review our processes to address complex global
sanctions regimes and enhance our use of technology in screening processes.
Fraud losses continue to be a significant proportion of our overall operational losses, in line with the wider UK financial services industry. However, these losses
were significantly lower in 2024 compared to 2023, with the design and implementation of new fraud prevention tools to complement our existing systems and
controls. As part of our Fraud Transformation programme, we are taking action to reduce losses and case volumes.
Technology
The importance of IT risk management and control remains at the centre of our activities. We continued to progress our bank-wide programme to address risks
that could arise from obsolete technology and a Single Point of Failure (SPOF) in our network. We delivered further risk reduction in 2024 and closely monitored
these improvements through our risk governance framework. In parallel we leveraged business transformation, where both platform and application obsolescence
coincide.
Margin Compression
Implied Bank Rate fell in 2024 and risks appear to be skewed more towards downwards movements in rates, although higher for longer is a viable scenario
should inflation remain sticky. Regulatory pressure remains around deposit pricing and Consumer Duty and has the potential to increase deposit market
competition. Our Treasury team executed a Margin Compression investment strategy in 2024, approved by our Asset and Liability Committee (ALCO), which
mitigated our risk exposure. There is regular engagement between Treasury, Risk and the business to ensure key market and pricing assumptions and the
strategy remain appropriate.
Operational Resiliency
In 2024, we progressed our Operational Resilience and Recovery Plan (ORRP) which will enable us to meet a key regulatory deadline in March 2025. We also
prioritised scenario testing in key areas to reduce risk and to ensure we identify and remediate potential vulnerabilities in a timely fashion (we remain on-track to
meet the March 2025 regulatory deadline), although execution risk is elevated due to complexity. We continue to actively engage with industry working groups to
ensure we are cognisant of common vulnerabilities and third-party service providers.
Cybersecurity
In 2024, key drivers of risk included geopolitically motivated cybersecurity attacks where ransomware is inserted into supply-chains, posing a critical risk, and
exploitation of critical vulnerabilities. Our remediation plans drove improvements to our cybersecurity risk profile throughout 2024. This strengthened our overall
cybersecurity controls and improved our resilience, within a cybersecurity threat landscape which continues to evolve.
Data Quality
In 2024, we enhanced our Data Operating and Ownership models, end-to-end data management controls, and governance for measuring and escalating data
quality issues. We have remediation plans in place as part of our Data Management Programme to further enhance data quality, data privacy and protection.
Outsourcing and Third-Party
Under Operational Resilience regulations, loss of a critical third-party (SPOF) is deemed a severe but plausible scenario. Our ORRP programme addresses these
risks, along with the creation of specific playbooks which are cross-checked to business area continuity plans.
Strategic Transformation
Key areas of concern related to our plans include: potential risk of material disruption and incidents; insufficient funding to deliver critical business priorities; and
the risks arising from implementing cost driven efficiencies.
We have set up a taskforce with Risk participation to provide a review of, and challenge, project costs. Savings initiatives undergo rigorous governance and risk
assessment processes. Operational risk provides enhanced oversight on moderate and higher risk projects, which require risk assessments and mitigations to be
in place.
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Regulatory Capital
The level of capital we have to hold is highly sensitive
to regulatory decisions on the implementation and interpretation of
capital rules. Further complexity arises
due to dual regulation of Santander UK by the PRA and the ECB
. Basel 3.1 ‘near-final’ rules have been published which could impact us, although they will not
apply until 1 January 2027. However, our current and projected CET1 Capital surpluses provide significant capacity to absorb adverse capital movements.
Climate Change
There are clear regulatory expectations on the embedding of climate risks in our risk management processes, strategies and remuneration targets.
In 2024, we made significant strides in integrating climate risk management into our business. For the first time, we ran internal models and scenarios for Climate
Internal Scenario Assessment (CISA), which considered the broader impacts of physical and transitional risks in addition to our internal climate transition plan and
green finance plan.
There are execution risks around these programmes, as well as regulatory risks. To address this, we are enhancing our data and governance processes to
support risk management and reporting.
Payments Risk Transformation
The payments industry landscape is rapidly evolving with new regulatory requirements, scheme changes and adoption of new technology and standards. Risks
arise from the scale and pace of transformation of payment systems which pose a challenge to capacity and capability to deliver. In 2024, we continued to
progress an improvement plan to address these requirements.
Artificial Intelligence (AI) Machine Learning
AI developments in the banking industry will test preparedness to safely manage and respond to its evolution given the velocity, pace and scale of change.
We have a planned phased approach to AI over our three-year plan period. To support this, we are improving data quality to enable model development, which is
being progressed primarily under our Data Management Programme.
We plan to incorporate AI into our Non-Financial risk structure, along with adopting a specific AI policy standard.
Emerging Risks
We monitor these risks using our Risk Radar and regularly provide updates to the ERCC and BRC.
Highlighted below are our Emerging Risks in 2024 and our associated management actions.
Most Emerging Risks we face are systemic risk issues which also impact our peers. Santander UK may be exposed to more idiosyncratic risk in areas impacting
regulation, where we face dual regimes, principally the PRA and FCA in the UK and the ECB in Europe.
In 2024, our portfolio of Emerging Risks was broadly unchanged, but we have identified and categorised specific Emerging Risks under the most significant
drivers below.
Strategic and business related risks are addressed under our risk types and cover the broader challenges in the banking sector including Market Competition.
Under Emerging Risks we focus on emerging digital business risks and opportunities which also impact market competition.
Uncertain Regulatory Agenda
UK Regulatory Demand on Banking Sector:
adverse impacts on sector investability are likely to continue in the medium-term given the level of regulatory
stretch relative to the EU and US.
Whilst the PRA’s proposed Basel 3.1 rules have been received positively, total levels of capital in the UK banking system remain materially higher than in other
jurisdictions. This coupled with Consumer Duty, Financial Ombudsman Service determinations on complaints, normal course of business inspections of our
operations such as Liquidity Supervisory Review and Evaluation Process, and retrospective action on banking activity, is negatively impacting the UK banking
sector’s international competitiveness. Our Public Affairs and Regulatory Policy teams have been fully engaged with regulators and the UK Government to prompt
action to redress the balance.
Net Zero transition:
given the UK Government’s acceleration of the clean power action plan from 2035 to 2030, there are potential risks to the economy if this is
not achieved. We have included a delayed transition scenario in our climate stress testing that assesses potential adverse economic impacts of carbon taxes,
which could be introduced to speed up transition, but inadvertently cause an economic shock. We also support Banco Santander with data for their mandatory
disclosures under CSRD, and align our qualitative and quantitative data as much as possible, although Santander UK is not subject to CSRD itself.
Chevron Deference:
the US Supreme Court overturned a doctrine that ambiguity in a statute implied delegation of interpretive authority to a relevant federal
government agency. As such, long-standing positions of regulatory agencies in the US may be subject to change, and lead to regulatory uncertainty which we
may need to be cognisant of in certain areas such as capital markets.
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Increased uncertainty in Macroeconomic and Geopolitical Environment
UK Political risks:
the banking sector was spared some measures to increase related taxes in the October 2024 budget, such as the Bank Levy and payment of
interest on commercial reserves.
However, there will be increased costs to businesses as a result of increased employer’s National Insurance (NI) which will also flow through to customers and the
wider economy. Our Public Affairs team regularly engages with government officials to understand policy direction and we consider potential financial and other
impacts in our business plans.
US Political risks (Deregulation):
although the new Republican administration’s policy agenda is still evolving, there are directional signals: increased energy
production; lower corporation tax rates; variable trade tariff rates on imports; and deregulation policies.
Deregulation is likely to be a feature of the new Republican administration and could further increase UK banks’ uncompetitiveness should US banks gain further
regulatory advantage.
Trade Tariffs, Sanctions and Supply Chains:
increased trade tariffs and/or sanctions either on specific nations or more broadly, given elevated geopolitical
tensions, could impede critical supply chains in the UK, reigniting inflationary concerns and a negative economic outlook.
In such a scenario, it is likely the MPC would have to hold rates rather than enact cuts to mitigate inflation. We consider the potential impacts of such a scenario in
our stress testing for Capital (ICAAP) and in our Operational Resilience planning and testing. Our third-party suppliers could be impacted through retaliatory
measures including cyber-attacks, which might then impact us.
Quantitative Tightening:
driven mainly by Quantitative Easing (QE), the total stock of Bank of England (BoE) reserves reached a peak of £978bn in January
2022. Since then, the MPC has been selling assets to unwind QE. The size of the BoE’s balance sheet is determined by the amount of reserves supplied,
implying that reserves will shrink going forwards. We are now undertaking asset purchases and lending through short-term and long-term repo operations as part
of Liquidity Management. As QE unwinds there could be unintended consequences for markets and financial stability.
Eurozone Sovereign Bank contagion:
the ECB warned of Eurozone sovereign debt risks in its November 2024 Financial Stability Review. Elevated debt levels
and high budget deficits, coupled with weak long-term growth potential, increase the risk that market concerns over sovereign debt sustainability will reignite. The
banking and corporate sectors are not immune as rising sovereign bond yields could ultimately drive-up both banks’ and companies’ funding costs. We monitor
sovereign credit spreads and potential for market contagion via daily Market and Structural risk reports and at our ALCO.
Markets, Competition Technology
Digital Bank challengers:
market competition continues to intensify with challengers, having achieved improved profitability and viability, posing a significant
medium-term challenge to the business. Our investments in digital and data capabilities are ongoing to enhance digital offerings, including: our new mobile
banking app, which has been well received by customers, pre-approved aggregator credit card sales, and enhanced customer relationship management
capabilities to leverage our insights into customer behaviour.
Digital Pound (Central Bank Digital Currency):
our initial concerns over adverse market liquidity and funding implications were fed back to the BoE in 2023,
along with our peers. The BoE now appears to be more receptive to the use of Central Bank Digital Currencies in the Wholesale sphere, which may benefit retail
use cases, in which we have an aspiration to develop. We are working with our peers on the Regulated Liability Network programme to develop an alternative
retail offering, and to the Digital Pound. Our Regulatory Policy team monitors developments in this area with the business and risk.
Digital Risks:
the banking sector is accelerating innovation and elevating business and market competition through adopting technologies that are shaping the
present and future of financial services. These include: AI, Quantum Computing, Crypto Blockchain, Open Banking/Finance, and Cloud Computing. These
innovations will likely result in enhanced regulatory scrutiny and disclosure requirements and a fully fledged regulatory/supervisory framework. We are enhancing
our risk management approach to these broader digital risks, as well as leveraging potential business opportunities and will track progress via our top and
Emerging Risk updates.
Environmental and Social
Environmental and Social related risks are increasing. Significant wealth disparity both within nations and globally is driving geopolitical fragmentation, with
emerging pushback to international regulations and globalisation, as well as mass migration to the US and Europe.
Climate Change and Biodiversity concerns are prominent, including more frequent extreme weather events and related risks such as natural resource shortages
and global pandemics. Environmental regulations are also becoming more disruptive, although there are emerging signs of a significant pushback to these
generally.
There are potential implications for economic stability, our customers and colleagues, which we will carefully consider in our business and resource planning.
|
Annual Report 2024
|
Santander UK plc
|
9
|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Financial overview
Summarised Consolidated Income Statement
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Net interest income
|
4,312
|
4,658
|
|
Non-interest income
(1)
|
345
|
438
|
|
Total operating income
|
4,657
|
5,096
|
|
Operating expenses before credit impairment charges, provisions and charges
|
(2,548)
|
(2,456)
|
|
Credit impairment charges
|
(71)
|
(205)
|
|
Provisions for other liabilities and charges
|
(689)
|
(335)
|
|
Profit before tax
|
1,349
|
2,100
|
|
Tax on profit
|
(378)
|
(559)
|
|
Profit after tax
|
971
|
1,541
|
1.
Comprises ‘Net fee and commission income’ and ‘Other operating income’.
A more detailed Consolidated Income Statement is contained in the Consolidated Financial Statements.
2024 compared to 2023
Profit before tax fell to
£1,349m
in 2024, a
36%
decrease from 2023. This decrease reflects market wide pressures on customer deposit costs and was impacted
by the
£295m
charge for historical motor finance commission payments made in the year.
–
Net interest income decreased
7%
, largely due to higher customer deposit costs and a reduction in mortgage loans.
–
Non-interest income was down
21%
, driven by the 2023 revaluation gain of our shares in Euroclear which was not repeated in 2024.
–
Operating expenses before credit impairment charges, provisions and charges increased by
4%
, due to further investment in efficiency and customer
experience and two years of high inflation.
–
Credit impairment charges were down
65%
to
£(71)m
, given the improved economic outlook with lower unemployment rate and higher house prices expected.
–
Provisions for other liabilities and charges were up
£354m
, driven by the
£295m
charge for historical motor finance commission payments in the third quarter of
2024, as well as higher transformation costs.
–
Tax on profit decreased
32%
, reflecting the reduction in profit in 2024.
The FCA Motor Finance review
Following the FCA’s Motor Market review in 2019, we received a number of claims and complaints in respect of our historical use of discretionary commission
arrangements (DCAs) prior to rule changes made in 2021.
In January 2024, the FCA commenced a review of the use of DCAs between lenders and credit brokers (the FCA review) and in July 2024 announced that it
expected to share the outcome of its review by May 2025.
In October 2024, the Court of Appeal handed down a judgment in relation to cases against other lenders involving DCAs that was unexpected and materially
changed the expectations of the FCA review.
What this means for us
In light of the Court of Appeal judgment, we recognised a provision of £295m in the third quarter of 2024, materially impacting our 2024 financial performance. This
provision included estimates for operational and legal costs and potential awards, based on various scenarios using a range of assumptions.
There remain significant uncertainties as to the nature, extent and timing of any remediation action required, and the outcomes of the FCA review will provide
the market with more clarity and guidance.
Ultimately, the total financial impact remains unknown and could be materially higher or lower than the amount provided.
Please refer to the Financial review section of our Annual Report on Form 20-F for the year ended 31 December 2023 for a comparative discussion of 2023
financial results compared to 2022.
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Annual Report 2024
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Santander UK plc
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Summarised segmental balance sheet
|
At 31 December (£bn)
|
2024
|
2023
|
|
Customer loans by segment
|
||
|
Retail Business Banking
|
171.7
|
180.0
|
|
Consumer Finance
|
4.8
|
5.2
|
|
Corporate Commercial Banking
|
18.0
|
17.9
|
|
Corporate Centre
|
0.0
|
0.0
|
|
Customer loans
|
194.5
|
203.1
|
|
Loans to JVs, accrued interest, ECL and other
|
4.9
|
4.3
|
|
Loans and advances to customers
|
199.4
|
207.4
|
|
Cash, repos, other financial assets and other assets non-interest earning
|
60.5
|
68.0
|
|
Total assets
|
259.9
|
275.4
|
|
Customer deposits by segment
|
||
|
Retail Business Banking
|
151.8
|
158.3
|
|
Corporate Commercial Banking
|
22.1
|
24.1
|
|
Corporate Centre
|
2.8
|
5.0
|
|
Customer deposits
|
176.7
|
187.4
|
|
Deposits from JVs, accrued interest and other
|
4.3
|
3.5
|
|
Deposits by customers
|
181.0
|
190.9
|
|
Financial liabilities, repos and other liabilities non-interest earning
|
65.2
|
69.9
|
|
Total liabilities
|
246.2
|
260.8
|
|
Shareholders' equity
|
13.8
|
14.6
|
|
Total liabilities and equity
|
259.9
|
275.4
|
A more detailed Consolidated Balance Sheet is contained in the Consolidated Financial Statements.
Segmental profit before tax
|
Profit / (loss) before tax (£m)
|
2024
|
2023
|
|
Retail Business Banking
|
1,224
|
1,703
|
|
Consumer Finance
|
(175)
|
174
|
|
Corporate Commercial Banking
|
351
|
570
|
|
Corporate Centre
|
(51)
|
(347)
|
|
Total
|
1,349
|
2,100
|
2024 compared to 2023
Retail Business Banking
–
Customer loans and deposits reduced with disciplined pricing.
–
Profit before tax
was down, largely due to higher customer deposit costs and a reduction in customer balances.
Consumer Finance
–
Lower lending was driven by a decision to focus on value and capital generation.
–
Loss before tax
was driven by the £295m provision relating to historical motor finance commission payments.
Corporate Commercial Banking (CCB)
–
We continued to focus on high-value and international business, with over 500 new clients onboarded in 2024. O
ver 1,000 new users are now on our
Santander Navigator platform
–
Profit before tax
was down, largely due to pressures on income from higher deposit costs and inflationary pressures on operating expenses.
Corporate Centre
–
loss before tax was down
, mainly due to transformation expenses in 2023 which were not repeated in 2024.
|
Annual Report 2024
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Santander UK plc
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11
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Strategic Report
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Sustainability
|
Governance
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Risk review
|
Financial statements
|
Shareholder information
|
||||||
Sustainability overview
We are working with our stakeholders to support a secure and inclusive transition to a more sustainable society. Our Sustainability strategy sets out how
Santander UK will tackle the challenges identified by the 2024 double materiality assessment (DMA). It is also aligned with Banco Santander's Sustainability
strategy.
Stakeholder voice
The Board
s of the Company and Santander UK plc (the RFB and the Boards) have identified our customers, employees, regulators, communities and investors
as our key stakeholder groups on th
e basis of their importance in ensuring the continuing success of Santander UK. While not a stakeholder in the strictest sense,
we also take into account our impact on the environment and climate given its criticality to life and business in general.
Balancing the interests of these stakeholder groups alongside the interests of Santander UK is key to ensuring that we operate as a sustainable, responsible and
profitable business, and we therefore seek to ensure that this is embedded in our strategy and culture.
To support the Boards and their Committees in their considerations, our Board paper template and training includes a specific focus on the directors' duties arising
from s172 and how management's preparation of their papers plays a key role in ensuring that the Directors can discharge their responsibilities in a fully informed
manner.
In 2024, the Boards continued to spend time, inside and outside of formal meetings, engaging with stakeholders and discussing their interests, including visiting
branches, contact centres and offices around the UK to better understand the needs of our customers, employees and communities. You can read more about
Directors’ engagement with employees in 2024 on the following page.
Each Director meets with our principal regulators, the PRA and FCA, on a periodic basis to understand their views, and these regulators also attend our Board
meetings from time to time. The Board meets regularly with members of management and the directors of Banco Santander SA, the Company’s shareholder, and,
as usual, the Board held its February 2024 Board cycle in Madrid in order to strengthen relations and understand Banco Santander’s views more clearly.
|
Employee voice in the boardroom
|
||||
|
Stakeholders considered
|
Customers, Employees, Regulators
|
|||
|
Background
The Board has appointed a designated director for employee engagement, Lisa Fretwell, who drives the Board’s employee engagement programme and
reports quarterly to the Board Responsible Banking Committee on Directors’ findings.
|
||||
|
How the Board approached it
Again in 2024, the Board had a full programme of employee engagement opportunities including listening sessions where employees were encouraged
to speak openly about their views of Santander UK, and their experiences working here and supporting our customers. In addition, each of our employee
Networks has a non-executive Director sponsor who attends events and champions their cause.
|
||||
|
Outcome
As well as reporting to RBC at each of its quarterly meetings on the key messages from non-executive Directors’ listening sessions, Lisa also passed on
these findings to management: We find that this is another helpful way of receiving positive and constructive feedback from employees which allows for
actions to be taken where necessary. For example, following a branch visit, management took a number of actions designed to improve support and
security for employees as well as customers’ access to cash machines. In another instance, management took actions to improve the process for the final
stages of our graduate recruitment programme.
|
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Annual Report 2024
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Santander UK plc
|
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Strategic Report
|
Sustainability
|
Governance
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Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Annual Report 2024
|
Santander UK plc
|
13
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Sustainability overview
Climate-related financial disclosures
Banco Santander has set out ambitions to be a net zero bank by 2050. We are implementing the recommendations of the TCFD, and taking action to meet the
expectations set by the PRA, BoE and FCA. This requires wide-ranging collaboration both within the bank and externally to develop the tools and methodologies
needed. As such, we adopted a unified approach across the Santander UK Group Holdings plc group and therefore present TCFD disclosures on that basis in the
Santander UK Group Holdings plc Annual Report.
Streamlined Energy and Carbon Reporting (SECR)
We continue to monitor and evaluate our energy
and carbon footprint in line with the SECR regulation. Our emissions are calculated using the UK Government
Department for Energy Security and Net
Zero (DESNZ) conversion factors. In
2024, we used
89,511,041
1 kWh
of energy, compared to the
92,907,880
kWh
used in 2023. This change was due to reductions in our gas consumption. We emitted
5466
tCO2e
market-based greenhouse gas emissions, compared to
5299
tCO
2
e
in 2023.
Our total Scope 1, 2, and 3 emissions for 2024 are set out in the SECR table. The slight increase in Scope 2 location-based emissions was due to the opening
of
Unity Place, our head office building, and an increase in
staff returning to offices across the estate. However, we saw reductions in natural gas in 2024,
mainly due to rationalisation across our Head Office Estate. Business travel also continued to rise in 2024 leading to an increase in Scope 3 emissions. As
a result, in 2024 our overall scope 1, 2 and 3 business travel emissions increased compared to 2023.
Refurbishments at Triton Square our London office, are
c
lose to completion. These include replacing lower efficiency mechanical, electrical and plumbing items (i.e. pumps, LED lights, fan coil units, air handling
units (AHUs), HVAC replacements). Our Bradford and Sheffield sites completed energy saving projects in 2024. Redhill and Glasgow started projects in
2024 that will continue into 2025
.
|
2024
|
2023
|
2022
|
|
|
Scope 1 tCO
2
e
|
2,456
|
2,814
|
4,512
|
|
Scope 2 tCO
2
e (Location-based)
|
16,195
|
16,127
|
15,571
|
|
Scope 2 tCO
2
e (Market-based)
|
1.13
|
0.34
|
0.4
|
|
Scope 3 tCO
2
e (Business Travel)
1
|
3,009
|
2,485
|
1,383
|
|
Total
1
|
5,466
|
5,299
|
5,895
|
|
YoY %
|
3
%
|
(10)
%
|
(7)
%
|
|
Total emissions per employee (tCO
2
e/FTE)
1
|
0.3
|
0.27
|
0.32
|
(1)
Employees that had left Santander UK or were temporarily absent during the 2023 reporting period had been excluded from Scope 3 business travel but should have been included. We have estimated this
exclusion based on available data. This estimation also impacts the Total CO
2
e emissions, CO
2
e emissions per employee, and year-on-year percentage for 2023. This excluded population has been included for
the related data points in 2024 but 2023 data was not updated due to confidence in the previous calculation based on available data.
Additional notes on GHG emissions calculations
Boundary
Scope 1-3 GHG emissions include the activities and facilities owned and/or under operational control of Santander UK
plc.
Calculation
Scope 1: GHG emissions from oil, gas, direct transport, and fugitive gas emissions. Consumption and transport data is extracted from relevant source systems
and records. Data is sourced from internal systems, including meter readings, maintenance records, and internal travel systems, as well as external systems such
as bill validation systems and external supplier invoices. Emissions calculated for gas, oil, direct travel, and fugitive gases follow the GHG Protocol Corporate
Standard. We use the relevant UK Government Department for Energy Security and Net Zero (DESNZ) conversion factors and collate emissions into a total
Scope 1 emissions figure. We use billing invoices, meter readings, mileage claims, and maintenance records to obtain our consumption data.
Scope 2:
GHG emissions from purchased electricity, electric fleet and company cars. For Santander UK, we use the market-based approach to quantify
our emissions, meaning we use emissions factors provided by our electricity suppliers. For our Scope 2 emissions, this reflects the emissions from electricity we
have purchased via green tariffs. These provide electricity from renewable sources including biomass and wind generation. Scope 2 emissions for electricity
consumption are calculated using the relevant UK Government DESNZ conversion factors and guidance. Emissions from the electric fleet are calculated using the
Residual Mix from DESNZ Fuel Mix Disclosure. Data for electricity consumption and travel for electric fleet and company cars are extracted from relevant source
systems.
Scope 3 – Business travel
: This includes indirect travel emissions created through our value chain that have not been included in Scope 1 and 2. Our Scope 3
reporting encompasses emissions from business travel (air, road, and rail). Business travel records are extracted from relevant internal systems or provided by our
third-party travel admin operator. The distance in kilometres travelled is converted into carbon emissions using relevant factors from UK Government DESNZ and
collated into a total Scope 3 emissions figure. Car data is based on engine size, flight figures are based on average cabin seat class, and for rail they are based on
average cabin seat class. Rail figures are based on national rail conversion factors. We source data from mileage claims and third-party travel reports. Taxi travel
is excluded due to the lack of mileage data.
|
Annual Report 2024
|
Santander UK plc
|
14
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Annual Report 2024
|
Santander UK plc
|
15
|
||
|
Strategic Report
|
Sustainability and
Responsible Banking
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Governance overview
|
|
|
Santander UK plc Board
|
||||||||||||||
|
Board Nomination
Governance
Committee
|
Board Risk
Committee
|
Board Audit
Committee
|
Board Responsible
Banking Committee
|
Board Remuneration
Committee
|
||||||||||
|
Executive level committees
|
||||||||||||||
|
Due to the alignment in Board membership, the Santander UK Group Holdings plc and Santander UK plc Board and Board Committees meet
substantively simultaneously. As such, this report details the governance arrangements, practices and activities of both Santander UK Group Holdings
plc's and Santander UK plc's Boards and Board Committees.
|
||||||||||||||
|
Board changes in 2024
|
|||||||||
|
1 January
|
5 March
|
1 September
|
1 December
|
13 December
|
|||||
|
Mark Lewis, Dirk Marzluf
and Nicky Morgan
appointed
1
|
Angel Santodomingo
appointed
|
David Gledhill appointed
|
David Oldfield appointed
|
Announced the
appointment of Enrique
Alvarez
2
|
|||||
|
1.
Santander UK Group Holdings plc only – following changes to the Santander UK ring-fencing rule modifications
2. Appointment effective from 12 February 2025
|
|||||||||
|
Compliance with the UK Corporate Governance Code
|
|||||
|
The UK Corporate Governance Code 2018 (the Code) sets out the framework for premium listed companies in the UK. We feel that it is appropriate for a
Company of our size and systemic importance to the UK economy to adopt the Code and as such, this Governance section details how we comply with its
principles and provisions. Any sections of the Code that we do not comply with are explained in the Directors’ Report.
|
|||||
|
Annual Report 2024
|
Santander UK plc
|
16
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
|
|
Our approach
Board and governance structure
Maintaining high standards of corporate
governance is vital to ensuring effective decision
making by the Board and therefore the ongoing
success of the Company. We also adhere to
various internal governance frameworks and
practices which ensure that we have the right
systems and controls in place to allow the Board to
effectively oversee the business and provide
challenge where needed. These include:
–
The UK Group Framework, which defines
clearly our responsibilities and relationship with
Banco Santander SA, our
ultimate
shareholder,
taking account of our fiduciary and regulatory
responsibilities. This gives us the autonomy to
discharge our responsibilities in the UK in line
with best practice as an independent board
while providing Banco Santander SA with the
oversight it needs. Clarity of roles and
responsibilities is key to ensuring proper
accountability for decisions and outcomes.
–
The Corporate Governance Framework (CGF),
which is designed to support the Boards in
discharging their responsibilities and ensuring
an appropriate degree of delegation throughout
the Santander UK group.
We review the CGF regularly to confirm that
governance arrangements remain effective and
appropriate. The corporate governance structure is
supported by internal control and risk management
systems. An important principle applied throughout
the CGF is the delegation of executive authority
from the Board to the CEO, who further delegates
aspects of their authority to Executive level
committees or other individuals. This supports
effective decision making and accountability in
discharging their responsibilities.
Santander UK group structure and ring-
fencing governance arrangements
The substantive business of the Santander UK
group continues to be conducted by Santander UK
plc, our principal ring-fenced bank (RFB). Ring-
fenced banks operate within governance rules
defined and overseen by the PRA who granted
Santander UK plc certain ring-fencing governance
rule modifications, recognising our ownership
structure and chosen ring-fencing business model.
As set out in last years' report, with effect from
1 January 2024, the PRA approved revisions
to our ring-fencing rule modifications which
simplified our governance arrangements,
including the ability to have common Santander
UK Group Holdings plc and Santander UK plc
Board and Board Committee memberships,
subject to certain safeguards. As such, Mark
Lewis, Dirk Marzluf and Nicky Morgan were
appointed to the Board of Santander UK Group
Holdings plc, and the composition of the Board
Committees was aligned.
One of the safeguards agreed is that if a conflict
matter (as defined by the PRA) arises between the
two companies, three INEDs holding PRA senior
management functions (SMF) will have veto rights
on Board decisions. These INEDs are Nicky
Morgan, Mark Lewis and Ed Giera. David Oldfield
will succeed Ed Giera in this role with effect from
10 March 2025. Nicky Morgan will chair the RFB
Board meeting in the event of a conflict matter
decision.
The role and responsibilities of the Board
The Board is collectively responsible for promoting
the success of Santander UK for the benefit of its
stakeholders, taking into account the likely impact
of our decisions in the long-term, as well as
balancing the interests of our other stakeholders
and our contribution to wider society. Our
Stakeholder voice statement in the Strategic
Report explains how we engaged with our
stakeholders in the year.
The key decisions and matters reserved for the
Board's approval, such as the long-term strategy
and priorities, are set out in the CGF. A copy of the
Schedule of Matters Reserved for the Board is also
available on our website, which does not form part
of this Annual Report.
As Chair, I have overall responsibility for the
leadership of the Board, for ensuring its
effectiveness in all aspects of operation and for
promoting a culture of openness and debate.
These responsibilities are formalised in the CGF.
The composition of the Board helps to ensure that
no one individual or small group dominates the
Board's decision-making. The diversity of skills,
experience and background of Directors enables
them to provide constructive challenge, strategic
guidance and offer specialist advice.
There is a clear division of responsibilities between
the leadership of the Board and the executive
leadership of the business. The responsibilities of
the Chair, CEO, Senior Independent Director (SID)
and Non-Executive Directors (NEDs) are agreed
by the Board and set out in separate role
statements within the CGF and are available on
our website, which does not form part of this
Annual Report. The Board is also supported by its
Committees, who make decisions and
recommendations on specific responsibilities
delegated to them. This enables the Board to
spend more of its time on strategic, forward-looking
matters.
Board Committees
The Committees play an essential role in
supporting the Board, giving focused oversight
of key areas and aspects of the business. Their
roles and responsibilities are set out in their
Terms of Reference which are available on our
website and which do not form part of this Annual
Report. The Terms of Reference are regularly
reviewed by each Committee to make sure they
remain appropriate. Cross-Committee
memberships provide visibility and awareness of
matters relevant across the Committees, and the
chair of each Committee reports back to the Board
on its activities after each meeting.
In addition to our five core Board Committees,
shown on the previous page, the Board are also
supported by committees which are stood up as
needed to allow dedicated time for topics at a more
focused forum. In December 2024, we created a
Board Special Projects Committee to focus on
remediation, special projects and transformation
matters.
Each of the core Committees is chaired by and
comprised of only INEDs, except for the Board
Nomination Governance Committee, where
Pamela Walkden, a Banco Santander group
appointed NED (GNED) is a member.
How governance contributes to the delivery of
our strategy
Our governance arrangements contribute to the
development and delivery of our strategy by
promoting accountability and responsibility, and
ensuring information flows and independent insight
from the NEDs.
While all Directors are collectively responsible for
the success of the Company, the NEDs exercise
objective judgement in respect of Board decisions,
and scrutinise and challenge management
constructively. They also have responsibilities on
the integrity of financial information, internal
controls and risk management.
As a Board, we are responsible for ensuring that
the business is purpose-led and that our decision
making and activities reflect our core purpose to
help people and businesses prosper. We do this by
setting and developing our strategy, approving risk
appetite and policies and overseeing their delivery
and implementation by management. The Board is
accountable to our shareholders for the proper
conduct of the business and seeks to represent the
interests of all stakeholders.
The Board has identified the following key
stakeholders: Customers, Employees, Regulators,
Communities and Investors. For more on how the
Board balances the interests of these
stakeholders, see
our Stakeholder voice statement
in the Strategic Report.
Culture and hearing the views of the
workforce at the Board
The Board recognises that culture plays a
fundamental role in delivering our strategic
priorities and ensuring the success of the business,
we are ultimately responsible for ensuring that our
activities reflect the culture we wish to instil
throughout the business to deliver on our values of
simple, personal and fair.
Our Code of Conduct sets out how we and all
employees of Santander UK should act and
behave towards everyone we encounter through
our work. This, alongside our TEAMS behaviours -
Think Customer, Embrace Change, Act Now, Move
Together and Speak Up - contribute to drive our
culture and maintain the standards that underpin it.
All new employees are required to complete
training on the Code of Conduct and annual
refresher training is required for all employees.
Our employees are central to delivering our
strategy, and the Board ensures continuous
engagement with them to create a culture of
inclusivity and belonging, and a healthy working
environment.
|
Annual Report 2024
|
Santander UK plc
|
17
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Throughout the year, the Board received feedback
from colleagues via a number of mechanisms
including reports from Peakon employee voice
surveys, considering matters such as future ways
of working. Directors also engaged with colleagues
directly, participating in employee listening and
management forums, including workshops with our
eight people networks which each have a Board
sponsor. These activities were led by the
designated workforce NED, Lisa Fretwell, who also
had regular meetings with the Chief People Officer
and Head of Culture and Experience to discuss
results and emerging themes from the employee
voice surveys. These activities help to ensure that
the views of the workforce are made known to the
Board and that workforce policies and practices
are consistent with the Company's values,
supporting its long-term sustainable success.
The right information and support
The Chair, supported by the Company Secretary,
ensures that all Board members receive
appropriate and timely information. All Directors
have access to the advice of the Company
Secretary and the Company provides access, at its
expense, to the services of independent
professional advisers to help the Directors
discharge their role.
Board membership succession planning
Since 1 January 2024, the membership of the
Board and Board Committees of Santander UK
Group Holdings plc and Santander UK plc have
been fully aligned.
Through the Board Nomination Governance
Committee, we make sure there is the right
mix of individuals on the Board, giving an
appropriate balance of knowledge, skills,
experience and perspectives. Our aim to
ensure orderly succession for Board positions
is supported by continuous and proactive
processes, taking into account our strategic
priorities and the main trends and factors affecting
the sustainability and success of the business. We
oversee and regularly review the development of a
diverse pipeline for succession.
In 2024, we welcomed David Gledhill and David
Oldfield as INEDs. David Oldfield will succeed Ed
Giera as chair of the Board Risk Committee (BRC)
in March 2025, ahead of Ed's retirement after more
than nine years on the Board. I would like to thank
Ed for his remarkable commitment and exceptional
contributions during his tenure.
We also announced in December 2024 that
Enrique Alvarez Labiano, CEO of Retail and
Business Banking would be appointed as an
Executive Director (ED). His appointment was
effective from 12 February 2025.
As announced on 28 January 2025, I will be
stepping down during the course of 2025, once a
thorough appointment process and orderly
handover have been completed.
At 31 December 2024, the Board consisted of the
Chair (independent on appointment), eight INEDs,
two EDs and three GNEDs.
Biographies of the
Directors are included in the Shareholder
information section. The letters of appointment for
INEDs and GNEDs are available at the Company’s
registered office and at the Annual General
Meeting (AGM).
Appointment and retirement of Directors
The Company's Articles of Association require
each Director to retire every year at the AGM and
any Director may offer themselves for re-election
by members. For more, see the Directors’ report.
Monitoring independence
The Board Nomination Governance Committee
monitors whether there are relationships or
circumstances which may affect a Director's
independence, and have concluded that all INEDs
remain independent in character and judgement.
We acknowledge that Ed Giera has now served as
a Director for more than nine years, with his tenure
being extended to allow for a comprehensive
handover with his successors as both BRC Chair
and SID. We are confident that Ed has the strength
of character and integrity to ensure his
independence has not been affected by the length
of his tenure.
I, as Chair, was independent on appointment when
assessed against the circumstances set out in
Provision 10 of the Code. No INEDs have a
material relationship with the Company nor receive
additional remuneration to Directors' fees. In
addition, no INEDs serve as directors of any
external companies or affiliates in which any other
Director is also a director.
Monitoring Director interests, time
commitment, and fees
The Board Nomination Governance Committee
is responsible for oversight of conflicts of interest.
Each Director has a duty under the Companies Act
2006 to avoid a situation in which they have or
may have, a direct or indirect interest that conflicts,
or may conflict, with the interests of the Company.
This duty is in addition to the existing duty
Directors owe to the Company to disclose to the
Board any interest in a transaction or arrangement
under consideration by the Company.
The Board Nomination Governance Committee
continued to review the time commitment and
Directors' potential conflicts of interest to ensure
that any such conflicts are managed appropriately,
including compliance with CRD IV and ring-fencing
requirements.
In accordance with Provision 15 of the Code, any
proposed external appointments are disclosed to
the Board, before appointment, with an indication
of the expected time commitment. All Directors
continue to devote sufficient time to their roles at
the Company. No significant external appointments
were undertaken by any Directors. The Board
considers and, if it sees fit, authorises situational
conflicts.
Any authorisations given are recorded by the
Company Secretary and Directors are asked to
certify, on an annual basis, that the information in
the register is correct.
The fees paid to INEDs for Board and Board
Committee chair and membership were
unchanged in 2024. We introduced a fee for
members of the newly formed Board Special
Projects Committee.
For more, see the
Remuneration Implementation Report.
Director induction and training
The Company Secretary supports the Chair in
designing individual inductions for NEDs, which
include site visits and cover topics like strategy,
balance sheet and capital, risk and compliance,
and current issues including the legal and
regulatory landscape.
Directors who take on new roles or change roles in
the year (such as becoming a member of a new
Board Committee) attend induction or handover
meetings as appropriate. Committee Chairs, with
support from their Committee secretaries, agree
Committee specific training, as appropriate.
Directors are also given the opportunity to
undertake further training so that they are fully
informed about matters concerning Santander UK
to enable them to discharge their duties and
responsibilities as a Director.
Board meetings in the year
We held 11 Board meetings in 2024. Meetings of
the Company were held concurrently with
Santander UK
Group Holdings
plc.
Regular updates are provided to the Board by me,
each of the Committee Chairs, the CEO, CFO and
CRO. We have a comprehensive and continuous
agenda setting and escalation process to enable
the Directors to take decisions efficiently and
effectively. As Chair, I lead the process, assisted by
the CEO and Company Secretary, and this
ensures enough time is set aside for strategic
discussions and business critical items. Together
with the Committee Chairs, we ensure Board and
Committee meetings are structured to facilitate
open discussion, debate and challenge. The NEDs
also receive regular updates from management to
give context to current issues, and there is always
time allowed on each Board agenda for discussion
between the NEDs without the EDs present.
|
Annual Report 2024
|
Santander UK plc
|
18
|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Board activities in the year
I, together with the CEO and Company Secretary, and supported by the Directors and senior management, make sure that the Boards have an appropriate
schedule for the year. This is focused on the opportunities to drive growth and profitability of the business, transformation to support its success, business
performance and risk management, customer experience and outcomes, and remaining apprised of the external operating environment. It includes ensuring the
Company is run in a responsible and sustainable way in the interests of its stakeholders, and ensuring that the Company’s culture is aligned with its purpose,
values, and strategy.
The Boards ensure regular contact with management and employees through several means. These include inviting relevant business and function heads to
present to the Board or its Committees on latest developments; supporting senior management development plans by welcoming them as observers; scheduling
regular meetings for Committee Chairs with relevant senior managers; site visits by NEDs; and topical or technical workshops. Senior leaders are also available to
the NEDs for advice and support.
The Boards regularly monitor progress against the strategic priorities and performance targets of the business, and in 2024, once again held a separate Board
Strategy Day. This included a case study on executing large scale transformation in the financial services sector, adapting the retail branch model to reflect
changing customer behaviours and how to engage with our customers better. External presenters gave their thoughts on the competitive landscape and inorganic
opportunities to accelerate our transformation.
Alignment with Banco Santander group strategy is also strengthened by holding one board cycle in Madrid each year, providing the Boards with opportunities to
interact with executives and senior management of Banco Santander SA.
The Board aims to consider the views of all impacted stakeholders, whilst acting in the best interests of the Company and its members as a whole, as set out in
the Stakeholder Voice statement in the Strategic report. In 2024, the Boards and Board Committees participated in the workshops listed below to consider
important topics in depth and to engage with key stakeholders. To ensure the most effective use of the time at Board meetings, informal discussions between
Board members and senior management took place on a regular basis.
|
Theme
|
Action taken by the Board and outcomes
|
Stakeholders
considered
|
|
|
Business and
Customer
Strategy
|
–
As part of the Board Strategy Day, considered how to improve customer proposition, engagement and experience
across all our business segments, as well as drive revenue growth, by transforming the branch network.
–
Discussed reports on performance against strategy from principal business areas including:
◦
Mortgages
◦
Personal Current Accounts
◦
Business Banking
◦
Payments and Cards
◦
Wealth and Insurance Management
–
Participated in an externally facilitated session on UK banking market context and competitive landscape.
–
Considered reports on MA activity and market trends.
–
Reviewed, challenged, and approved the 3-year business plan (2025-2027) and the annual budget, including
assumptions underpinning the plan.
–
Discussed and took learnings from an external report on Santander UK’s reputation.
–
Considered the strategic workforce plan and strategy to optimise the real estate portfolio.
|
Customers
Investors
Employees
|
|
|
Transformation
including
leveraging
Banco
Santander
scale
|
–
Reviewed initiatives and opportunities to collaborate and leverage resources and capability across the Europe region
and the Banco Santander group, including the Banco Santander group-wide transformation agenda (One
Transformation) and the implications of the Banco Santander group’s new operating model structured across the five
global business lines.
–
Received regular reports on progress with driving operational efficiencies and management’s revised approach to
strategic change management and investment prioritisation.
–
Received a report on agile working practices and their implementation within the business.
–
Received a demonstration on Artificial Intelligence capabilities.
|
Customers
Investors
Employees
|
|
|
People and
Culture
|
–
In addition to reports from the Board Responsible Banking Committee (RBC) on delivery of the culture strategy,
the Board participated in several informal activities to assess the culture and sentiment of employee cohorts
including our Young Leaders and Graduates and Apprentices.
–
Participated in engagement activities throughout the year including listening events, branch and head office visits
where two-way interaction was encouraged and valuable feedback shared, as well as an engagement event with
the Santander Network leads where key inclusive culture priorities were discussed.
–
Considered employees' ways of working and opportunities to enhance collaboration across teams.
–
Considered succession planning across all key control, support functions and business functions.
–
Approved the Diversity and Inclusion Strategy on recommendation from the RBC.
–
Approved the Group Corporate Culture Policy.
|
Customers
Employees
|
|
|
Annual Report 2024
|
Santander UK plc
|
19
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
|
Theme
|
Action taken by the Board and outcomes
|
Stakeholders
considered
|
|
|
Audit, risk,
compliance and
control
|
–
Received regular enterprise-wide risk updates from the CRO, and updates on specific risks, such as third-party
outsourcing, IT, data management, financial crime compliance, fraud, climate change and inflation. The Board closely
monitored overall operational risk given the ongoing extensive transformation agenda.
–
Considered financial crime remediation, including oversight of programmes to enhance controls and regulatory
engagement, back book remediation, and the progress made to return the Company to Board Risk Appetite on a
sustainable basis. The Board also approved the Anti Money Laundering and Counter Terrorist Policy as part of its
annual review.
–
Reviewed and approved the implementation of Consumer Duty on recommendation of the RBC, recognizing the
valuable enhancements it had made to customer outcomes and value.
–
As part of the annual review, approved the Company’s Risk Appetite Statement and the Risk Framework.
–
Approved the 2024 Internal Audit Report and received annual reports on whistleblowing.
–
Received regular reports on recovery and resolution with a full fire drill exercise planned for Q3 2025.
–
Participated in workshops on the Operational Resilience, Risk Weighted Assets and Regulatory Capital and Model
Risks.
|
Customers
Employees
Regulators
|
|
|
Regulation,
Balance Sheet
and Capital
|
–
Reviewed, challenged, and approved the ICAAP, ILAAP, adequacy and effectiveness of stress-testing and capital
management, AT1 payments and ordinary and preference share dividend payments in line with PRA guidance. The
Board followed the methodology set out in the Board-approved Surplus Capital Allocation Framework to determine the
assessment and utilisation of surplus capital.
–
Approved the Resolvability Self-Assessment related to the 2023 Resolvability Public Disclosure, the 2024 Resolvability
Public Disclosure and the 2024 Recovery Plan for submission to the Bank of England.
–
Considered the future regulatory landscape and implications, as well as considering regular reports from the General
Counsel on legislative developments and other legal matters.
–
Participated in workshops on ICAAP and ILAAP which provided an overview of the processes and addressed PRA
feedback on Board engagement and supporting models.
|
Customers
Investors
Regulators
|
|
|
Governance
and
Responsible
Banking
|
–
Participated in an externally facilitated Board evaluation led by Dr Tracy Long at Boardroom Review and monitored the
progress against 2023 action plan from the internally facilitated Board evaluation.
–
Approved appointments to the Board on the recommendation of the BNC.
–
Reviewed, challenged, and approved the 2023 Annual Report and the first Santander UK Governance Strategy.
–
Reviewed and approved the Company’s Social Mobility Strategy, the Modern Slavery report and the Employee Code of
Conduct.
–
Participated in workshops delivered to the RBC on ESG related strategies, approaches and reporting and the
Company’s compliance with the Consumer Duty.
|
Communities
Regulators
Climate
|
|
Board and Board Committee attendance
1
|
Board
|
Board Audit
Committee
|
Board Nomination
Governance
Committee
|
Board
Remuneration
Committee
|
Board
Responsible
Banking
Committee
|
Board Risk
Committee
|
||||||||
|
Scheduled
|
Ad hoc
|
Scheduled
|
Ad hoc
|
Scheduled
|
Ad hoc
|
Scheduled
|
Ad hoc
|
Scheduled
|
Ad hoc
|
Scheduled
|
Ad hoc
|
||
|
Chair
|
William Vereker
|
10/10
|
1/1
|
-
|
-
|
5/5
|
1/1
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Independent Non-
Executive Directors
|
Lisa Fretwell
|
10/10
|
1/1
|
10/10
|
1/1
|
-
|
-
|
6/6
|
-
|
8/8
|
-
|
6/6
|
1/2
2
|
|
Ed Giera
|
10/10
|
1/1
|
7/10
2
|
1/1
|
5/5
|
1/1
|
6/6
|
-
|
4/6
2
|
-
|
8/8
|
2/2
|
|
|
Dave Gledhill
3
|
2/2
|
1/1
|
3/3
|
1/1
|
-
|
-
|
2/2
|
-
|
2/2
|
-
|
-
|
-
|
|
|
Michelle Hinchliffe
|
10/10
|
1/1
|
10/10
|
1/1
|
5/5
|
1/1
|
-
|
-
|
6/6
|
-
|
8/8
|
2/2
|
|
|
Mark Lewis
3
|
10/10
|
1/1
|
7/7
|
-
|
4/5
2
|
1/1
|
6/6
|
-
|
8/8
|
-
|
7/8
|
2/2
|
|
|
Nicky Morgan
3
|
10/10
|
1/1
|
7/7
|
-
|
5/5
|
1/1
|
-
|
-
|
8/8
|
-
|
8/8
|
2/2
|
|
|
David Oldfield
3
|
1/1
|
-
|
1/1
|
-
|
-
|
-
|
1/1
|
-
|
-
|
-
|
1/1
|
-
|
|
|
Jose Maria Roldan
|
10/10
|
1/1
|
-
|
-
|
-
|
-
|
2/2
|
-
|
8/8
|
-
|
8/8
|
2/2
|
|
|
Banco Santander
Group nominated
Non-Executive
Directors
|
Pedro Castro e Almeida
|
10/10
|
1/1
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Dirk Marzluf
3
|
10/10
|
0/1
2
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Pamela Walkden
|
10/10
|
1/1
|
-
|
-
|
5/5
|
1/1
|
-
|
-
|
-
|
-
|
3/3
|
1/1
|
|
|
Executive Directors
|
Mike Regnier
|
10/10
|
1/1
|
–
|
–
|
–
|
–
|
–
|
|||||
|
Angel Santodomingo
3
|
10/10
|
1/1
|
–
|
–
|
–
|
–
|
–
|
||||||
1.
With effect from 1 October 2024, Nicky Morgan and Mark Lewis stepped down from the Board Audit Committee, Jose Maria Roldan became a member of the Board Remuneration Committee, Ed Giera and
Michelle Hinchliffe stepped down from the Board Responsible Banking Committee and Lisa Fretwell stepped down from the Board Risk Committee.
2.
Meetings missed due to Directors' prior commitments.
3.
For dates of Board appointments or resignations in the year, see the timeline on the 'Governance overview' page. Appointments to, or resignations from, the relevant Board Committees were aligned to these
dates unless stated otherwise
|
Annual Report 2024
|
Santander UK plc
|
20
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Board diversity
The Board values the unique differences that each
Director and Santander employee brings to work
every day. Diverse views, combined with inclusion,
encourages the sharing of a wide range of
perspectives and ideas alongside challenging and
raising concerns for good decision making. The
basis of this premise applies to our Boards and
Board Committees as much as it does to any other
area of our organisation.
We recognise that the Board sets the tone for an
inclusive culture and that our success is integrally
linked to the diverse composition of our people.
With this in mind, the Board fosters an
environment where all our employees feel that they
belong in our business, and for our people to
reflect the customers and communities we serve.
It’s the right thing to do for our business and the
communities we operate in.
As a Board, we approve the Santander UK
Diversity and Inclusion strategy, as required by UK
regulation, and monitor its implementation through
our Board Responsible Banking Committees. The
Committees hold management to account for
promoting inclusion to see positive outcomes for a
healthy culture in diversity, risk management, good
conduct and innovation. Each of our Independent
Non-Executive Board Directors sponsors a
diversity strand to foster the open exchange of
ideas regularly engaging with our employee
networks to support their decision making.
Progress against this can be found in our Everyday
Inclusion and Pay Gap Report, which does not
form part of this Annual Report.
We also have a Board Diversity Inclusion
(DI) Policy, as required by UK regulation, which
recognises that an inclusive Board representing a
diversity of experience and backgrounds should
result in a broad strategic perspective and is
available on the Company’s website.
Board appointments are always made on merit by
assessing candidates against measurable,
objective criteria. We want a Board that reflects
diversity in the broadest sense to embrace different
perspectives and dynamics such as gender, race,
age, disability and socio-economic background.
We believe that such an environment is vital to
achieve our goals as a business.
During the year, we reviewed and updated the
ambitions in our Board DI Policy, recognising that
we had not achieved the aims we previously set for
ourselves in respect of gender or ethnicity. The
Board and its Committees will continue to focus on
gender and ethnicity as we progress future
appointments with a view to regaining the
appropriate balance.
Our current ambitions are to achieve a gender
balance of at least 40% male and female; at least
one senior Board position (Chair, CEO, CFO or
SID) to be female and at least one member from a
non-white minority ethnic background by 2028.
In accordance with Listing Rule 9.8.6(9), the
statistics on this page outline the diversity metrics
for Board members and executive management at
31 December 2024. We have chosen to exclude
Ed Giera from these statistics to avoid duplication
as he will retire from our Board in March 2025 and
will be succeeded as Board Risk Committee Chair
by David Oldfield (who was appointed to the Board
with effect from 1 December 2024).
At 31 December 2024, 31% of the Board were
female. Following the appointment of Enrique
Alvarez on 12 February 2025 this reduced to 29%.
With the appointment of Nicky Morgan as SID,
I
am pleased that we have already made positive
progress towards meeting our ambitions.
No Directors were from an ethnic minority
background.
At 31 December 2024,
25%
of Executive
Committee members were female, 38% of our
Leadership Group (the level below the Executive
Committee) were female. The Board places high
emphasis on ensuring the development of different
perspectives in the senior management and
through succession planning.
|
Annual Report 2024
|
Santander UK plc
|
21
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Board and Committee effectiveness
To ensure that the Board and its Committees' remain effective, we carry out an annual evaluation which includes the performance of individual Directors. In line
with the Corporate Governance Code, this evaluation is typically facilitated externally at least once every three years, allowing for an independent review of the
Boards' performance. I, with the support of the Board Nomination Governance Committee, lead the Board in considering and responding to the annual
evaluation.
The Board approves an action plan to address any areas of improvement identified in the annual evaluations and the Board Nomination
Governance Committee oversees the progress on these.
An update on the findings from the 2023 evaluation is set out below.
Progress against 2023 evaluation findings
|
Opportunities for improvement
|
Update on actions
|
|
Improving Board-level
information
|
There has been a marked improvement as a result of training, updated paper templates and advice given by the Corporate
Governance Office in the length of the Board packs and the timeliness in which they are provided to Directors. We believe
that there is always room for improvement and therefore it remains on the 2024 action plan.
|
|
Forward leaning strategic
topics for the board agenda
|
During 2024, we provided updates on strategic topics such as market outlook, competitive environment and external
landscape through Board updates, workshops or sessions with external speakers. We will also continue to review the
Forward-Looking Agendas for the Boards and the Committees to ensure the Board’s time is maximised on matters of
strategic relevance including covering topics such as customer perspective and competitor environment.
|
|
Managing Board transition and
roles
|
Following the appointment of three new Directors in 2024, the Board Nomination Governance Committee oversaw that
each new Board member was given a thorough and tailored induction to the business to help them settle into their roles
quickly has been acknowledged as a priority. The induction plans included familiarisation with the overall Group-wide
strategy and Group-subsidiary relationship and sessions on specific topics relevant to the Santander UK business. The
induction sessions were led by key members of management, the Corporate Governance Office and Group representatives.
|
Following the internal reviews completed in the prior two years, Dr Tracy Long of Boardroom Review Limited was chosen to undertake an externally facilitated
review (the Review) in 2024, in line with UK Corporate Governance Code expectations. Dr Long completed the previous external evaluation in 2021, but has no
other connection to the Company or its Directors, and as such it was felt she would be able to independently assess the Board whilst providing valuable insight on
the progress and performance over the last three years.
2024 External effectiveness review process
|
Stage 1
|
|
|
Scope of review
|
The scope for the Review was agreed to ensure a formal and rigorous evaluation of the performance of the Board and its
Committees.
The methodology encouraged candid reflections from each participant on the current strengths and preparation for future
challenges.
|
|
Stage 2
|
|
|
Review activity
|
Individual interviews were held with each Director, as well as members of senior management. Discussion themes included
board dynamics, culture and contribution; understanding of purpose, values and strategic alignment and executive
leadership.
A full cycle of Board and Board Committee meetings was also observed. The Company Secretary provided a suite of
documents to enable a thorough review of Board-related governance materials.
|
|
Stage 3
|
|
|
Findings and actions
|
A comprehensive report evaluating the Board's performance was produced by Boardroom Review and presented by Dr Long
at the December Board meeting. The Board collectively discussed the results and recommendations, before agreeing the
key priorities and a practical action plan (see below).
|
|
Annual Report 2024
|
Santander UK plc
|
22
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Outcomes from the 2024 Board evaluation
Overall, the Review concluded that the Board and all Committees continue to operate effectively and are rated highly. The key strengths identified were the
Board's positive ways of working, progress made on transformation and remediation activities, an improvement in the relationship with the regulators since the last
review, improvement on the quality of the Board papers and significant improvements to the Environmental, Social and Governance agenda.
The Review also identified opportunities for improvement for the Board as a whole and for the Board Committees. The key priorities are set out below. The Board
considered all of the recommendations from the Review and agreed on an action plan which will be overseen by the Board Nomination Governance Committee
throughout 2025.
2024 Review findings
|
Opportunities for improvement
|
Commentary and actions
|
|
Future board composition
|
The Board will need greater technology insight as a core skill to meet our longer term strategic goals. Workshops will be
scheduled to ensure the Board remain up to date with, and are forward looking, on technology, including digital functionality
for customers, AI uses and cybersecurity issues and their impact on the Company. In addition, we recognise the importance
of a diverse Board, and the ambitions we have set on gender and ethnicity as set out in our Board DI Policy.
|
|
Cyber risk
|
To ensure that the Board are as well prepared as possible to respond to a cyber threat, an unscripted simulation exercise
will be performed this year. We will also arrange for an external expert to speak to the Board.
|
|
External landscape
|
There is appetite for the Board to know more about the competitive landscape, with updates covering real-time information
on sector dynamics, clarity of expected results and appreciation of existing and/or emerging barriers to action. These
updates will be scheduled throughout 2025, and we will invite external speakers to Board sessions to provide different
perspectives.
|
|
Measuring our culture
|
To continue to promote and oversee the embedding of our desired culture, the Board will continue to evolve how it
measures and evaluates Santander UK's culture, reflect on new ways to monitor and communicate the behaviours we want
to promote, sharing who we were to who we are becoming through our stories of success and lessons learned.
|
As part of the Review, I also conducted an assessment of each individual Director's performance to identify any areas of development, which we then discussed
privately. The findings, in combination with the individual's skills, time commitment and independence assessments, as overseen by the Board Nomination
Governance Committee, confirmed that each Director continues to contribute positively.
Ed Giera, as SID at the time, also undertook an assessment of my performance as Chair, seeking feedback from each Director which was then discussed at a
meeting without me present.
|
Annual Report 2024
|
Santander UK plc
|
23
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Summary of Board Committee activities in
2024
Our Board Committees conduct their business concurrently with the Santander UK Group Holdings plc Board Committees to ensure alignment of practices,
policies and procedures. The following sections describes the governance arrangements, practices and activities of both committees. For more information, see
each of the Board Committee Chair's Reports in the Santander UK Group Holdings plc 2024 Annual Report, which does not form part of this Annual Report.
Board Nomination Governance Committee
|
Committee responsibilities
|
|
Lead the process for Board and Board
Committee appointments and oversee
succession planning for the Board and senior
management positions.
|
|
Oversee the evaluation of the performance
and composition of the Board and Board
Committees.
|
|
Monitor the governance arrangements
for Santander UK and make appropriate
recommendations to the Board to ensure
that those arrangements remain adequate.
|
|
Committee members
|
|
William Vereker (Chair)
|
|
Ed Giera
|
|
Michelle Hinchliffe
|
|
Mark Lewis
|
|
Nicky Morgan
|
|
Pamela Walkden
|
Key activities in the year
Succession planning
The Committee oversees a formal, rigorous and
transparent process to identify, nominate and
recommend candidates for appointment to the
Board and senior management positions.
As part of ongoing succession planning activity,
the Committee regularly reviews the succession
plans in place for the Board, the CEO and senior
management positions. This includes ensuring that
there is a skills, experience and diversity matrix to
map each Director's attributes against those most
relevant for the Board, reflecting the Company’s
strategic direction and identifying gaps in its
desired collective skills profile as well as
highlighting the skills and experience which could
be lost with a retiring Director. For key senior
management positions, the Committee works with
Banco Santander to ensure there are suitable
candidates identified from across the Banco
Santander group as ‘Ready Now’, ‘Ready in 1-3
years’ and ‘Future Ready’.
While appointments are always based on the merit
of the individual candidates and objective criteria,
we also aim to promote diversity in its broadest
sense. This complements and strengthens the
overall Board and its Committees' skills,
knowledge and experience. Any appointments also
take account of all legal and regulatory
requirements.
In anticipation of Ed Giera retiring from the Board
in 2025, following more than nine years of service,
the Committee focused on identifying successors
for the roles of Chair of the Board Risk Committee
(BRC) and Senior Independent Director (SID).
As reported last year, Spencer Stuart, external
search consultants with whom the Company and
individual Directors have no other relationship,
assisted with the search process to identify
candidates who could serve as Chair of the BRC.
The Committee agreed the personal attributes
including cultural fit, and ability to lead and manage
change which were desirable for the role and the
skills and experience needed. A database of
potential candidates was created with our Board
DI Policy in mind when doing so.
Following a
review of a longlist of potential candidates drawn
up by Spencer Stuart, the Committee agreed a
shortlist, each of whom were interviewed by me
and other Board members. After detailed feedback
from these interviews, the Committee selected
which individuals should progress to interviews
with representatives of Banco Santander
management. David Oldfield was identified as the
preferred candidate, and his appointment as an
INED, to succeed Ed Giera as Chair of the BRC on
Ed’s retirement in 2025 was recommended to, and
approved by the Board.
During the above search process it was identified
that David Gledhill would bring valuable and
relevant experience in digital transformation
and broader banking from his 30 years in
financial services. As such, the Committee also
recommended his appointment as an INED to
the Board.
For the role of the SID, we considered candidates
from our existing INEDs and proposed that Nicky
Morgan be appointed to serve as SID following
Ed’s retirement given her familiarity with the
business, understanding of the customer from her
role as Board Responsible Banking Committee
Chair and Consumer Duty Champion, and
excellent relationships with the other NEDs and
EDs.
As set out in last years’ report, the Committee
recommended Angel Santodomingo be appointed
as successor to Duke Dayal as CFO. Angel was
appointed to the Board on 5 March 2024.
The Committee also recommended the
appointment of Enrique Alvarez Labiano, CEO of
Retail and Business Banking as an ED upon
receipt of regulatory approval. The appointment
promotes our succession planning and talent
development initiatives and provides greater
balance of NEDs and EDs on the Board.
We also oversaw and approved changes to the
Executive Committee and other senior
management positions in 2024. Tim Hinton, CEO,
Santander CCB retired in September 2024 and
was succeeded by John Baldwin. John Mills,
Company Secretary, also retired and was
succeeded by Roz Rule from 1 January 2025.
In 2025, the Committee will oversee the search for
my successor. This process is being led by Nicky
Morgan as the SID.
|
Annual Report 2024
|
Santander UK plc
|
24
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Board Risk Committee
|
Committee responsibilities
|
|
Advise the Board on the Enterprise Wide Risk
profile, Risk Appetite and strategy.
|
|
Provide advice, oversight and challenge to
embed and maintain a supportive risk culture.
|
|
Review the Risk Framework and recommend it
to the Board for approval.
|
|
Review and approve the risk types and risk
activity frameworks in the Risk Framework.
|
|
Review the capability in the organisation to
identify and manage new risks and risk types.
|
|
Review risks and issues escalated by the CRO,
and their associated action plans.
|
|
Oversee and challenge the day-to-day risk
management, oversight and adherence to risk
frameworks and policies.
|
|
Committee members
|
|
Ed Giera (Chair)
|
|
Michelle Hinchliffe
|
|
Mark Lewis
|
|
Nicky Morgan
|
|
Jose Maria Roldan
|
|
David Oldfield
1
|
|
Pamela Walkden
2
|
|
Lisa Fretwell
3
|
1.
Joined on 1 December 2024
2
Left 1 April 2024
3.
Left 1 October 2024
Key activities in the year
The Committee undertook a thorough assessment
of the Company's top and emerging, including
financial, operational, and compliance controls.
Our top risks and emerging risks are discussed in
the Risk Review section of this report. The process
for identifying, evaluating, and managing the
Company's emerging and top risks is integrated
into the overall risk governance framework.
Regularly, the Committee reviews and discusses a
consolidated enterprise wide risk report to ensure
that they are satisfied with the overall risk profile,
risk accountabilities, and mitigating measures.
Board Audit Committee
|
Committee responsibilities
|
||
|
Oversight of the integrity of the financial
statements of the Company and any formal
announcements relating to its financial
performance, including underlying significant
financial reporting judgements and estimates.
|
||
|
Oversight of internal financial control
effectiveness.
|
||
|
Oversight of the relationship with our external
auditors including their independence and
objectivity, audit scope and effectiveness of the
audit process in respect of their statutory audit of
the annual financial statements.
|
||
|
Oversight of the Internal Audit function.
|
||
|
Oversight of Recovery and Resolution planning
|
||
|
Oversight of Whistleblowing arrangements.
|
||
|
Committee members
|
||
|
Michelle Hinchliffe (Chair)
|
||
|
Ed Giera
|
||
|
Lisa Fretwell
|
||
|
David Gledhill
1
|
||
|
David Oldfield
2
|
||
1.
Joined on 1 October 2024
2.
Joined on 1 December 2024
Key activities in the year
Internal Audit
–
Considering the 2025 Audit Plan and Internal
Audit’s annual report for recommendation to
the Board.
–
Monitoring progress against the 2024
Audit Plan.
Financial reporting
Significant financial reporting issues
including judgements and estimates
The use of assumptions or estimates and the
application of management judgement is an
essential part of financial reporting. This is
considered by the Committee on at least a
quarterly basis.
The External Auditors also consider these areas as
part of their audit of the annual financial
statements. More information on the External
Auditors' work is set out in their audit report.
In 2024, we focused on the following significant
reporting matters in relation to financial accounting
and disclosures:
Credit impairment charges
–
Satisfied ourselves with the robustness of the
process used to arrive at the management
judgements and estimates as well as with the
management judgements and estimates
themselves.
–
Endorsed the updates to the macroeconomic
scenarios and weights including management’s
judgement to reduce number of macroeconomic
scenarios from five to four.
–
Endorsed the improvements in the JA
framework.
–
Endorsed management’s approach and key
methodology changes for ECL provisioning
including updated SICR triggers and the new
ECL models implemented during the year.
Provisions and Contingent Liabilities
–
Agreed with management’s judgement on the
level of customer remediation, litigation and
other regulatory provisions and/or contingent
liability disclosures.
Defined benefit pension schemes
–
Agreed with management’s approach regarding
the principal assumptions.
–
Agreed with management's approach to illiquid
assets valuation.
–
Agreed with management's proposals to update
the mortality projections to reflect the latest
published CMI projections.
Goodwill
–
Agreed with management that no impairments to
goodwill should be recognised in 2024.
Valuation of intercompany derivatives
–
Agreed with management's approach to valuing
the Company's level 3 intercompany interest rate
swaps.
Other areas
–
Agreed with management that the going concern
basis of accounting remained appropriate at 31
December 2024.
–
Reconfirmed that three years was an appropriate
time horizon for the viability assessment.
–
Agreed with management that no impairment
should be recognised in relation to climate risk in
2024.
|
Annual Report 2024
|
Santander UK plc
|
25
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Chair’s report on corporate governance
continued
|
|
Oversight of external auditors
External Auditors
PwC were appointed in 2016 and their
independence was considered and monitored
throughout the year. We were satisfied that PwC
continued to meet the independence requirements.
Ian Godsmark has been lead audit engagement
partner since June 2022.
A Banco Santander group wide external audit
tender was undertaken in the first half of 2024 for
the appointment of financial years 2026, 2027 and
2028. The Committee oversaw the process locally
with selected candidate firms and focused on audit
quality and expertise to ensure high quality audit
standards were retained.
A recommendation to reappoint PwC was made as
the preferred firm to Banco Santander based on a
robust review of the selected firms’ proposals.
Based on
a formalised assessment, the
Committee satisfied itself as to the rigour and
quality of PwC’s audit process.
Non-audit fees
We have a robust policy on non-audit services
provided by our external auditors. Non-audit
services were under continuous review throughout
2024 to determine that they were permitted
by reference to their nature, assessing potential
threats and safeguards to auditor independence as
well as the overall ratio of audit to non-audit fees.
All assignments require advance approval, either
by the Chair (or in their absence their alternate),
under delegated authority for amounts under
£250,000 plus VAT or, if larger, by the Committee.
This process is in addition to the requirement for all
non-audit fees to be approved by the Banco
Santander Audit Committee.
Internal Audit
The Committee has approved the Internal Audit
Charter at its annual review and receives regular
updates on the quality assurance, capabilities and
capacity of the Internal Audit function to ensure
its operational effectiveness and adequate
independence. This is supplemented by regular
interactions between the Chief Internal Auditor and
the Committee Chair. We also receive feedback on
interactions between Internal Audit, management
and our external auditors.
Whistleblowing
The Committee oversees Santander UK's
whistleblowing arrangements including
continuous refinement of our processes to
align with evolving best practice. Santander UK
recognises the importance of creating
an environment where employees feel safe and
able to Speak Up. Speaking Up is a core
behaviour at Santander UK and there are a
number of ways employees can do this, including
raising a concern via Santander UK's
Whistleblowing arrangements.
The Disclosure Committee
reports on whether the
Annual Report is fair, balanced, and
understandable and whether it provides
the information necessary for readers to assess
Santander UK's position and performance,
business model and strategy.
Board Responsible Banking Committee
|
Committee responsibilities
|
|
Support management in shaping, driving and
delivering the responsible banking agenda
of the business across a broad spectrum of
areas including customers, inclusive culture,
conduct, communities and climate change and
the environment (the Board Risk Committee is
responsible for overseeing the risks associated
with climate change).
|
|
Committee members
|
|
Nicky Morgan (Chair)
1
|
|
Lisa Fretwell
|
|
Ed Giera
3
|
|
David Gledhill
2
|
|
Michelle Hinchliffe
3
|
|
Mark Lewis
4
|
|
Jose Maria Roldan
|
1.
Joined as a member and Chair on 1 January 2024
2.
Joined on 1 September 2024
3.
Left on 1 October 2024
4.
Joined on 1 January 2024
Board Remuneration Committee
|
Committee responsibilities
|
||
|
Overseeing the implementation of the
remuneration policy, including approving
individual remuneration packages and the bonus
framework and outcomes for EDs and other
senior executives.
|
||
|
Approving the framework for identifying Material
Risk Takers (MRTs) and overseeing their
remuneration arrangements.
|
||
|
Reviewing the remuneration arrangements for all
employees.
|
||
|
Committee members
|
||
|
Mark Lewis (Chair)
|
||
|
Lisa Fretwell
|
||
|
Ed Giera
|
||
|
David Gledhill
1
|
||
|
Jose Maria Roldan
2
|
||
|
David Oldfield
3
|
||
1.
Joined as a member and Chair on 1 January 2024
2.
Joined on 1 September 2024
3.
Left on 1 October 2024
4.
Joined on 1 January 2024
Details of the structure of our remuneration
arrangements and the activities of the Board
Remuneration Committee in the year are provided
in the Remuneration Policy and Implementation
Reports.
William Vereker
Chair
7 March 2025
|
Annual Report 2024
|
Santander UK plc
|
26
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration policy report
|
|
Basis of preparation
This report has been prepared on behalf of the
Board by the Board Remuneration Committee. We
comply with the statutory reporting obligations for
large private companies. We applied the UK
Corporate Governance Code 2018 (the Code) and
complied with the Provisions other than where
stated in the Directors' Report. Several voluntary
remuneration disclosures are also presented in this
report.
Remuneration policy for Executive Directors
(EDs)
Our remuneration policy, which applies to EDs, is
below. Remuneration has two elements: fixed and
variable pay. Fixed pay is set at market competitive
levels appropriate for the role. Variable pay rewards
the delivery of internal financial targets, key strategic
priorities and individual performance, and is subject
to risk adjustment.
Remuneration policy applicable to Executive Directors in the year
|
Fixed pay
|
Principle and description
|
Policy
|
|
Base salary
|
–
To attract and retain EDs of sufficient calibre
and with the skills to deliver our strategy,
taking into account the demands and
complexity of the role.
|
–
Base salaries are normally reviewed annually. In reviewing base salaries,
the Committee considers a number of factors, including:
–
the skills required, the role responsibilities and the market value of the
individual and the role;
–
the requirement for base salaries to be set at a level that avoids
inappropriate risk taking; and
–
base salary increases for other employees.
|
|
Pension arrangements
|
–
To provide a discrete element of the package
to contribute towards retirement.
|
–
EDs receive a cash allowance in lieu of pension aligned to the wider
workforce average, of 9% of salary, except in exceptional circumstances
such as international mobility.
|
|
Other benefits
|
–
To offer a competitive package and to
support employee wellbeing.
|
–
Including: private medical insurance for EDs and their dependants, life
assurance, health screening, and relocation allowances where relevant.
–
Access to Santander UK’s share schemes on the same terms as other
employees.
|
|
Variable pay
|
Principle and description
|
Policy
|
|
Variable pay plans
|
–
The Variable Pay Plan motivates EDs to
achieve and exceed annual internal targets
within Santander UK’s Risk Appetite and
aligned with our strategy and values.
–
Multi-year deferral and delivery in Banco
Santander SA shares aligns EDs’ interests to
the long-term interests of Santander UK.
Further long-term performance testing
applies for the CEO.
–
Part of the award is deferred according to
the requirements of the PRA Rulebook.
–
The long-term PagoNxt Incentive Plan
recognises the contribution of employees
critical to the success of PagoNxt, one of
Banco Santander's strategic priorities.
|
–
Bonus awards under the Variable Pay Plan are discretionary and
determined by performance against a scorecard of financial and non-
financial goals, as well as individual performance.
–
40% of any bonus awarded is paid upfront after the performance year-
ends, and delivered at least half in shares; and
–
60% of the bonus awarded is deferred and delivered in equal tranches
over years three to seven, with each tranche delivered at least half in
shares.
–
For the CEO, the first three of five deferred award tranches are subject to
further performance testing which may reduce or increase the payout.
–
Awards under the PagoNxt Incentive Plan can be made in restricted share
units and/or premium priced options of PagoNxt, and vest in line with
regulatory requirements.
–
Shares or share instruments are subject to a minimum one-year retention
period following vesting.
–
Malus and clawback can be applied to variable pay for up to ten years
following the grant of an award.
–
The structure of variable pay awards means EDs acquire a meaningful
shareholding in Banco Santander SA which may extend for a significant
period post-employment. In addition, the CEO is subject to a Shareholding
Policy, which aligns long-term interests with Banco Santander shareholders.
The requirement under the policy is set at two times the incumbent’s net
salary on appointment. A formal post-employment shareholding requirement
is therefore not in place.
|
|
Annual Report 2024
|
Santander UK plc
|
27
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration policy report
continued
|
|
Our remuneration policy meets regulatory
requirements. Given that Santander UK is part of
Banco Santander Group which remains subject to
the 2:1 maximum ratio, Santander UK continues to
apply a 2:1 variable to fixed pay cap. This is in line
with approvals granted to Banco Santander SA by
its shareholders. For control function roles, a lower
ratio of 1:1 is normally applied.
Executive remuneration policies
and principles
Our core values of Simple, Personal and Fair drive
our remuneration policy. We focus on delivering a
framework that is easy to understand, tailored to
individual roles, competitive and fair.
The key drivers of our Remuneration Policy
Alignment to culture
–
To design policies aligned to our long-term
success, which support the delivery of our
strategy and reinforce our values.
–
To base variable pay on a balanced scorecard of
quantitative and qualitative metrics across
Customers, Shareholders and Responsible
Banking. This aligns to Santander UK’s strategic
priorities, with a focus on good customer
outcomes, simplification, improved efficiency and
sustainable growth.
Simplicity
–
To ensure our approach to remuneration is
transparent and easily understood.
–
To operate clear structures so our employees can
link their contribution to the success of the
organisation.
Risk
–
A consistent approach to reward for all our
employees upholds our prudent approach to Risk
Appetite set as part of a Santander UK-wide
framework. Risk adjustment takes place at an
individual and collective level.
–
To provide a package that is balanced between
fixed and variable pay, and short-term and long-
term horizons, which promotes prudent risk
management.
–
To ensure remuneration complies with applicable
regulations and legislation.
Fairness
–
To take into account an assessment of the EDs'
performance against goals set at the start of the
year, which cover financial, non-financial,
quantitative and qualitative criteria.
–
To set robust and stretching targets and reward
exceptional performance.
–
To attract, retain and motivate employees of the
highest calibre by providing total remuneration
which reflects individual and Company
performance, is competitive, and reflects the
responsibilities of the role.
–
To consider wider employee pay and conditions
when determining Executive pay.
Clarity
–
The Committee reviews remuneration reporting
on an annual basis against best practice and
developments in corporate governance, including
the Code. Our reporting is designed to be
transparent, whilst reflective of our structure.
Predictability
–
The Committee annually reviews variable pay
levels for certain individuals and the basis of the
bonus pool calculation. Due to commercial
sensitivity, bonus opportunities and targets are not
disclosed as per the provisions of the Code.
Directors’ remuneration is within the variable pay
cap as approved by Banco Santander SA
shareholders and set out above.
On recruitment
When appointing a new ED, base salary is set at a
market competitive level appropriate for the role,
taking into consideration a range of factors including
role responsibilities, internal and external peer
groups, and experience.
Unless determined otherwise, new EDs receive a
pension allowance of 9% of salary, aligned to the
wider workforce average. Benefits will typically be
aligned to the wider employee population.
Remuneration will be established in line with the
Remuneration Policy, as set out in the table on the
previous page.
Relocation support and international mobility
benefits may also be given. Relocation support will
normally be a capped amount for a limited time. In
cases of international mobility, the Committee will
have discretion to offer benefits and pension
provisions which reflect home country market
practice and align to relevant legislation.
Buy-out awards
Compensation may be provided to EDs who forfeit
awards on leaving their previous employer. The
Committee retains discretion to make such
compensation as deemed appropriate to secure the
relevant individual’s employment and will ensure any
such payments align with both the long-term
interests of Santander UK and the regulatory
framework.
Such payments will be in line with the awards
foregone on leaving the previous employer taking
into account value, form of awards, vesting dates
and the extent to which performance conditions
applied to the original awards.
|
Annual Report 2024
|
Santander UK plc
|
28
|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration policy report
continued
|
|
Service agreements
The key terms and conditions of employment are
set out in individual contractual agreements. These
agreements include a notice period of six months
from both the ED and the Company.
The agreement reserves a right for the Company to
terminate employment immediately with a payment
in lieu equal to the ED's fixed pay for the notice
period. In the event of termination for gross
misconduct, neither notice nor payment in lieu of
notice is required.
Termination payments
The remuneration impact of an ED leaving the
Company, including treatment of variable pay and/or
any termination payment will reflect the terms of the
service agreement, relevant scheme rules,
regulatory requirements and the Committee’s policy
relevant to the reason for leaving.
Outstanding variable pay awards generally lapse on
termination, other than where an individual is
considered a ‘good leaver’. Where an ED is a good
leaver, eligibility to variable pay awards will normally
subsist until the relevant scheduled payment dates
and will remain subject to performance where
relevant.
The Committee determines whether an ED is a
good leaver. Usual good leaver circumstances
include but are not limited to: injury, ill-health,
disability, redundancy, retirement and death. The
Committee may, at its discretion, determine an ED a
good leaver in any other circumstances.
A framework is in place to guide the Committee to
determine the discretionary circumstances when
good leaver status is appropriate. Other than a
payment in the event of redundancy, there are
generally no payments upon termination of
employment for EDs.
In the event of a change in control, any outstanding
variable pay awards will be treated in line with the
relevant scheme rules, taking into account
applicable regulatory requirements.
Risk and Performance adjustment
We continue to meet the regulatory requirements in
respect of risk and performance adjustment. All
variable remuneration can be adjusted for current
and future risks through our Additional Risk
Adjustment Standard which is linked to our Board
approved Risk Appetite.
The Standard provides a quantitative assessment
against Santander UK’s Risk Appetite and an
additional qualitative risk event assessment that can
reduce the bonus pool or individual awards to nil at
the Committee’s discretion.
Our Individual Remuneration Adjustment Standard
provides a framework for the process, governance
and standards relevant for decisions on individual
performance adjustments following an incident,
including the application of malus and clawback.
Performance adjustments may include, but are not
limited to:
–
reducing an award for the current year;
–
reducing the amount of any unvested deferred
variable remuneration;
–
requiring an award which has not yet been paid to
be forfeited; and
–
requiring repayment on demand (on a net basis)
of any cash and share awards received at any
time for a period of up to ten years following the
date of award.
The Committee has full discretion to prevent vesting
of all or part of an amount of deferred remuneration
and/or to freeze an award during an ongoing
investigation in a number of circumstances,
including:
–
employee misbehaviour, misconduct or material
error;
–
material downturn in the performance of
Santander UK or a relevant business unit; and
–
Santander UK or a relevant business unit
suffering a material failure of risk management.
When determining variable pay awards for
individuals performing roles across Santander UK
plc and Santander UK Group Holdings plc, the
Santander UK Group Holdings plc Board
Remuneration Committee will apply any necessary
discretion based on factors related to UK group
entities outside of Santander UK plc. This discretion
is subject to validation by the Santander UK plc
Board Remuneration Committee.
The Committee seeks input from the Chair of the
Board, Chair of the Board Risk Committee, Chair of
the Board Audit Committee, CRO, Chief Compliance
Officer, Chief People Officer and Chief Internal
Auditor when determining whether any performance
or risk adjustments are required.
We have an NYSE-compliant policy in place which
enables variable remuneration to be recovered from
Executive Officers in the case of an accounting
restatement that would have impacted that
remuneration.
Policy for all employees
Our performance and reward approach across the
Company supports our business strategy, rewards
strong performance and reinforces our values within
our risk management framework. The general
principles of the Remuneration Policy broadly apply
across all employees where appropriate. They are
designed to attract, retain, motivate and drive
performance.
The structure of remuneration packages for EDs is
typically aligned with the broader employee
population, comprising salary, benefits, pension
provision and discretionary variable pay dependent
on role and responsibility.
The Committee annually approves the operation of
variable reward schemes (as well as share
schemes) for all our employees to ensure they
reward appropriate behaviour and do not incentivise
activities which are outside risk appetite.
|
Annual Report 2024
|
Santander UK plc
|
29
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration implementation report
|
|
Introduction
This section of the report outlines how our
Remuneration Policy was implemented for 2024.
Variable Pay Plan
The Committee reviews and approves
remuneration governance and frameworks
annually. This ensures continued compliance with
the relevant regulatory rules, including those for
ring-fencing.
To incentivise and reward EDs for achieving
superior and sustained performance, our Directors
participate in an annual variable incentive plan. A
balance of financial and non-financial performance
metrics are selected annually by the Committee
and are aligned with our strategy as measured
over the financial year. Multi-year deferral and
delivery in Banco Santander SA shares ensure
that EDs’ interests are aligned to the long-term
interests of the business. Further long-term
performance testing also applies for the CEO.
Both upfront and deferred awards are made at
least half in shares. The deferred element is
delivered over seven years. For the CEO only, the
first three tranches of deferred awards are subject
to further performance testing against long-term
metrics. Awards delivered in shares are subject to
an additional one-year retention period from the
point of delivery.
The 2024 Variable Pay Plan pool was determined
based on a series of stages as follows:
Quantitative assessment
A quantitative assessment against a balanced
scorecard of financial and non-financial metrics
that are key to our strategy. Performance metrics
are reviewed annually to ensure continued
alignment with strategy and, for 2024 the
scorecard included:
–
Customers (Net Promoter Score, Active
Customers and Total Customers)
–
Shareholders (RoTE, Capital Generation and
Costs)
–
Sustainability and Responsible Banking
(Climate Strategy Transition Plan, Employee
Engagement and Inclusion and ambitions for
gender and ethnicity representation).
A profit underpin applies, requiring Profit after Tax
to remain positive in order to pay any award, with a
reduced pool should profit reduce substantially
from the prior year.
Qualitative assessment
A qualitative assessment adds context to the
quantitative assessment and ensures a balanced
view of performance is taken. Performance is
assessed across compliance, risk management,
network collaboration and responsible banking.
Additionally, a relative performance modifier is
applied.
Banco Santander Group Multiplier
The Committee has the discretion to adjust the
pool upwards or downwards to reflect overall
Banco Santander performance, if appropriate.
Regional Adjustment
A Regional Adjustment reflects the UK's
contribution to performance of the Banco
Santander group's European Region.
Exceptional Adjustment
Exceptional adjustments allow for unexpected
factors or additional internal targets not covered by
the quantitative or qualitative assessments to be
reflected in variable pay outcomes.
UK-focused risk adjustment
This provides both a formula-based assessment
against our Risk Appetite and an additional
qualitative overlay. Consideration is given to risk
appetite breaches including, but not limited to:
customers, conduct, operational, reputational and
financial crime risk. This can result in downward
adjustment of up to 100% of the pool or individual
awards at the discretion of the Committee.
Individual assessment
The allocation of the pool is based on an
individual's performance, taking into account a
range of factors. Performance is assessed against
the delivery of priorities (the 'What'), the behaviours
shown in delivering those priorities (the 'How'), and
also Risk.
Deferred long-term awards
Performance testing applies to a portion of the
deferred awards for the CEO. This applies to the
first three deferred tranches of the 2024 award
(36% of the total award) which are payable in
2028, 2029 and 2030. Performance is measured
over a three-year period 2025 to 2027.
The performance measures for 2024 awards are
relative TSR, ROTE and ESG metrics. Following
the performance assessment, the level of awards
will be adjusted accordingly. The assessment could
reduce or increase the overall value of the deferred
awards.
PagoNxt Incentive Plan
The PagoNxt Incentive, a multi-year plan, rewards
those employees across the Banco Santander
Group whose contribution is considered crucial to
the development and success of PagoNxt, one of
the three strategic priorities of the Group.
Awards are granted in share options and/or
restricted share units (RSUs) in PagoNxt, S.L.. UK-
specific performance conditions apply. Awards will
vest in accordance with regulatory requirements.
|
Annual Report 2024
|
Santander UK plc
|
30
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration implementation report
continued
|
|
2024 Business Performance and Impact
on Remuneration
During 2024 the progress made against our
strategic priorities was reflected in improved
business performance as the year evolved. For
the benefit of our customers, the bank leveraged
the expertise of Banco Santander facilitating
continued simplification and efficiency. Whilst
the rising costs of customer deposits, and the
impact of the charge for historical motor finance
commission payments impacted profit, active and
prudent price management resulted in a Banking
NIM that improved in the second half of the year
versus the first half. A continued focus on customer
service ensured our NPS, a key measure of
customer experience, improved over the year.
The Committee acknowledged this performance,
against both financial and non-financial metrics, in
an environment which remains challenging. In
determining remuneration outcomes for the 2024
performance year, the Committee ensured due
consideration was given to the experiences of our
customers, employees and communities.
Context for decision making
The Committee ensures that pay policies and
practices for employees across Santander UK are
taken into account when setting policy for
executive remuneration. The Committee reviews
trends across Santander UK group, including the
outcome of any pay negotiations with our
recognised trade unions. It considers the
relationship between executive remuneration and
that of other Santander UK group employees, as
well as remuneration in the wider UK market, when
making decisions on executive pay.
The Committee oversees broader workforce
remuneration policies and practices, the
implementation of remuneration and related
employment policies across Santander UK and the
salary and variable pay awards for all Material Risk
Takers. It also approves the design of any material
performance-related pay plans.
As part of the monitoring of pay, the following is
considered:
–
Santander UK’s engagement with its recognised
trade unions on pay and benefits matters for all
employees;
–
Annual pay reviews for the general employee
population;
–
Santander UK group-wide pension and other
benefit provisions;
–
The design of and overall spend on variable
incentive arrangements; and
–
An assessment of conduct across the business.
The Committee is focused on ensuring that
employees are not subject to undue pressures or
inappropriately incentivised. This is monitored
using existing employee engagement indicators
including engagement surveys.
The Committee always considers the broader
stakeholder environment when setting policy or
reaching decisions on executive pay.
Executive Directors' remuneration
Total remuneration of each ED for the year ended 31 December 2024
|
Mike Regnier
|
Angel Santodomingo (4)
|
||||
|
2024
|
2023
|
2024
|
2023
|
||
|
£000
|
£000
|
£000
|
£000
|
||
|
Salary and fees
|
1,575
|
1,500
|
951
|
—
|
|
|
Taxable benefits
(1)
|
12
|
3
|
233
|
—
|
|
|
Pension
|
142
|
135
|
123
|
—
|
|
|
Total fixed pay
|
1,729
|
1,638
|
1,307
|
—
|
|
|
Bonus (paid and deferred)
(2)
|
1,432
|
1,003
|
1,440
|
—
|
|
|
Long-term incentive plan
(3)
|
—
|
669
|
—
|
—
|
|
|
Total variable pay
|
1,432
|
1,672
|
1,440
|
—
|
|
|
Total remuneration
|
3,161
|
3,310
|
2,747
|
—
|
|
|
(1)
|
Taxable benefits for the Executive Directors comprise a range of benefits including, but not limited to, private health care and living expenses for expatriates.
|
|
(2)
|
36% of the Chief Executive Officer's Variable Pay Plan award is subject to long-term performance metrics assessed over three years, which can increase the value of this element
by up to 125% or decrease the award to 0%. No other executive will be subject to long-term performance metrics. The value of the current Chief Executive Officer's 2024 Variable
Pay Plan awards not subject to performance conditions, i.e. 64%, is disclosed above. The value subject to further performance conditions, 2024: £805,282 (2023: £563,967) will
be disclosed at the close of the performance period upon vesting.
|
|
(3)
|
The Long Term Incentive Plan value represents the value of awards made under the Transformation Incentive Plan, following the testing of the Plan's performance conditions. The
value of awards made in share-linked instruments has been calculated with reference to Banco Santander’s share price over the final three months of the 2023 year. Nathan
Bostock, former Chief Executive Officer, received an award with a value of £553,545.
|
|
(4)
|
Angel Santodomingo was appointed to the Board as an Executive Director on 5th March 2024 and the figures above reflect remuneration received whilst serving as a Board
Director. The pension and benefit provisions reflect his expatriate status and allow maintenance of home country pension and living arrangements. All other elements of
remuneration align with UK based colleagues.
|
|
Annual Report 2024
|
Santander UK plc
|
31
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration implementation report
continued
|
|
Stakeholder views
During 2024, Santander UK continued to engage
with key stakeholders on remuneration related
matters including its main regulators, the PRA
and FCA.
Regular engagement takes place with our
shareholder to align remuneration across the
Banco Santander group, while meeting all local
regulatory requirements. The outcome of these
discussions drives our bonus pool construct.
Lisa Fretwell, a member of the Committee, is the
designated NED with responsibility to further
enhance the employee voice in the boardroom on
matters associated with organisational culture.
Frequent employee pulse surveys were conducted
throughout 2024. The 'Your Voice' function has
enabled employees to share thoughts and ideas
frequently and anonymously all year round, giving
an immediate gauge of employee sentiment.
Additionally, we discuss business performance and
reward matters with union representatives during
the annual pay review cycle and on a frequent
basis throughout the year.
CEO pay ratio
Santander UK is committed to delivering fair pay
which attracts, retains and motivates employees of
the highest calibre across all grades. In line with
this commitment, the Committee has oversight of
compensation across the organisation, including
pay ratios, and considers this when determining
reward outcomes. We continue to voluntarily
disclose the ratio of the CEO’s total remuneration
to that of employees.
The CEO's pay mix is weighted more heavily
towards variable pay to incentivise the
achievement of stretching internal targets and
long-term value creation. This can lead to greater
variability in total remuneration. In contrast, the
typical pay mix of our less senior employees
places more emphasis on fixed pay, to offer
security and certainty, and to meet our
commitment to employees' financial wellbeing.
The ratio has decreased from 75:1 in 2023 to 69:1
in 2024. The reduction in pay ratio has been
influenced by an increase in average total
remuneration amongst all employees. In assessing
the pay ratio, the Committee is confident that the
Company's policy on remuneration is fair and
consistent with our all-employee pay policies.
Advice and support provided to the
Committee
As permitted by its Terms of Reference, the
Committee has engaged the advice and support of
Deloitte LLP (Deloitte) as independent
remuneration consultants at the expense of the
Company. Total fees (excluding VAT) for advice
and support provided to the Committee in 2024
were £74,600 (2023: £121,150). Deloitte was
initially appointed as Adviser to the Committee
following a formal tender process conducted in
2015 and was reappointed after a further tender
process in 2022.
In 2024, Deloitte also provided unrelated tax,
advisory, risk, assurance and consulting services
to Santander UK.
Deloitte's independence and effectiveness as the
Committee adviser is reviewed annually. The
Committee is satisfied that the Deloitte
engagement partner and team that provides
remuneration advice to the Committee do not have
connections with Santander UK that may impair
their independence. Deloitte is a founding member
of the Remuneration Consultants Group and
voluntarily operates under the Code of Conduct in
relation to executive remuneration consulting in the
UK.
By Committee invitation, the Chair, CEO and
designated representatives from business
functions attend meetings as appropriate to
advise on HR, Risk, Legal and Regulatory matters
in support of the Committee's work. Attendees
included the Chief People Officer, Head of
Performance Reward, CRO and
Company Secretary.
|
CEO pay ratio
|
||||
|
Methodology
(1)
|
25th percentile
|
Median
|
75th percentile
|
|
|
2024 CEO pay ratio
(5)
|
Option A
|
99:1
|
69:1
|
40:1
|
|
2023 CEO pay ratio
(4)
|
Option A
|
106:1
|
75:1
|
45:1
|
|
2022 CEO pay ratio
|
Option A
|
119:1
|
84:1
|
48:1
|
|
2021 CEO pay ratio
|
Option A
|
140:1
|
96:1
|
54:1
|
|
2020 CEO pay ratio
|
Option A
|
88:1
|
64:1
|
37:1
|
|
CEO remuneration
(3)
|
25th percentile
(2)
|
Median
(2)
|
75th percentile
(2)
|
|
|
2024 CEO pay ratio
|
£
|
£
|
£
|
£
|
|
Total salary
|
£1,575,000
|
£26,359
|
£36,553
|
£56,604
|
|
Total remuneration
|
£3,160,709
|
£32,087
|
£46,108
|
£78,352
|
|
(1)
|
Employee pay is calculated based on the 'Option A' methodology. We chose Option A as it gives the most reliable and accurate result by calculating a comparable single figure for each employee.
|
|
(2)
|
Employee pay data is based on full time equivalent pay for Santander UK plc employees. This excludes a small number of employees in the rest of the Santander UK group. Including those employees results
in a ratio consistent with the above. For each employee, total remuneration is calculated based on fixed pay accrued in the 2024 financial year, and variable pay is either based on actual bonuses in respect of
the 2024 year (where these are available) or modelled target bonuses where actuals are not yet available.
|
|
(3)
|
The CEO's total remuneration is aligned to that disclosed in the Executive Directors' remuneration table on the previous page.
|
|
(4)
|
The 2023 ratios are re-stated above. These were originally calculated based on fixed pay accrued within the 2023 year, in addition to target bonuses for eligible employees. The 2023 ratios have now been
recalculated using 2023 fixed pay and bonuses paid in 2024 in respect of 2023 for all employees.
|
|
(5)
|
The values used for the CEO's 2024 Variable Pay Plan awards are the same as those stated in the Executive Directors’ remuneration table i.e. the component which is not subject to performance conditions is
used for the CEO pay ratio calculation above. The calculation also includes the vesting value of Transformation Incentive Plan awards made to the CEO, as shown in the Executive Directors' remuneration
table.
|
|
Relative importance of spend on pay
|
|||
|
2024
|
2023
|
Change
|
|
|
£m
|
£m
|
%
|
|
|
Profit before tax
|
1,349
|
2,100
|
(36)
|
|
Total employee costs
|
1,277
|
1,241
|
3
|
|
Annual Report 2024
|
Santander UK plc
|
32
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Remuneration implementation report
continued
|
|
Chair and Non-Executive Director
remuneration
The Chair’s fee is reviewed and approved by the
Committee. The fees paid to NEDs are reviewed
and approved by the CEO and the Chair. Fees are
reviewed annually taking into account the market
rate and time commitment for the role. The Chair is
paid an all-inclusive base fee. NEDs are paid a
base fee, with a supplement for serving on or
chairing a Board Committee, except for the Board
Nomination Governance Committee.
All NEDs and the Chair serve under letters of
appointment. In respect of the NEDs appointed
prior to 2021, either party can terminate the
appointment by giving three months’ written notice.
From 2021, we increased the notice period for
NEDs to six months to support orderly succession
planning. For the Chair, 12 months’ written notice is
required.
Neither the Chair nor the NEDs have the right to
compensation on the early termination of their
appointment beyond payments in lieu of notice at
the discretion of Santander UK. In addition, neither
the Chair nor the NEDs are eligible for pension
scheme membership or to participate in any
variable incentive arrangements.
|
Chair and Board Committee member fees
|
||
|
2024
|
2023 (2)
|
|
|
£000
|
£000
|
|
|
Chair (inclusive of membership fee)
|
725
|
725
|
|
Board member
|
100
|
100
|
|
Additional responsibilities
|
||
|
Senior Independent Director
|
45
|
45
|
|
Chair of Board Risk Committee
|
70
|
70
|
|
Chair of Board Audit Committee
|
70
|
70
|
|
Chair of Board Responsible Banking Committee
|
60
|
60
|
|
Chair of Board Remuneration Committee
|
60
|
60
|
|
Membership of Board Risk Committee
|
35
|
35
|
|
Membership of Board Audit Committee
|
30
|
30
|
|
Membership of Board Responsible Banking Committee
|
30
|
30
|
|
Membership of Board Remuneration Committee
|
30
|
30
|
|
Chair of Board Special Projects Committee
(1)
|
30
|
15
|
|
Membership of Board Special Projects Committee
(1)
|
15
|
-
|
|
Consumer Duty Champion
|
8
|
8
|
|
Designated NED to represent views of the workforce
|
8
|
8
|
(1)
With effect from 1 December 2024, the Litigation and Contentious Regulatory Board Sub-Committee was renamed and is now known as the Board Special Projects Committee. In addition, the Chair fee
increased from £15,000 to £30,000 and a membership fee of £15,000 was introduced.
(2)
Fees shown were with effect from 1 April 2023.
|
2024
Fees
|
2023
Fees
|
2024
Expense
s (8)
|
2023
Expenses
|
2024
Benefits
|
2023
Benefits
|
2024
Total
|
2023
Total
|
|
|
Non-Executive Directors
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
|
Chair
|
||||||||
|
William Vereker
(1)
|
725
|
712
|
—
|
—
|
2
|
2
|
727
|
714
|
|
Independent Non-Executive Directors
|
||||||||
|
Lisa Fretwell
|
224
|
204
|
—
|
—
|
—
|
—
|
224
|
204
|
|
Ed Giera
|
299
|
299
|
—
|
—
|
—
|
—
|
299
|
299
|
|
David Gledhill
(2)
|
65
|
—
|
—
|
—
|
—
|
—
|
65
|
—
|
|
Michelle Hinchliffe
(3)
|
229
|
124
|
—
|
—
|
—
|
—
|
229
|
124
|
|
Mark Lewis
(9,10)
|
257
|
230
|
—
|
—
|
—
|
—
|
257
|
230
|
|
Nicky Morgan
(10)
|
241
|
233
|
—
|
—
|
—
|
—
|
241
|
233
|
|
David Oldfield
(4)
|
18
|
—
|
—
|
—
|
—
|
—
|
18
|
—
|
|
Jose Maria Roldan
(5)
|
188
|
97
|
—
|
—
|
5
|
—
|
193
|
97
|
|
Banco Santander Group nominated Non-Executive Directors
(6)
|
||||||||
|
Pedro Castro e Almeida
(7)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Dirk Marzluf
(10)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Pamela Walkden
|
109
|
132
|
—
|
—
|
—
|
—
|
109
|
132
|
(1)
William Vereker's taxable benefit relates to private health care.
(2)
David Gledhill was appointed on 1 September 2024. Fees are in respect of services from that date.
(3)
Michelle Hinchliffe was appointed on 1 June 2023. Fees received are in respect of services from that date.
(4)
David Oldfield was appointed on 1 December 2024. Fees received are in respect of services from that date.
(5)
José María Roldan was appointed on 1 June 2023. Fees received are in respect of services from that date. Taxable benefits relate to professional tax advice.
(6)
With the exception of Pamela Walkden, none of the Banco Santander nominated Non-Executive Directors received any fees or expenses.
(7)
Pedro Castro E Ameida was appointed on 1 September 2023. Fees are in respect of services from that date.
(8)
Only true business expenses have been incurred in the course of Non-Executive Directors’ duties. In prior years, these expenses were processed via payroll and as such attracted tax and were declared.
(9)
Mark Lewis' fees include £10,000 in relation to his services as a Non-Executive Director of Santander Consumer (UK) plc.
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Introduction
The Directors submit their report together with the
financial statements for the year ended
31
December 2024
. The information in the Directors’
Report is unaudited, except where indicated.
Corporate structure, Subsidiaries and
Branches
The Company (incorporated on
12 September
1988
) is a subsidiary of
Santander UK Group
Holdings plc whose ultimate parent is
Banco
Santander SA, a Spanish retail and commercial
bank with a market share in ten core countries in
Europe and the Americas.
Santander UK was formed from two former
building societies, Abbey National and Alliance
Leicester, together with the branch network and
savings business of Bradford Bingley, and has
operated under a single brand since 2010.
All of Santander UK
plc's
ordinary shares are
unlisted and held
by Santander UK Group
Holdings plc, which is a wholly owned subsidiary of
Banco Santander SA.
The Company’s
preference shares are listed on
the London Stock Exchange and
both the
Company and Santander UK
Group Holdings
plc
have other equity instruments in the form of AT1
securities listed on various securities exchange
markets, including the London Stock Exchange.
In addition, the Company and Santander UK
Group Holdings
plc are subject to US Securities
Exchange Act reporting requirements as they have
debt securities listed on the New York Stock
Exchange.
The Santander UK
group consists of a parent
company, Santander UK
plc, incorporated in
England and Wales, and a number of directly and
indirectly held subsidiaries and associates. The
Company directly or indirectly holds 100% of the
issued ordinary share capital of its principal
subsidiaries. All companies operate principally in
their country of incorporation or registration.
In line with the ring-fencing requirements set out in
the Financial Services (Banking Reform) Act 2013,
Santander UK plc and its subsidiaries consist of
only entities whose business is permitted under the
Act as a ring-fenced bank.
For more information,
see Note
18
.
Results and dividends
For details of the results for the year, see the
Income Statement in the Consolidated Financial
Statements. For more on dividends, see Note
10
.
Details of Santander UK’s activities and business
performance in
2024
, together with an indication of
the outlook, are set out in the Strategic report.
Events after the balance sheet date
There have been no material post balance sheet
events, except as set out in Note
41
.
Directors
A list of the Directors that served in the year can be
found in the Board and Board Committee
Attendance table in the Chair's report on Corporate
Governance. Details of their emoluments and
interests in shares are set out in the Remuneration
implementation report. For more on changes to the
composition of the Board, see the Chair’s report on
Corporate Governance
.
Between
31 December 2024
and
7 March 2025
,
the
following was noted:
–
Following regulatory approval, Enrique Labiano
was appointed as an Executive Director on the
Board on 12 February 2025.
–
On 28 January 2025, William Vereker
announced his intention to step down as Chair
of the Board once a thorough appointment
process and handover has been completed.
Appointment and retirement of Directors
All Directors are appointed and retire in
accordance with the Company’s Articles of
Association, the UK Companies Act 2006 and the
UK Group Framework. The Directors are required
to retire each year at the Annual General Meeting
and may offer themselves for re-election.
Directors’ indemnities
Directors’ and Officers’ liability insurance cover was
in place throughout the year, in addition to a deed
of indemnity to provide cover to the Directors for
liabilities to the maximum extent permitted by law.
These remain in force for the Directors’ period of
office from the date of appointment until such time
as any limitation periods for bringing claims against
the Directors have expired. The Directors,
including former Directors who resigned in the
year, benefit from these deeds of indemnity which
constitute qualifying third party indemnity
provisions for the purposes of the Companies Act
2006. Deeds for existing Directors are available for
inspection at the Company’s registered office.
The Company has also granted an indemnity
which constitutes ‘qualifying third party indemnity
provisions’ to the Directors of its subsidiary and
affiliated companies, including former Directors
who resigned in the year and since the year-end.
Qualifying pension scheme indemnities were also
granted to the Trustees of the Santander UK
group’s pension schemes.
Employees
We continue to ensure that Santander UK’s
remuneration policies are consistent with its
strategic objectives and are designed with its long-
term success in mind.
Communication
Santander UK aims to involve and inform
employees on matters that affect them. The
intranet is a focal point for communications and the
‘AskHR’ website connects employees to all the
information they need about working for Santander
UK. We also use face-to-face communication,
such as team meetings and roadshows for
updates.
Santander UK regularly considers employees’
opinions and asks for their views on a range of
issues through regular engagement and surveys.
For more on colleague engagement and initiatives,
see the Strategic report
.
Employee Designated Non-Executive Director
Lisa Fretwell is Santander UK's Employee
Designated NED and represents the views of
employees in the Boardroom. For more
information, see the Stakeholder voice section in
the Strategic Report.
Consultation with Employees
Santander UK has a successful history of working
in partnership with its recognised trade unions,
Advance and the Communication Workers Union
(CWU), who collectively negotiate on behalf of
approximately 99.5% of our UK workforce. Both
trade unions are affiliated to the Trades Union
Congress. We consult Advance and the CWU on
significant proposals including those relating to
change across the business at both national and
local levels.
Employee share ownership
Santander UK continues to operate two all-
employee, HMRC approved share schemes: a
Save-As-You-Earn (Sharesave) Scheme and a
Share Incentive Plan (SIP). Those employees who
are designated as Material Risk Takers receive
part of their annual bonus awards in Banco
Santander SA shares/share linked instruments.
Details of the plans and the related costs and
obligations can be found in the Share-based
payments and compensation sections in Notes 1
and
35
.
Inclusive culture
Information on our diversity and inclusion policies,
as required by UK regulation, can be found in
the
Chair's report on Corporate Governance
of this
Annual Report.
Disability
Santander UK is committed to equality of
employment, access and quality of service for
disabled people and complies with the UK Equality
Act 2010 throughout its business operations. We
have processes in place to help train, develop,
retain and promote employees with disabilities,
and we are a Disability Confident Employer
achieving the 'Leader' level. We are committed to
giving full and fair consideration to employment
applications by disabled people, having regard to
their particular aptitudes and abilities, and for
continuing the employment of employees who
have become disabled by arranging appropriate
training and making reasonable adjustments in the
workplace.
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Directors' report
continued
|
|
Engagement with stakeholders and
employees
Santander UK recognises the importance of
fostering relationships with its principal
stakeholders and that this is key to the long-term
success of our business. We understand the
importance of acting fairly and responsibly and
actively engage with our stakeholders and
employees. For more, see the Stakeholder voice
section in the Strategic Report
.
Streamlined Energy Carbon Reporting
(SECR)
For details on our energy use, carbon emissions
and efficiency measures implemented in
2024
,
including Scope 1, 2 and 3 data, see the SECR
section in the Sustainability review.
Political contributions
In
2024
and
2023
, no contributions were made for
political purposes and no political expenditure was
incurred by the Company.
Share capital
Details about the structure of the Company’s
capital can be found in Note
31
.
For details of employee share schemes and how
rights are exercisable, see Note
35
.
The powers of the Directors in relation to share
capital are set out in the Company’s Articles of
Association. These are available for inspection on
request.
Financial instruments
The financial risk management objectives and
policies of Santander UK and the policy for
hedging, along with details of Santander UK's
exposure to credit risk, market risk and liquidity risk
are set out in the Risk review.
Research and development
Santander UK has a comprehensive product
approval process and policy. New products,
campaigns and business initiatives are reviewed
by Santander UK’s Proposition Approval Forum.
Supervision and regulation
The Company is authorised by the PRA and
regulated by the FCA and the PRA (dual
regulated).
Some of
its
subsidiaries and joint
venture companies are
also
authorised by the FCA
and the PRA (dual regulated) or the PRA or the
FCA (solo regulated).
While Santander UK operates primarily in the UK,
it is also subject to the laws and regulations of
other jurisdictions in which it operates or has listed
debt securities such as the US.
Internal controls
Risk management and internal controls
The Board and its Committees are responsible for
reviewing and ensuring the effectiveness of
management’s system of risk management and
internal controls.
We carried out a robust assessment of the
principal and emerging risks facing Santander UK
including those that would threaten its business
model, future performance, solvency or liquidity.
Details of our principal risks, our procedures to
identify emerging risks, and how these are being
managed or mitigated are set out in the Risk
review.
A summary of our Top and Emerging Risks
is also set out in the Strategic report.
Management’s report on internal control over
financial reporting
Internal control over financial reporting is a
component of an overall system of internal control.
Santander UK’s internal control over financial
reporting is designed to provide reasonable
assurance regarding the reliability of financial
reporting and the preparation of financial
statements for external purposes in accordance
with UK-adopted international accounting
standards (IAS) and International Financial
Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Santander UK’s internal control over financial
reporting includes:
–
Policies and procedures that pertain to the
maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and
dispositions of assets.
–
Controls providing reasonable assurance that
transactions are recorded as necessary to permit
the preparation of financial statements in
accordance with UK-adopted IAS and IFRS, and
that receipts and expenditures are being made
only in accordance with authorisations of
management.
–
Controls providing reasonable assurance
regarding prevention or timely detection of
unauthorised acquisition, use or disposition of
assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. In addition, projections of any
evaluation of effectiveness to future periods are
subject to the risk that controls may become
inadequate because of changes in conditions, or
because the degree of compliance with policies or
procedures may deteriorate.
Management is responsible for establishing and
maintaining adequate internal control over the
financial reporting of Santander UK. Management
assessed the effectiveness of Santander UK’s
internal control over financial reporting at
31
December 2024
based on the criteria established
in the Internal Control – Integrated Framework
issued by the Committee of Sponsoring
Organisations of the Treadway Commission
(COSO) in May 2013.
As a registrant under the US Securities Exchange
Act of 1934, Santander UK's management is
responsible for establishing and maintaining an
adequate system of internal control over financial
reporting in order to ensure the accuracy and
reliability of Santander UK's Financial Statements
and the Form 20-F submitted to the SEC.
In line with COSO and SEC requirements, controls
recognised as Sarbanes-Oxley applicable are
subject to annual testing and certification by
management including an attestation by the CEO
and the CFO that they are operating effectively and
that the internal control over financial reporting can
be relied on.
All Sarbanes-Oxley control weaknesses identified
are captured, assessed and included in the year-
end assessment of the reliability of the Internal
Control environment. They are reported on an
ongoing basis to the Board Audit Committee to
ensure the control environment is continuously
improved.
Based on this assessment, management
concluded that, at
31 December 2024
, Santander
UK’s internal control over financial reporting was
effective.
Disclosure controls and procedures over
financial reporting
Santander UK’s management has evaluated, with
the participation of its CEO and CFO, the
effectiveness of its disclosure controls at
31
December 2024
. There are inherent limitations to
the effectiveness of any system of disclosure
controls and procedures, including the possibility of
human error, and the circumvention or overriding
of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can
only provide reasonable assurance of achieving
their control objectives.
Based upon this evaluation, the CEO and the CFO
concluded that, at
31 December 2024
, Santander
UK’s disclosure controls and procedures were
effective to provide reasonable assurance that
information required to be disclosed by Santander
UK in the reports that it files and submits under the
US Securities Exchange Act of 1934 is recorded,
processed, summarised and reported within the
time periods specified in the applicable rules and
forms, and that it is accumulated and
communicated to Santander UK’s management,
including the CEO and CFO, as appropriate, to
allow timely decisions regarding disclosure.
Changes in internal control over financial
reporting
There were no changes to our internal control over
financial reporting during the period covered by this
report that have materially affected, or are
reasonably likely to materially affect, our internal
control over financial reporting.
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Directors' report
continued
|
|
Statements of Compliance
The UK Corporate Governance Code 2018 (the
Code)
Santander UK complies with the Code wherever
applicable in order to achieve the best standards of
corporate governance.
The Code applied to the
financial year ended
31 December 2024
and the
Board confirms that it applied the principles and
complied with those provisions of the Code
throughout the year, except as follows:
–
Provision 10: For 2024, there were no
circumstances which were likely to impair an
INED's independence. Ed Giera, who has
served on the Board for more than 9 years
(appointed on 19 August 2015) will step down in
March 2025, following an orderly hand over to
his successor.
We are confident that Ed has the
strength of character and integrity to ensure his
independence has not been affected by the
length of his tenure
.
–
Provision 25: The Board Risk Committee (BRC)
was not composed of only INEDs for the period
between 1 January to 1 April 2024 as Pamela
Walkden, a GNED, was a member. We
assessed the implications and believed that the
approach followed was appropriate given our
size and ownership structure and the
experience and expertise that Pamela brought
to the BRC. Pamela resigned from the BRC on
1 April, and we have since been fully compliant
with this provision.
–
Provision 36: Our pension contribution rates for
EDs align with those available to the workforce,
except in exceptional circumstances such as
expatriate arrangements. This is to ensure that
expatriates can continue to maintain home
country pension arrangements.
–
Provision 36: The Board Remuneration
Committee has not developed a policy for post-
e
mployment shareholding requirements.
However, the structure of variable pay for EDs
and other senior executives ensures that they
acquire a meaningful shareholding in Banco
Santander SA which extends for a significant
period post employment. For de
tails, see the
Remuneration policy report.
–
Provisions 40 and 41: Due to commercial
sensitivity, we opted
not to provide all of the
disclosures required by Provision 41. The details
not provided relate to (1) the extent to which
discretion has been applied to remuneration
outcomes and the reasons why and (2) a
description, with examples, of how the
Board
Remuneration Committee
has addressed the
factors in Provision 40 (specifically predictability
as we do not provide the range of possible
values of rewards to individual directors).
Specific engagement does not take place with
the workforce to explain how executive
remuneration aligns with wider company pay
policy. However, an explanation is available for
employees in the Directors’ Remuneration
report. Details of the structure of our
remuneration arrangements and key
considerations of the Board Remuneration
Committee in the year are included in the
Remuneration policy and Remuneration
implementation reports.
UK Finance Disclosure Code for Financial
Reporting
Santander UK’s financial statements for the year
ended
31 December 2024
have been prepared in
compliance with the principles of the UK Finance
Disclosure Code for Financial Reporting.
Going concern
The going concern of Santander UK is reliant on
preserving a sufficient level of capital and
adequately funding the balance sheet. In making
their going concern assessment in connection with
preparing the financial statements, the Directors
considered a wide range of information including
Santander UK’s business and strategic plans, top
and emerging risks, including those associated
with climate change, capital position and liquidity
and funding profile, stress scenarios, and
contingent liabilities, and the reasonably possible
changes in trading performance arising from
potential economic, market and product
developments. The Directors' assessment included
consideration of the potential impacts arising from
mixed signals about the UK's recent economic
performance.
Having assessed this information and the principal
risks and uncertainties, the Directors are satisfied
that the Santander UK group has adequate
resources to continue operations for a period of at
least 12 months from the date the financial
statements were authorised for issue and therefore
consider it appropriate to adopt the going concern
basis of accounting in preparing the financial
statements.
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Code of Conduct
Santander UK is committed to ensuring we hold
ourselves to high ethical standards. This means
adhering to laws, regulations, policies including our
Code of Conduct (which was refreshed in October
2023) and also carrying out business in a
responsible way. High standards of professional
and personal conduct help Santander identify,
manage and respond to risks, create a positive,
collaborative working environment and ensure
positive customer interactions and outcomes.
The Santander Way determines how we deliver on
our purpose, to help people and businesses
prosper. How we deliver that purpose is as
important as the end result. Our conduct and our
culture matters. Our aim is to be the best open
financial services platform by acting responsibly
and earning the lasting loyalty of our colleagues,
customers and communities.
How we do business is intrinsically linked to our
behaviours and values and supports our aim.
Santander UK’s Code of Conduct sets the
standards expected of all colleagues and forms
part of the terms and conditions of employment.
It makes clear our corporate values, our
expectations regarding corporate behaviours and
general principles and standards we expect with
regard to customers, colleagues, conflicts of
interest, data, media and our approach to
sustainability.
There are numerous policies and processes, as
well as support and guidance, that help colleagues
meet these expectations and do the right thing to
ensure Santander UK remains a Simple, Personal
and Fair bank for its colleagues, customers,
shareholders and the communities it serves.
The Code of Conduct applies to all colleagues
including permanent and temporary colleagues as
well as EDs and NEDs. The SEC requires
companies to disclose whether they have a code
of ethics that applies to the CEO and senior
financial officers which promotes honest and
ethical conduct, full, fair, accurate, timely and
understandable disclosures, compliance with
applicable governmental laws, rules and
regulations, prompt internal reporting of violations,
and accountability for adherence to a code of
ethics.
Santander UK meets these requirements through
its Code of Conduct and supporting policies,
including but not limited to the Anti-Bribery and
Corruption Policy, the Whistleblowing Policy, the
FCA’s Principles for Businesses, and the FCA’s
Statements of Principle and Code of Practice for
Approved Persons, with which the CEO and senior
financial officers comply. The Company has not
granted any waivers to its principle executives,
financial or accounting officers.
Copies of these documents are available on
application to Santander UK
plc, 2 Triton Square,
Regent’s Place, London NW1 3AN The Code of
Conduct can be found on our website at
santander.co.uk.
Disclosure of information to Auditors
Each of the Directors at the date of approval of this
report confirms that:
–
So far as the Director is aware, there is no
relevant audit information of which Santander
UK’s auditor is unaware
–
The Director has taken all steps that they ought
to have taken as a Director to make themselves
aware of any relevant audit information and to
establish that Santander UK’s auditor is aware of
that information.
This confirmation is given and should be
interpreted in accordance with the provisions of
Section 418 of the UK Companies Act 2006.
Auditor
PricewaterhouseCoopers LLP will continue in the
office of auditor. A resolution to reappoint them will
be proposed at the Company’s forthcoming Annual
General Meeting.
By Order of the Board
Roz Rule
Company Secretary
7 March 2025
2 Triton Square, Regent’s Place,
London NW1 3AN
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Risk governance
INTRODUCTION
The Risk review consists of unaudited financial information unless otherwise stated. The audited financial information is an integral part of our Consolidated
Financial Statements.
As a financial services provider, managing risk is a core part of our day-to-day activities. To be able to manage our business effectively, it is critical that we
understand and control risk in everything we do. We aim to use a prudent approach, underpinned by advanced risk management techniques to help us deliver
robust financial performance, withstand stresses, and build sustainable value for our stakeholders. We aim to keep a predictable medium-low risk profile,
consistent with our business model. This is key to achieving our strategic objectives.
RISK FRAMEWORK
How we define risk
Risk is any uncertainty about us being able to achieve our business objectives. It covers both financial and non-financial risks (NFRs). NFR is a broad term usually
defined by exclusion, i.e. any risks other than the traditional financial risks of Credit, Liquidity, Capital, Market and Pension, Strategic and business, and
Reputational. Risk can be split into a set of risk types, each of which could affect our results and our financial resources. Enterprise risk is the aggregate view of all
the risk types.
Our Risk Framework sets out how we define, manage and control risk.
Top and emerging risks
Several of our risk types also have Top risks associated with them. We regularly review the Top risks that could impact our business, customers and shareholders,
and they are monitored at each meeting of the Executive Risk Control Committee (ERCC) and Board Risk Committee (BRC). The Top risks we actively monitored
in
2024
are set out in the relevant section of this Risk review and summarised in the 'Top risks' section of the Risk management overview in the Strategic report.
We made further changes to our Top Risks by replacing Inflationary and Supply Chain Pressures with Margin Compression, given that UK headline inflation fell
and markets implied a peak in the Bank Rate. We introduced three more top risks: Resiliency, Payments Transformation, and AI/Machine Learning. In addition, we
removed Ring-Fencing and People risk from Top risks, although we continued to closely monitor human resource impacts as part of Strategic Transformation.
We also regularly review emerging risks that could impact our business, customers and shareholders, with challenge and discussion at the ERCC and BRC.
The identification of emerging risks is co-ordinated by the Risk Division.
A key part of the process is continual scanning of the external environment, focusing on
emerging risk drivers such as: Uncertain Regulatory Agenda, Uncertain Macro-economic and Geopolitical Environment, Markets, Competition and Technology,
and Environmental and Social.
The emerging risks we actively monitored in
2024
are set out in the relevant section of this Risk review
and summarised in the
‘Emerging risks’ section of the Risk management overview in the Strategic report.
Our risk culture and principles
|
Risk Culture Statement
|
|
Santander UK places good customer outcomes at the heart of our decision-making and our people take personal responsibility for doing the right thing. We are
thoughtful about taking risks, meaning we only take risks that we understand, we balance risk and reward when making decisions and are proportionate in our
approach.
|
The Board reviews and approves our Risk Culture Statement every year. Senior executives are responsible for promoting our risk culture from the top. They drive
cultural change and increased accountability across the business. We reinforce our Risk Culture Statement and embed our risk culture in all our business units
through our Risk Framework, Risk Certifications and other initiatives. This includes highlighting that:
–
It is everyone’s personal responsibility to play their part in managing risk
–
We must Identify, Assess, Manage and Report risk quickly and accurately
–
We make risk part of how we assess our people’s performance and how we recruit, develop and reward them
–
Our internal control system is essential to ensure we manage and control risk in line with our principles, standards, Risk Appetite and policies.
As a tangible sign, personal responsibility is such a key part of our risk culture. We use Risk Certifications to confirm how we manage and control risks in line with
our Risk Framework and within our Risk Appetite. As an example, every year, each member of our Executive Committee confirms that they have managed risks
effectively in line with the Risk Framework in the part of the business for which they are responsible. Their certification lists any exceptions and the agreed actions
to be taken to correct them.
Our risk culture programme
We have well established and understood risk management systems and processes, which our people are personally responsible for to identify, assess, manage
and report risk (I AM Risk).
In 2024, as a supplement to our established risk processes, we evolved our approach to risk culture by defining, communicating and ensuring our people are clear
on the Risk behaviours we expect them to adopt. This is defined as RiskPro, which has been adopted across the Santander UK group and aims to support staff in
making risk-based decisions focusing on what is best for our customers and supports our strategy.
We continued to ensure that a mandatory risk objective is part of performance management for everyone. We also ensured that RiskPro and risk behaviours are a
key part of our risk policies, frameworks and processes. In recruitment, we focus on how people behave and think about risk, not just whether they are able to
follow risk processes.
We developed a risk culture maturity self-assessment to support all our people to assess their risk behaviours and to define key solutions where there is a need to
mature. Plans to continue maturing our risk culture will continue into 2025.
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We are committed to the highest standards of corporate governance in every part of our business, including risk management. For details of our governance,
including the Board and its Committees, see the ‘Governance’ section of this Annual Report.
The Board delegates certain responsibilities to Board Level
Committees as needed and where appropriate.
Our risk governance structure strengthens our ability to identify, assess, manage and report risks, as follows:
–
Committees:
A number of Board and Executive committees are responsible for specific parts of our Risk Framework
–
Key senior management roles:
A number of senior roles have specific responsibilities for risk management
–
Risk organisational structure:
We have the ‘three lines of defence’ model built into the way we run our business.
Committees
The Board and Board Level Committee responsibilities for risk are:
|
Board Level Committee
|
Main risk responsibilities
|
|
The Board
|
–
Has overall responsibility for business execution and for managing risk
|
|
–
Reviews and approves the Risk Framework and Risk Appetite
|
|
|
Board Risk Committee (BRC)
|
–
Assesses the Risk Framework and recommends it to the Board for approval
|
|
–
Advises the Board on our overall Risk Appetite, tolerance and strategy
|
|
|
–
Oversees our exposure to risk and our strategy and advises the Board on both
|
|
|
–
Reviews the effectiveness of our risk management systems and internal controls
|
|
|
–
Reviews reports from the Chief Compliance Officer (CCO) on the adequacy and effectiveness of the compliance function
|
|
|
–
Responsible for oversight of cybersecurity risks and receives regular updates on cybersecurity risk position including
cybersecurity incidents
|
|
|
–
Receives regular updates on economic crime compliance and risks including money laundering, bribery and corruption and
sanctions compliance, and monitors KPIs in line with approved Board risk appetite
|
|
|
Board Responsible Banking
Committee
|
–
Responsible for culture and operational risk from conduct, compliance, competition legal matters
|
|
–
Ensures that adequate and effective control processes are in place to identify and manage reputational risks
|
|
|
–
Oversees our Sustainability and Responsible Banking programme and how it impacts on employees, communities, the
environment including sustainability and climate change, reputation, brand and market positioning
|
|
|
–
Reviews updates on key risk issues, customer, reputational and conduct matters
|
|
|
Board Audit Committee
|
–
Monitors and reviews the financial statements integrity, and any formal announcements on financial performance
|
|
–
Reviews the adequacy and effectiveness of the internal financial controls and whistleblowing arrangements
|
|
|
–
Monitors and reviews the effectiveness of the internal audit function
|
|
|
–
Receives regular updates from the internal audit function, including on its reviews of cybersecurity risk and controls
|
|
|
–
Oversees the independence and performance of the external auditors
|
|
|
Board Remuneration Committee
|
–
Oversees implementation of remuneration policies, ensuring they promote sound and effective risk management
|
|
Board Special Projects
Committee
|
–
Formed in 2024 and focuses on special projects and transformation matters
|
|
–
Oversees the Financial Crime Remediation Programme
|
The Executive Level Committee responsibilities for risk are:
|
Executive Level Committee
|
Main risk responsibilities
|
|
Executive Committee (ExCo)
|
–
Reviews business plans in line with our Risk Framework and Risk Appetite before they are sent to the Board to approve
|
|
–
Receives updates on key risk issues managed by CEO-level committees and monitors the actions taken
|
|
|
Senior Management Committee
|
–
Focuses on the responsibilities of the Executive Committee Senior Management Function holders and how they are discharged
|
|
–
Reviews updates on key risk issues, customer, reputational and conduct matters
|
|
|
Executive Risk Control
Committee (ERCC)
|
–
Reviews Risk Appetite proposals before they are sent to the BRC and the Board to approve
|
|
–
Ensures that we comply with our Risk Framework, Risk Appetite and risk policies
|
|
|
–
Reviews and monitors our risk exposures and approves any corrective steps we need to take
|
|
|
Asset and Liability Committee
(ALCO)
|
–
Reviews liquidity risk appetite (LRA) proposals
|
|
–
Ensures we measure and control structural balance sheet risks, including capital, funding and liquidity, in line with the policies,
strategies and plans set by the Board
|
|
|
–
Reviews and monitors key asset and liability management activities to ensure we keep our exposures within our Risk Appetite
|
|
|
Capital Committee
|
–
Puts in place reporting systems and risk control processes to make sure capital risks are managed within our Risk Framework
|
|
–
Reviews capital adequacy and capital plans, including the ICAAP, before they are sent to the Board to approve
|
|
|
Incident Accountability
Committee
|
–
Considers, calibrates, challenges and agrees any appropriate individual remuneration adjustments
|
|
–
Presents recommendations to the Board Remuneration Committee
|
|
|
Credit Approval Committee
|
–
Approves corporate and wholesale credit transactions which exceed levels delegated to lower level forums or individuals
|
|
Economic Crime Committee
|
–
Ensures due reporting, consideration, oversight and informed decision making regarding compliance with financial crime laws
and regulations, fraud, and best industry practice aligned to our Risk Appetite
|
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Key senior management roles
Senior roles with specific responsibilities for risk management are:
|
Role
|
Main risk responsibilities
|
|
Chief Executive Officer (CEO)
|
The Board delegates responsibility for our business activities and managing risk on a day-to-day basis to the CEO. The CEO proposes
our strategy and business plan, puts them into practice and manages the risks involved. The CEO must also ensure we have a suitable
system of controls to manage risks and report to the Board on them.
|
|
Chief Risk Officer (CRO)
|
Oversees and challenges risk activities, and ensures that the business activity is conducted within our risk appetite. Responsible for
control and oversight of all risk types with regulatory responsibility to report on these risk types to Executive and Board Committees.
|
|
Chief Financial Officer (CFO)
|
Responsible for developing strategy, leadership and management of the CFO Division. The CFO is responsible for managing interest
rate, liquidity, pension and capital risks. The CFO also aims to maximise the return on Regulatory and Economic Capital.
|
|
Chief Internal Auditor (CIA)
|
Designs and uses an audit system that identifies the main risks and evaluates controls. The CIA also develops an audit plan to assess
existing risks that involve producing audit, assurance and monitoring reports.
|
|
Chief Compliance Officer
(CCO)
|
Responsible to the CRO for control and oversight of conduct regulatory, reputational and economic crime risk, but has direct
responsibility to report on conduct regulatory and reputational risk to Executive and Board Committees and the regulator.
|
|
Money Laundering Reporting
Officer (MLRO)
|
Responsible to the CCO for control and oversight of economic crime risk but has regulatory responsibility to report on this risk type to
Executive and Board Committees and the regulator.
|
Risk organisational structure
We use the ‘three lines of defence’ model to manage risk. This model is widely used in the banking industry and has a clear set of principles to put in place a
cohesive operating model across an organisation. It does this by separating risk management, risk control and risk assurance.
The reporting lines to the Board
with respect to risk are as follows:
|
Line 1: Risk management
|
|
Business Units and Business Support Units identify, assess and manage the risks which originate and exist in their area, within our Risk Appetite. It is under the
executive responsibility of the CEO.
|
|
Line 2: Risk control oversight
|
|
Risk Control Units are independent monitoring, control and functions. They make sure Business Units and Business Support Units manage risks effectively and
within our Risk Appetite. The Risk Control units are: Risk – responsible for credit, liquidity, capital, market, pension, strategic and business, operational, model
and enterprise risks; Economic Crime; and Compliance, responsible for reputational and conduct and regulatory risks. It is under the executive responsibility of
the CEO, but responsible to the CRO for overseeing the first line of defence.
|
|
Line 3: Risk assurance
|
|
Internal Audit is an independent corporate function. It gives assurance on the design and effectiveness of our risk management and control processes. It is
responsible to the CIA.
|
Internal control system
Our Risk Framework is an overarching view of our internal control system that helps us manage risk across the business. It sets out at a high level the principles,
standards, roles and responsibilities, and governance for internal control. Our Risk Framework covers the categories below:
|
Category
|
Description
|
|
Risk Frameworks
|
Set out how we should manage and control risk across the business, our risk types and our risk activities.
|
|
Risk Management Responsibilities
|
Set out the Line 1 risk management responsibilities for Business Units and Business Support Units.
|
|
Strategic Commercial Plans
|
Plans produced by business areas, at least annually, which describe the forecasted objectives, volumes and risk profile of
new and existing business, within the limits defined in our Risk Appetite.
|
|
Risk Appetite
|
See our Risk Appetite section that follows.
|
|
Delegated Authorities/Mandates
|
Define who can do what under the authority delegated to the CEO by the Board.
|
|
Risk Certifications
|
Business Units, Business Support Units or Risk Control Units set out each year how they managed/controlled risks in line
with our risk frameworks and Risk Appetite, and explain any action to be taken. This helps drive personal accountability.
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RISK APPETITE
How we control the risks we are prepared to take
When our Board sets our strategic objectives, it is important that we are clear about the risks we are prepared to take to achieve them. We express this through
our Risk Appetite Statement, which defines the amount and kind of risk we are willing to take. Our Risk Appetite and strategy are closely linked, and our strategy
must be achievable within the limits set out in our Risk Appetite.
Our Risk Appetite Statement establishes principles that we use to set our Risk Appetite and
defines our overall approach to risk management.
How we describe the limits in our Risk Appetite
Our Risk Appetite sets out detailed limits across all types of risk, using metrics and qualitative statements.
Metrics
We use metrics to set limits across most risk types including a set of metrics focused on losses, capital, liquidity and concentration. We set:
–
Limits for losses for our most important risks, including credit, market, operational and conduct risk
–
Capital limits, reflecting both the capital that regulators expect us to hold (regulatory capital) and our own internal measure economic capital (EC)
–
Liquidity limits according to a range of plausible stress scenarios for our business
–
Concentration limits, to determine the maximum concentration level that we are willing to accept.
These limits apply in normal business conditions, but also when we might be experiencing a far more difficult economic environment. We refer to conditions like
this as being under stress.
For more on EC and stress scenarios, see the Stress Testing section that follows.
Qualitative statements
For some types of risk, we also use qualitative statements that describe in words the appetite we want to set.
We also use them to prohibit or restrict exposure to
certain sectors, types of customer and activities.
How we set our Risk Appetite, and stay within it
We control our Risk Appetite through our Risk Appetite Framework. Our Board approves and oversees our Risk Appetite Statement every year. This ensures it is
consistent with our strategy and reflects changes in the markets and economic environment in which we operate.
Our ERCC
is responsible for ensuring that our
risk profile (the level of risk we are prepared to accept) is consistent with our Risk Appetite Statement. To do this, they monitor our performance against our Risk
Appetite
, business plans and budgets.
We also use stress testing to review how our business plan performs against our Risk Appetite Statement. This shows us if we would stay within our Risk Appetite
under stress conditions. It also helps us to identify any adverse trends or inconsistencies.
We embed our Risk Appetite by setting more detailed risk limits for each business unit and key portfolios. These are set in a way so that if we stay within each
detailed limit, we will stay within our overall Risk Appetite. When we use qualitative statements to describe our appetite for a risk, we link them to lower-level risk
indicators, so that we can monitor and report our performance against them.
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STRESS TESTING
Stress testing helps us understand how different events and economic conditions could affect our business plan, earnings and risk profile. This helps us plan and
manage our business.
Scenarios for stress testing
To see how we might cope with difficult conditions, we regularly develop challenging scenarios that we might face. We consult a broad range of internal
stakeholders, including Board members, when we design and choose our most important scenarios. The scenarios cover a wide range of outcomes, risk factors,
time horizons and market conditions. They are designed to test:
–
The impact of shocks affecting the economy as a whole or the markets we operate in
–
Key potential vulnerabilities of our business model, and the processes and systems which support it
–
Potential impacts on specific risk types.
We describe each scenario using a narrative setting out how events might unfold, as well as a market and/or economic context. For example, the key economic
factors we reflect in our ICAAP scenarios include house prices, interest rates, unemployment levels, inflation, and the size of the UK economy. We also explore
sensitivities around several macro variables where there may be concerns or levels of uncertainty.
In 2024, we developed the capability to perform long-horizon climate risk assessments through our Climate Internal Scenario Assessment (CISA) programme.
Using these bespoke models, we explored Baseline and Disorderly Transitional scenarios
. In addition, the Bank of England (BoE) cancelled the Annual Cyclical
Scenario and ran an internal stress test exercise instead. The purpose of this exercise was to explore a 'tail risk' scenario designed to be severe and broad
enough to assess the resilience of the UK banks to a range of adverse shocks.
Uses of stress testing
We use stress testing to estimate the effect of these scenarios on our business and financial performance, including:
–
Our business plan, and its assessment against our Risk Appetite
–
Our capital strength, through our ICAAP
–
Our liquidity position, through our ILAAP
–
Our long term impacts of climate change, through regulatory exercises and CISA
–
Impacts on other risk types.
We use a wide range of models, approaches and assumptions supported by robust governance. These help us interpret the links between factors in markets and
the economy, and our financial performance. For example, one model looks at how changes to key macroeconomic variables like unemployment rates might
affect the number of customers who might fall into arrears on their mortgage or other loans.
Our stress testing models are subject to a formal review, independent validation and approval process. We highlight the key weaknesses and related model
assumptions in the approval process for each stress test. In some cases, we overlay expert judgement onto the results of our models. Where this is material to the
outcome of the stress test, the approving governance committee reviews it. We take a multi-layered approach to stress testing to capture risks at various levels.
This ranges from sensitivity analysis of a single factor to a portfolio, to wider exercises that cover all risks across our entire business. We use stress test outputs to
design business plans that aim to mitigate potential impacts of possible stress scenarios.
We also conduct reverse stress tests. These are tests in which we identify and assess scenarios that are most likely to cause our business model to fail.
Board oversight of stress testing
The ERCC reviews the design of the scenarios in our ICAAP, ILAAP and CISA. The BRC reviews the scenarios and stress test assumptions and approves the
stress testing framework. The Board reviews stress test outputs as part of the approval processes for the ICAAP, ILAAP, Bank Recovery and Resolution Directive
(BRRD), Risk Appetite and regulatory stress tests.
Regulatory stress tests
We take part in a number of external stress testing exercises. These can include stress tests of the UK banking system conducted by the PRA and the BoE. We
also contribute to stress tests of Banco Santander conducted by the European Banking Authority (EBA).
For more on capital and liquidity stress testing, see the ‘Capital risk’ and ‘Liquidity risk’ sections.
HOW RISK IS DISTRIBUTED ACROSS OUR BUSINESS
Economic capital
As well as assessing how much regulatory capital we need to hold, we use an internal EC model to measure our risk. We use EC to get a consistent measure
across different risk types. EC also takes account of how concentrated our portfolios are, and how much diversification there is between our various businesses
and risk types. As a consequence, we can use EC for a range of risk management activities. For example, we can use it to help us compare requirements in our
ICAAP or to get a risk-adjusted comparison of income from different activities.
Regulatory capital – risk-weighted assets
We hold regulatory capital against our credit, market and operational risks. In
2024
, over half of our total risk-weighted assets accounted for credit risk in Retail
Business Banking. This reflects our business strategy and balance sheet.
For more on this, see ‘Risk-weighted assets’ in the ‘Capital risk’ section.
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Overview
Credit risk is the risk of financial loss due to the default or credit quality deterioration of a
customer or counterparty to which we provided credit, or for whom we have assumed a
financial obligation.
In this section, we describe our key credit risks, including our exposures in each of our
business segments, and how we manage credit risk across the credit risk lifecycle. We
discuss our ECL approach and the key inputs to our ECL model. We then analyse our
key metrics, credit performance and forbearance.
|
Key metrics
Stage 3 ratio of
Loss allowances of
£
Balance weighted average LTV of
mortgage lending.
|
||||
Exposures
(audited)
|
Retail Business Banking
|
Consumer Finance
|
Corporate Commercial Banking
|
Corporate Centre
|
|
In Mortgages:
–
Residential mortgages for customers
with good credit quality (prime
lending).
–
We provide these mostly for owner-
occupiers, with buy-to-let mortgages
for non-professional landlords.
In Everyday Banking:
–
Unsecured lending to individuals, such
as loans, credit cards and overdrafts.
–
Unsecured lending to businesses with
annual turnover up to £6.5m and
simpler borrowing needs such as
loans, credit cards and overdrafts.
|
–
Financing for cars, vans, motorbikes
and leisure vehicles through
Santander Consumer (UK) plc
(SCUK).
–
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).
|
–
Loans, overdrafts, treasury services,
invoice finance, trade and supplier
finance.
–
We provide these to SMEs and mid-
sized corporates typically with annual
turnover up to £500m, Commercial
Real Estate and Social Housing
customers.
|
–
Asset and liability management of our
balance sheet.
–
Exposures include financial institutions
(derivatives and other treasury
products), structured products, and
sovereign and supranational assets
chosen for diversification and liquidity.
|
CREDIT RISK MANAGEMENT
We manage our portfolios across the credit risk lifecycle, from formulating our risk strategy and planning, through assessment and origination, monitoring, arrears
management and debt recovery. We make sure the actual risk profile of our exposures stays in line with our business plans and within our Risk Appetite. We tailor
the way we manage risk to the type of product and regularly review our approach and refine it when we need to.
1. Risk strategy and planning
(
audited)
Relevant areas of the business work together to create our business plans. We consider our strategy, goals, and financial and technical resources alongside our
Risk Appetite. This involves focusing 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 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. When a customer applies, we assess the data they provide, plus data from credit reference agencies (for Retail
Business Banking and Consumer Finance) and performance on their other Santander UK accounts (if they have any) against our Credit Policy.
Retail Business Banking
In Mortgages, we assess affordability by reviewing the customer’s 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’ skill and experience.
In Everyday Banking and Business Banking, many of our decisions are automated. We assess affordability by reviewing the customer’s income and spending,
including other credit commitments and adjusting for future inflation and expected interest rates.
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Credit risk mitigation
|
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 under its Coronavirus Loan Schemes as collateral, covering 100% of
losses for the Bounce Back Loan Scheme (BBLS) and 80% for Coronavirus Business Interruption Loan Scheme (CBILS).
|
Consumer Finance
In Consumer Finance, similar to Retail Business Banking, many decisions are automated and we tailor the process to the product. Residual value risk is one of
our top risks
and these exposures are set using forward looking market data, at the level of vehicle derivative by age and anticipated mileage. This data is
obtained from a third party.
Credit risk mitigation
|
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, using our internal rating scale (see ‘Credit quality’ in ‘Santander UK group level – credit risk review’ section). To do this,
we look at the customer’s 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 aim to support 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 aim, by 2030 we will aim to 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
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 obtain 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
(CRE)
|
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’s experience and creditworthiness. Before advancing the loan and where
appropriate, a bank representative visits the property. We also obtain 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.
|
Credit risk mitigation
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.
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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.
–
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 ‘Country risk exposures’.
–
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 concentration, and relevant limits set by Banco Santander. We analyse committed exposures in the ‘Credit risk review’ section that follows.
Retail Business Banking
We use IT systems and data available to us to monitor accounts. The main parts are:
–
Behavioural scoring:
we use statistical models that help predict whether a customer will have problems repaying, based on how they use their accounts
–
Credit reference agencies:
we often use data from agencies on how the borrower is handling credit from other lenders in our behaviour scoring models
–
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 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 tool that monitors the most
relevant macroeconomic variables to retail portfolio performance 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 review our retail risk management policy and strategy.
We also 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’s 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’s 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 they remain appropriate for the customer's financial situation.
Consumer Finance
In Consumer Finance, customer accounts are monitored via IT systems and data. The Retail Risk framework ensures that our portfolio keeps within agreed
thresholds. Residual value risk is regularly checked, enabling us to spot any change in market trends.
Corporate Commercial Banking and Corporate Centre
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:
–
Enhanced monitoring: for less urgent cases. We monitor these cases more often and where appropriate may consider more collateral.
–
Proactive 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 ‘Significant Increase in Credit Risk (SICR)’ 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 consider 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 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 where we believe they may benefit from some support. We assess the financial difficulties a customer is having in order to offer
them the right support to manage their agreement whilst in arrears. The strategies we use depend on the risk and the customer’s unique circumstances with
tailored support being provided.
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’ 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.
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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 Business Banking
In Mortgages and Everyday Banking, we may use a debt collection agency, sell the debt, or take the customer to court. For residential 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, we usually have an asset by way of a motor vehicle secured to the agreement. We will seek to recover this asset if we are unable to
rehabilitate the customer, or they remain in arrears with no contact. Like Retail Business Banking, we may also use a debt collection agency or a specialist law
firm to recover any subsequent 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.
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.
|
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. In selected
instances, we may offer term extensions for interest only loans that are past the point of product maturity. This will typically be where no viable
repayment solution has been identified for the outstanding capital balance, and legal enforcement activity is not deemed to be appropriate to
the customer's circumstances.
|
|
Interest-only
|
Historical interest-only payments due to financial difficulties are classed as forborne.
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 mortgage 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. We may agree an arrangement to pay less than the Contractual Monthly Payment (including zero) for a short period of time
where they are experiencing temporary financial difficulties.
For credit card and bank account customers, we may agree to suspend fees and/or interest for a short period of time where they are
experiencing temporary financial difficulties. A refinance of a personal loan over a longer term to reduce the contractual monthly payment may
be agreed, where a customer is showing signs of financial difficulties. The interest rate remains the same, or the closest lower rate available.
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’s cash flow – 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 SICR, as we explain in the ‘Significant Increase in Credit Risk (SICR)’ section 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
just over 1% of active mortgage account stock. Mortgage Charter support solutions are not automatically classed as forbearance, unless other forbearance criteria
are met.
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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
|
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The customer has no other material default debt with us more than 90 days past due
|
||
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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
|
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|
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 a borrower fails to meet the post forbearance contractual obligations during probation, the loan is classified as Stage 3 and the probation period is reset.
Other forms of debt management and modifications
Retail Business Banking
In Mortgages, apart from forbearance, we have sometimes changed the contract terms to keep a good relationship with a customer. In Mortgages and Everyday
Banking, we do not classify insolvency solutions for any unsecured retail customers as forbearance. This is in line with industry guidelines.
Consumer Finance
We do not classify insolvency solutions for any unsecured retail customers as forbearance. This is in line with industry guidelines.
Corporate Commercial Banking and Corporate Centre
|
Action
|
Description
|
|
Waiving or changing
covenants
|
If a borrower breaks a covenant, we can either waive it or change it, taking their latest and future financial position into account. We may
also add a condition on the use of any surplus cash (after operating costs) to pay down their debt to us.
|
|
Asking for more collateral
or guarantees
|
If a borrower has unencumbered assets, we may accept more collateral in return for revised financing terms. We may also take a
guarantee from companies in the same group and/or major shareholders. We only do this where we believe the guarantor can meet their
commitment.
|
|
Asking for more equity
|
Where a borrower can no longer pay the interest on their debt, we may accept fresh equity capital from new or existing investors to change
the capital structure in return for better terms on the existing debt.
|
We measure and control credit risk at all stages across the credit risk lifecycle. We have a range of tools, processes and approaches.
Retail Business Banking and Consumer Finance
These businesses involve managing large numbers of accounts, so they produce a significant amount of data. This allows us to take a more analytical and data
intense approach to measuring risk. This is reflected in the wide range of statistical models we use across the credit risk lifecycle. We use:
–
Risk strategy and planning:
econometric models
–
Assessment and origination:
application scorecards, and attrition, pricing, loss allowance and capital models
–
Monitoring:
behavioural scorecards and profitability models
–
Arrears management:
models to estimate the proportion of cases that will result in possession (known as roll rates)
–
Debt recovery:
recovery models.
We assess and review our loss allowances regularly. We look at factors such as the cash flow available to service debt. We also use an agency to value any
collateral – mainly mortgages.
Corporate Commercial Banking and Corporate Centre
We measure the credit risk on treasury products by adding their potential future exposure to market movements over their lives to their fair value. Then we add it
to any other exposure and measure the total against our credit limits for each client.
We assess our loss allowances regularly by looking at factors such as the
cash flow available to service debt and the value of collateral based on third-party professional valuations.
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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.
|
|
|
We assess each facility’s 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.
|
|
|
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.
|
|
|
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’s credit quality. The rest of the 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.
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 SICR since the origination date. Our ECL approach for portfolio assessments uses models that
consider forward-looking data on
economic scenarios, including a range of possible outcomes, which are unbiased and probability-weighted to reflect the risk of a loss being incurred even when it
is unlikely. In some cases, we need to apply Judgemental Adjustments to our model outputs. We use internal credit ratings for corporate borrowers and individually
assess corporate Stage 3 exposures.
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 judgemental 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.
For all our portfolios,
we use forward-looking economic scenarios.
During
2024
, we reduced the forward looking economic scenarios to four by removing the
stubborn inflation scenario as inflation has returned to more normalised levels.
They now consist of a central base case, one upside scenario and two downside
scenarios. We use these scenarios to reflect a wide range of possible outcomes for the UK economy.
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’s 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 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 2024, there were no significant differences between our
base case forecasts and the consensus views.
In 2024, we undertook a further peer benchmarking analysis of the economic scenarios, which for Q424 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.
In 2024, 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 four different scenarios is designed to reflect different possible outcomes to the base case, highlighting the upside and downside risks associated with
the central scenario.
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Our forecasting period for GDP is five years and we use the OGEM 25 year model for the outer years, post five year forecast. This is a change to the methodology
from 2023 and it was adopted in Q124. As part of this, we set a floor on the unemployment rate at 4% to ensure that the long-term view is near to the Non-
Accelerating Inflation Rate of Unemployment set out by the Bank of England in its annual supply side review.
Key changes to our forecasting approach in
2024
In
2024
, we made two changes to our forecasting approach. We moved from five to four scenarios which saw the removal of the stubborn inflation scenario due to
inflation becoming more stable as it reaches target, negating the need for a specific scenario. We also moved from using mean reversion for the forecasts beyond
five years to using the 25 year OGEM output. This removes the need to make any assumptions regarding the length of time to mean revert.
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 2025 shows an economy that is growing with the stimulus from the October 2024 Budget helping to boost GDP.
There is above target inflation due to this stimulus and other government measures, but Bank Rate continues to fall gradually, supporting businesses and
households. However, downside risks to the outlook remain particularly around geopolitical tensions and potential productivity gains.
|
Base case key macroeconomic assumptions
|
|
GDP:
The UK economy slowed in Q324 with growth of 0.1% quarter-on-quarter. It was always likely that a slow-down from the above average quarterly growth rates of H124 would
happen, but with weak PMIs as well there is a concern that the economy will stagnate in Q424. However, Q324 GDP did see rising consumer spending and strong gains for business
investment as such we would expect that post-Budget growth will pick up, although some underlying weakness means the economy growing at levels similar to those experienced pre-
pandemic, rather than the stronger growth needed to help repair the UK’s finances. For 2025 we would expect to see stronger growth caused by the increase in government spending
given the measures announced in the October 2024 Budget, although this may crowd out some business investment and with a higher tax burden this may impact both investment
and private consumption. Over the longer term the key issue for growth remains productivity and without a boost to this growth will remain at the average pre-pandemic levels of 1.4%.
|
|
Bank Rate:
The Monetary Policy Committee (MPC) lowered rates twice in 2024 to 4.75%. Our base case assumes a further 100bps of cuts which takes Bank Rate to 3.75% by the
end of 2025, with further reductions into the medium term leaving the terminal rate at 3.25% in Q127. This is slightly higher than our previous forecast due to the increased inflation
expected as a result of the October 2024 Budget.
|
|
House price growth:
House prices grew in 2024, helped in part, by falling mortgage rates. However, the outlook for 2025 is likely to see a slow-down in house price growth due to
higher swap rates which has pushed up mortgage rates in Q424. As always, the key to house price growth is the supply of housing which continues to be weak. This along with the
steady fall in interest rates should ensure steady house price growth over the forecast period. We forecast a c.3% year-on-year growth in house prices by the end of 2025 and
remaining at this growth rate for the rest of the forecast period.
|
|
Unemployment rate:
Recent data for unemployment indicates that there is a slow loosening of the labour market. However, caution needs to be taken as the unemployment data is
still subject to problems with the ONS Labour Force Survey data. In terms of the forecast the peak in unemployment comes in 2025, with the possibility of more redundancies as firms
face higher employment costs as a result of the National Insurance Contributions (NIC) increase for employers. The rate then drops back to 4.2% (current Bank of England prediction
for the natural rate of unemployment) in 2026. This accords with the better growth outlook, but also reflects the fact that the structure of the UK labour market changed with a large drop
in the number of working age people looking for work, thus reducing supply. Although progress may be made in reducing medical waiting lists over the forecast period to boost supply.
|
|
CRE price growth:
After falling for seven quarters in a row, CRE prices stabilised in Q224 and rose by 0.3% quarter-on-quarter in Q324 in a sign of the sector turning around after two
years of falling prices. Cuts in Bank Rate boosted prices and this looks set to continue in Q424 following the November 2024 bank rate cut. In addition, with more workers return to the
office this may help boost the flagging office sector. We expect prices to continue to rise throughout the forecast period as Bank Rate is reduced before growth stabilises around the 2%
year-on-year mark.
|
In the medium-term, the projections assume that current demographic and productivity trends will continue, causing a reduction in the UK’s 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’s latest estimate of the UK’s long run
average growth rate.
Key changes to our base case in
2024
For our base case, we no longer expect a short recession given that the economy has been more resilient than previously expected in 2023. For the other macro-
economic variables, the changes made to the base case compared to 2023 included stronger house price inflation for 2024 reflecting the better economic
conditions and slightly lower unemployment for 2024. However, risks to the base case remain with potential for rising geopolitical risks affecting the UK economy.
Our base case scenario incorporates stronger economic growth in 2025, from increased government spending and four Bank Rate cuts of 25bps over the year. It
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 increases stronger than predicted in 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) a slower recovery that is more akin to the ‘U’ shape of past recessions; (ii) labour market frictions due to skills mismatches and a shrinking workforce
as some discouraged workers leave altogether (for example longer-term sickness levels remaining above pre-pandemic levels); (iii) fragmentation of the global
economy in particular changes and additional frictions to supply chains; and (iv) the global economy recovering more swiftly from higher inflation.
To reflect these potential outcomes, we use the base case and three additional scenarios, which we consider sufficient to reflect all the above potential outcomes.
As with the base case, the scenarios are forecast over a five-year period with the OEGM 25 year model used to determine the forecasts after this period with a
floor on unemployment set at 4%.
The other scenarios are:
One upside scenario
This scenario has a quicker recovery in growth than the Baseline and is a bull case to the base forecasts. It assumes that inflation falls slightly below target at the
start of the forecast period helped by lower wage growth, however it does rise back to 2% over the period. This allows the Bank of England to cut rates faster than
the base case, bringing them back towards what might be considered the neutral rate earlier. This results in higher consumer and business confidence enabling
higher levels of spending and investment, with savings rates returning to levels consistent with economic growth as real earnings growth returns. In this scenario
GDP remains stronger than the base case along with house price growth. Unemployment falls to 4% slightly below the base case and inflation dips below target in
2026 before ending the forecast period at target.
Two downside scenarios
The downside scenarios capture the impact of weaker investment, the increasing risk from geopolitical events and the ongoing significant mismatch between job
vacancies and skills, as well as a smaller labour force.
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Downside 1
– In this scenario, the economy contracts and although the recession is small and short lived, the recovery is weak and below potential. The
measures announced in the Budget, in particular the increase in NICs for employers means growth is tempered and employment shrinks as businesses
restructure to deal with the extra cost along with increased minimum wage and changes to workers' rights. Consumers opt to save more rather than spend which
affects the recovery path, as consumer confidence is low in part due to concerns about the unstable geopolitical environment and the increase in lay-offs as
businesses restructure. The global economy is affected by a combination of factors, such as commodity prices becoming increasingly volatile due to geopolitical
events and the potential impact of additional tariffs. This affects global inflation which negatively impacts UK trade and hinders a return to growth.
Downside 2
– This scenario shows a marked fall in GDP, with rising unemployment and falling house prices reflecting the ongoing issues of a higher interest rate
environment. There is a longer lagged effect from monetary policy tightening and lower growth and productivity, which feeds across the whole economy. It also
reflects the increase in geopolitical risk which affects market sentiment and causes further fragmentation of the global economy. It also assumes that major risk
events continue to occur, exposing the vulnerability of countries' fiscal positions and the means to respond to such events. Unemployment peaks at 8.5% and,
although, there are some inflationary pressures from changing trade patterns, the sharp fall in demand means inflation falls below target and allows the MPC to
cut rates sharply from Q125 to stabilise demand. With inflation falling below target and lower interest rates this eases some of the pressures on the UK economy
and growth picks up in the medium-term.
Key changes to our alternative scenarios in
2024
In 2024, we removed the Stubborn inflation scenario (Downside 3) from the suite of scenarios we run. This was because inflation fell significantly and the risks of
inflation increasing above 3% and remaining at levels above this was no longer considered to need a separate scenario. The scenario was not replaced as we
already have two downside scenarios reflecting the risks to the UK economy including inflation being above target and with higher interest rates compared to base
case. It was not deemed necessary to have a further upside scenario given the limited upside risk to the UK economy. In addition, the use of four scenarios is in
line with many of our peers.
Despite mixed signals about the UK's recent economic performance, which may impact the path of the Bank Rate, our scenarios continue to capture a broad
range of forecasts.
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Upside
|
Base case
|
Downside 1
|
Downside 2
|
Weighted
|
||
|
%
|
%
|
%
|
%
|
%
|
||
|
GDP
(1)
|
2023 (actual)
|
|
|
|
|
|
|
2024
|
|
|
|
|
|
|
|
2025
|
|
|
(
|
(
|
|
|
|
2026
|
|
|
|
(
|
|
|
|
2027
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
2029
|
|
|
|
|
|
|
|
5-year average increase/decrease
(2)
|
|
|
|
|
n/a
|
|
|
Start to trough
(3)
|
n/a
|
n/a
|
(
|
(
|
n/a
|
|
|
Bank Rate
(1)
|
2023 (actual)
|
|
|
|
|
|
|
2024
|
|
|
|
|
|
|
|
2025
|
|
|
|
|
|
|
|
2026
|
|
|
|
|
|
|
|
2027
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
2029
|
|
|
|
|
|
|
|
5-year end period
|
|
|
|
|
n/a
|
|
|
5-year peak
|
|
|
|
|
|
|
|
HPI
(1)
|
2023 (actual)
|
(
|
(
|
(
|
(
|
(
|
|
2024
|
|
|
|
|
|
|
|
2025
|
|
|
(
|
(
|
(
|
|
|
2026
|
|
|
(
|
(
|
|
|
|
2027
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
2029
|
|
|
|
|
|
|
|
5-year average increase/decrease
(2)
|
|
|
|
(
|
n/a
|
|
|
Start to trough
(3)
|
n/a
|
n/a
|
(
|
(
|
(
|
|
|
Unemployment
(1)
|
2023 (actual)
|
|
|
|
|
|
|
2024
|
|
|
|
|
|
|
|
2025
|
|
|
|
|
|
|
|
2026
|
|
|
|
|
|
|
|
2027
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
2029
|
|
|
|
|
|
|
|
5-year end period
|
|
|
|
|
n/a
|
|
|
5-year peak
|
|
|
|
|
|
|
|
CRE price growth
(1)
|
2023 (actual)
|
(
|
(
|
(
|
(
|
(
|
|
2024
|
|
(
|
(
|
(
|
(
|
|
|
2025
|
|
|
(
|
(
|
(
|
|
|
2026
|
|
|
|
(
|
|
|
|
2027
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
2029
|
|
|
|
|
|
|
|
5-year average increase/decrease
(2)
|
|
|
(
|
(
|
n/a
|
|
|
Start to trough
(3)
|
n/a
|
n/a
|
(
|
(
|
(
|
(1)
GDP is the calendar year annual growth rate, HPI and CRE price growth rate is Q4 annual growth rate and all other data points are at 31 December in the year indicated.
(2)
This is the compound annual growth rate (CAGR) based on a 5 year period which represents an average annualised growth rate.
(3)
GDP
,
HPI
and CRE
start is taken from level at Q324.
|
Annual Report 2024
|
Santander UK plc
|
53
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
The table below sets out our macroeconomic assumptions and their evolution throughout the forecast period for each of the scenarios at
31 December 2023
:
|
Upside
|
Base case
|
Downside 1
|
Stubborn
Inflation
|
Downside 2
|
Weighted
|
||
|
%
|
%
|
%
|
%
|
%
|
%
|
||
|
GDP
(1)
|
2022 (actual)
|
|
|
|
|
|
|
|
2023
|
|
|
|
|
|
|
|
|
2024
|
|
|
(
|
(
|
(
|
(
|
|
|
2025
|
|
|
|
(
|
(
|
|
|
|
2026
|
|
|
|
|
|
|
|
|
2027
|
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
|
5-year average increase/decrease
|
|
|
|
(
|
|
n/a
|
|
|
Peak/(trough) at
(2)
|
|
|
(
|
(
|
(
|
(
|
|
|
Bank Rate
(1)
|
2022 (actual)
|
|
|
|
|
|
|
|
2023
|
|
|
|
|
|
|
|
|
2024
|
|
|
|
|
|
|
|
|
2025
|
|
|
|
|
|
|
|
|
2026
|
|
|
|
|
|
|
|
|
2027
|
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
|
5-year end period
|
|
|
|
|
|
n/a
|
|
|
Peak/(trough) at
|
|
|
|
|
|
|
|
|
HPI
(1)
|
2022 (actual)
|
|
|
|
|
|
|
|
2023
|
(
|
(
|
(
|
(
|
(
|
(
|
|
|
2024
|
|
(
|
(
|
(
|
(
|
(
|
|
|
2025
|
|
|
|
|
|
|
|
|
2026
|
|
|
|
|
|
|
|
|
2027
|
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
|
5-year average increase/decrease
|
|
|
(
|
(
|
(
|
n/a
|
|
|
Peak/(trough) at
(2)
|
(
|
(
|
(
|
(
|
(
|
(
|
|
|
Unemployment
(1)
|
2022 (actual)
|
|
|
|
|
|
|
|
2023
|
|
|
|
|
|
|
|
|
2024
|
|
|
|
|
|
|
|
|
2025
|
|
|
|
|
|
|
|
|
2026
|
|
|
|
|
|
|
|
|
2027
|
|
|
|
|
|
|
|
|
2028
|
|
|
|
|
|
|
|
|
5-year end period
|
|
|
|
|
|
n/a
|
|
|
Peak/(trough) at
|
|
|
|
|
|
|
(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.
Each quarter, we review the scenario weights we apply. We consider the weights 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 weight of a scenario, we undertake a Monte Carlo analysis
to estimate the likelihood of a five-year average GDP forecast growth rate occurring based on the long-run historically observed average. We then create a
standard distribution bell curve around this long run average. This allows us to estimate the probability of a given GDP scenario occurring based on past
experience and therefore assign a weight to that scenario. We also consider the UK economic and political environment when applying weights.
|
Upside
|
Base case
|
Downside 1
|
Stubborn
Inflation
|
Downside 2
|
Weighted
|
|
|
Scenario weights
|
%
|
%
|
%
|
%
|
%
|
%
|
|
2024
|
|
|
|
n/a
|
|
|
|
2023
|
|
|
|
|
|
|
2024 compared to 2023
In 2024, we removed the Stubborn Inflation scenario and re-weighted the remaining scenarios as inflation returned to more normalised levels. 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 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.
|
Annual Report 2024
|
Santander UK plc
|
54
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
that suggests the customer is unlikely to pay. The data we have on customers varies across our business segments. It typically includes where:
|
Retail Business Banking and Consumer Finance
|
|
–
They have been reported bankrupt or insolvent and are in arrears
|
|
–
Their loan term has ended, but they still owe us money more than three months later
|
|
–
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
|
|
–
We have suspended their fees and interest because they are in financial difficulties
|
|
–
We have repossessed the property or the asset.
|
|
Corporate Commercial Banking and Corporate Centre
|
|
–
They have had a winding up notice issued, or something happens that is likely to trigger insolvency – such as another lender calls in a loan
|
|
–
Something happens that makes them less likely to be able to pay us – such as they lose an important client or contract
|
|
–
They have regularly missed or delayed payments, even though they have not gone over the three-month limit for default
|
|
–
Their loan is unlikely to be refinanced or repaid in full on maturity
|
|
–
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
|
|
–
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:
–
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).
–
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.
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 subject to 12-month ECL. We assess the credit risk profile of each
facility to determine which of three stages to allocate them to:
–
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
–
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
–
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
needed. For more, see the section ‘Definition of default (Credit impaired)’ 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.
Key changes in
2024
In
2024
, alongside our new ECL models, we updated our SICR criteria to enhance and improve consistency across portfolios. As a result, we now treat the
following accounts as Stage 2:
Quantitative:
–
Accounts with a 12-month PD between 30bps (0.3%) and 2000bps (20%) where the annualised lifetime PD has doubled from origination.
–
PD threshold: Accounts where the annualised lifetime PD has increased above 2000bps (20%).
–
Low Credit Risk Exemption (LCRE): we introduced an LCRE where, if the 12-month PD is less than 30bps, we retain the account in Stage 1, unless the
qualitative or backstop criteria are met.
These changes increased the number of accounts in Stage 2 for Credit Cards and Overdrafts mainly due to the lower absolute PD thresholds, with no material
increase in ECL.
Qualitative:
–
For mortgages, over-indebted customers and Interest-only accounts 24 months pre-maturity.
–
For CCB, customers operating in a high-risk sector.
These enhancements enabled us to retire related JAs.
|
Annual Report 2024
|
Santander UK plc
|
55
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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.
The criteria for
2024
and
2023
were: accounts above the lower absolute PD thresholds
below, where the PD has doubled since origination, are treated as Stage 2. Any account above the upper threshold (i.e. 20%) is also treated as Stage 2:
|
Retail Business Banking
|
Consumer
Finance
(2)
|
Corporate
Commercial
Banking
|
Corporate Centre
|
||||
|
Mortgages
|
Everyday Banking
(1)
|
||||||
|
Personal loans
|
Credit cards
|
Overdrafts
|
|||||
|
2024
|
|
|
|
|
|
|
Internal rating
|
|
2023
|
|
|
|
|
|
|
Internal rating method
|
(1)
For larger business banking customers, we apply the same criteria as we use for CCB. Credit cards and Overdrafts lower PD thresholds aligned with the rest of Everyday Banking for consistency.
(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. In
addition, Consumer Finance does not apply the upper absolute PD threshold criteria.
Qualitative criteria
|
Retail Business Banking
|
Consumer
Finance
|
Corporate
Commercial Banking
|
Corporate Centre
|
|||
|
Mortgages
|
Everyday Banking
(1)
|
|||||
|
Personal loans
|
Credit cards
|
Overdrafts
|
||||
|
– In forbearance
– Default in last 24m
– 30 Days Past Due (DPD) in
last 12m
– Bankrupt
– £100+ arrears
New in 2024:
– Over-indebted customers
– Interest Only accounts 24m
pre-maturity
|
– In Collections
– Default in last 12m
– £50+ arrears
|
– In forbearance
– Default in last 12m
– In Collections
– £100+ arrears
– Behaviour score
indicators
|
– Fees suspended
– Default in last 12m
– Debit dormant 35
days
– Any excess in month
|
– In forbearance
– Deceased or
Insolvent
– Court ‘Return of
goods’ order or
Police watchlist
– Agreement
terminated
– Payment holiday
– Cash Collection
|
– In forbearance
– Default in last 12m
– Watchlist: proactive
management
– Default at proxy
origination
New in 2024:
– Customers in a high-
risk sector
|
– Watchlist: proactive
management
|
(1)
For larger business banking customers, we apply the same criteria that we use for Corporate Commercial Banking.
If needed, we apply additional qualitative assessments as part of JAs in response to situations where known or expected risk factors and data are not considered
in the modelling process. See 'Judgemental Adjustments (JAs)' below for more on this.
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 we
no longer consider them to have suffered a SICR. 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 ‘Forbearance’ in the 'Credit risk' section of the
Risk review.
|
Annual Report 2024
|
Santander UK plc
|
56
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
comparisons against forecasts, and inputs from expert teams who manage key portfolio risks. We only recognise a JA if its expected impact is over
£
1
m
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 Business Banking
|
|||||||
|
Everyday Banking
|
Consumer
Finance
|
Corporate
Commercial
Banking
|
Corporate
Centre
|
Total
|
|||
|
Mortgages
|
Credit Cards
|
Other
|
|||||
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Modelled ECL
|
|
|
|
|
|
|
|
|
Individually assessed
|
|
|
|
|
|
|
|
|
ECL before JAs
|
|
|
|
|
|
|
|
|
JAs (excluding Affordability and Cost of Living JAs)
|
|||||||
|
Unsecured PD adjustments
|
|
|
|
|
|
|
|
|
Mortgages LGD
|
|
|
|
|
|
|
|
|
Corporate single large exposure
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total JAs (excluding Affordability and Cost of Living
JAs)
|
|
|
|
|
|
|
|
|
Affordability and Cost of Living JAs
|
|||||||
|
Corporate lending to segments affected by supply chain
pressures
|
|
|
|
|
|
|
|
|
Mortgage refinancing risk
|
|
|
|
|
|
|
|
|
SME debt burden
|
|
|
|
|
|
|
|
|
Total Affordability and Cost of Living JAs
|
|
|
|
|
|
|
|
|
Total JAs
|
|
|
|
|
|
|
|
|
Total ECL
|
|
|
|
|
|
|
|
|
Total JAs as a percentage of Total ECL (%)
|
|
||||||
|
2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Modelled ECL
|
|
|
|
|
|
|
|
|
Individually assessed
|
|
|
|
|
|
|
|
|
ECL before JAs
|
|
|
|
|
|
|
|
|
JAs (excluding Affordability and Cost of Living JAs)
|
|||||||
|
Long-term indeterminate arrears
|
|
|
|
|
|
|
|
|
12+ months in arrears
|
|
|
|
|
|
|
|
|
UPL loss floor
|
|
|
|
|
|
|
|
|
Model underestimation
|
|
|
|
|
|
|
|
|
Corporate single large exposure
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
(
|
|
(
|
|
Total JAs (excluding Affordability and Cost of Living
JAs)
|
|
|
|
|
(
|
|
|
|
Affordability and Cost of Living JAs
|
|||||||
|
Corporate lending to segments affected by supply chain
pressures
|
|
|
|
|
|
|
|
|
Secured affordability
|
|
|
|
|
|
|
|
|
Unsecured affordability
|
|
|
|
|
|
|
|
|
Mortgage refinancing risk
|
|
|
|
|
|
|
|
|
SME debt burden
|
|
|
|
|
|
|
|
|
Total Affordability and Cost of Living JAs
|
|
|
|
|
|
|
|
|
Total JAs
|
|
|
|
|
|
|
|
|
Total ECL
|
|
|
|
|
|
|
|
|
Total JAs as a percentage of Total ECL (%)
|
|
|
Annual Report 2024
|
Santander UK plc
|
57
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
–
Unsecured PD Adjustments:
In 2024, we replaced the UPL Loss floor JA with the Unsecured PD Adjustments JA to widen the scope of the JA. We use this
JA to address the perceived macroeconomic insensitivity in our Unsecured Personal Loans (UPL) model and the over sensitivity in our Overdrafts model.
–
UPL – This arises where analysis of historical losses shows a larger correlation to the International Labour Organisation (ILO) unemployment forecast than the
model gives. The JA uplifts the lifetime losses expected in each of the macroeconomic scenarios in the model to align with the expected losses the historical
analysis predicts.
–
Overdrafts – This arises where the ECL model is overly sensitive to Bank Rate changes, leading it to predict extremely high PDs in the early years. The JA
reduces the lifetime losses expected in each of the macroeconomic scenarios in the model to align with the expected losses the historical analysis predicts.
–
Mortgages LGD:
We introduced this JA in 2024. It uplifts the modelled parameters that capture the risk of failed recovery strategies of stage 3 accounts in
default and stage 1 and stage 2 accounts not in default targeting the LGD underestimation flagged by model monitoring, as well as the lower level of coverage
compared to peers in this segment.
–
Corporate single large exposure:
This JA safeguards against individual large exposures defaulting over a short period. We currently use the JA to safeguard
against two historically observed single name large losses in CCB. This JA was used in 2024 for 2 cases. This JA was also replenished in 2024 as it is still
needed as UK corporate insolvencies rose to a 30-year high.
In the current economic environment, the risk of single name defaults, which incur high losses, is
considered greater than before as government support schemes ceased. We continue to assess the 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.
–
Other:
This includes Mortgages and Retail Unsecured and generally consists of small portfolios where the ECL calculation is held outside of the main models.
Affordability and Cost of Living JAs
–
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. This JA calculates
ECL by stressing PD levels for customers in Stage 2 according to each customer's risk profile.
–
Mortgage refinancing risk:
The JA considers the risk of mortgage customers being unable to afford their new mortgage instalment after re-mortgaging at
higher interest rates. 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. We uplift
their PDs to account for the elevated levels of defaults observed for the most recent cohorts of refinanced mortgages.
The JA was designed using some
profiling characteristics of customers that used the Mortgage Charter government scheme as some of those accounts are considered to be at higher risk of
arrears.
–
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 considers the possible impact on repayment of other lending with us.
2024 compared to 2023
In
2024
, we implemented new impairment models for Mortgages and Corporate Commercial Banking, which now embed many of the JAs in place at the end of
2023. In response to the improved economic data, specifically inflation, we reassessed the need for cost of living JAs and retired the Secured and Unsecured
Affordability JAs.
In
2024
, we introduced a new Mortgage LGD JA which uplifts the modelled parameters that capture the risk of failed recovery strategies, for default and non-
default accounts.
In 2024 and 2023, 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 2024 and 2023, we did not consider it appropriate to recognise a climate risk related JA for the following reasons:
–
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;
–
There have been no observed default events or SICRs due to climate change for any part of the loan book;
–
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;
–
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;
–
ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of
five years
, during which timeframe
climate change risks may crystallise;
–
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. This assessment relies upon availability of risk cover from private insurers and FloodRe, respectively. The
potential risk may increase over time if flooding due to climate change increases and/or insurance market circumstances change.
We assign each corporate borrower an internal credit rating based on our internal rating scale. To do this, we look at the customer’s 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.
We assess the ECL requirement for single name corporate exposures on an individual basis when they meet our definition of default and are transferred into
Stage 3. This assessment uses the latest specific data about the counterparty's estimated future cash flows, and collateral valuations, to determine a probability
weighted ECL based on a best, worst and mid case outcome.
For these individually assessed loans, the ECL allowance was
£
162
m
at 31 December 2024 (2023:
£
124
m
). Had management assumed the best or worst outcome for loss estimates, the ECL allowance could have been within a range of
£
63
m
to
£
291
m
.
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|
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Risk review
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Financial statements
|
Shareholder information
|
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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 allowance 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.
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 ECLs 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
|
Downside 2
|
Weighted
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Exposure
|
|
|
|
|
|
|
Retail Business Banking
|
|
|
|
|
|
|
Of which:
|
|||||
|
– Mortgages
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
ECL
|
|
|
|
|
|
|
Retail Business Banking
|
|
|
|
|
|
|
Of which:
|
|||||
|
– Mortgages
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Upside
|
Base case
|
Downside 1
|
Stubborn
Inflation
|
Downside 2
|
Weighted
|
|
|
2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Exposure
|
|
|
|
|
|
|
|
Retail Business Banking
|
|
|
|
|
|
|
|
Of which:
|
||||||
|
– Mortgages
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
|
ECL
|
|
|
|
|
|
|
|
Retail Business Banking
|
|
|
|
|
|
|
|
Of which:
|
||||||
|
– Mortgages
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
ECL reduced by
£123m
, driven by deleveraging of the balance sheet and the improved economic outlook resulting in ECL model releases. The ECL on Credit
Cards increased in the year due to the updated SICR rules. The value of JAs decreased in
2024
due to the implementation of new impairment models for
Mortgages and Corporate Commercial Banking, as well as the releases of the affordability JAs in EDB.
|
Annual Report 2024
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Santander UK plc
|
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Governance
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Risk review
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Financial statements
|
Shareholder information
|
||||||
Given the relative size of our residential mortgage portfolio, management considers that changes in HPI assumptions used to calculate the modelled ECL
allowance for residential mortgages would have the most significant impact on the modelled ECL allowance. The table below shows the modelled 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
|
£m
|
£m
|
£m
|
£m
|
|
2024
|
|
|
(
|
(
|
|
2023
|
|
|
(
|
(
|
2024 compared to 2023
The decrease in modelled ECL sensitivity reflects the new Retail Mortgages impairment model we introduced in
2024
, which shows different economic
sensitivities, as well as portfolio deleveraging. The impairment model assumes a similar loss for low LTV accounts, given the distribution of LTV in the portfolio,
and increases in the HPI exhibit shows less impact on modelled ECL than decreases in HPI.
For our mortgages
and CCB
portfolios, where accounts are not in default at the reporting date, we estimate a quarterly ECL for each exposure and for each
quarter over the forecast period. The lifetime ECL is the sum of the quarterly ECLs over the forecast period, while the 12-month ECL is limited to the first four
quarters. We calculate each quarterly ECL as the discounted value for the relevant forecast month of the product of the following factors:
|
Factor
|
Description
|
|
|
|
|
Probability of default
(PD)
|
The likelihood of a borrower defaulting in the following quarter, assuming it has not closed or defaulted since the reporting date. For each quarter
in the forecast period, we estimate the quarterly PD from a range of factors. These include key risk drivers for the exposure, 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, or sale in the case of retail mortgages, event occurs. We determine EAD for each quarter of the
forecast period by the expected payment profile, which varies by product. For amortising products, we base it on the borrower’s 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 consider 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.
Forward-looking information
Our assessments of a SICR and the calculation of ECL allowances incorporate forward-looking data. We perform historical analysis and identify the key economic
variables that impact credit risk and ECL allowances 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 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 four forward-looking economic scenarios.
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Annual Report 2024
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Santander UK plc
|
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Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Our Risk Methodology team developed our ECL models (except for the external models we use, such as OGEM which we described earlier in ‘Our forecasting
approach’), 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:
–
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.
–
ALCO
reviews and approves the base case used in the economic scenarios we use to calculate forward-looking scenarios.
–
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.
–
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:
–
Benchmarking:
we compare our coverage levels with our peers
–
Stand-back testing:
we monitor the level of our coverage against actual write-offs
–
Back-testing:
we compare key drivers periodically as part of model monitoring practices
–
Monitoring trends:
we track ECL and Staged assets over time and against our internal budgets and forecasts, with triggers set accordingly.
|
Annual Report 2024
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Santander UK plc
|
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|
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|
Strategic Report
|
Sustainability
|
Governance
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Risk review
|
Financial statements
|
Shareholder information
|
||||||
charged to the account yet, unless otherwise stated.
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
|
||||
|
2024
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|||
|
Cash and balances at central banks
|
|
|
|
|
|
|
|
|
|
|
|||
|
Financial assets at amortised cost:
|
|||||||||||||
|
–
Loans and advances to customers:
(3)
|
|||||||||||||
|
–
Residential Mortgages
(4)
|
|
(
|
|
|
|
|
|
(
|
|
|
|||
|
–
Corporate loans
|
|
(
|
|
|
|
|
|
(
|
|
|
|||
|
–
Finance leases
|
|
(
|
|
|
|
|
|
|
|
|
|||
|
–
Accrued interest and other adjustments
|
|
|
|
|
|
|
|
|
|
|
|||
|
–
Other unsecured loans
|
|
(
|
|
|
(
|
|
|
|
|
|
|||
|
–
Amounts due from fellow Banco Santander
group subsidiaries and JVs
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total loans and advances to customers
|
|
(
|
|
|
(
|
|
|
(
|
|
|
|||
|
–
Loans and advances to banks
|
|
|
|
|
|
|
|
|
|
|
|||
|
–
Reverse repurchase agreements – non trading
|
|
|
|
|
|
|
|
(
|
(
|
|
|||
|
–
Other financial assets at amortised cost
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total financial assets at amortised cost
|
|
(
|
|
|
(
|
|
|
(
|
(
|
|
|||
|
Financial assets at fair value at FVOCI:
|
|||||||||||||
|
–
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total financial assets at FVOCI
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total
|
|
(
|
|
|
(
|
|
|
(
|
(
|
|
|||
|
2023
|
|||||||||||||
|
Cash and balances at central banks
|
|
|
|
|
|
|
|
|
|
|
|||
|
Financial assets at amortised cost:
|
|||||||||||||
|
–
Loans and advances to customers:
(3)
|
|||||||||||||
|
–
Residential Mortgages
(4)
|
|
(
|
|
|
|
|
|
(
|
|
|
|||
|
–
Corporate loans
|
|
(
|
|
|
|
|
(
|
(
|
|
|
|||
|
–
Finance leases
|
|
(
|
|
|
|
|
|
(
|
|
|
|||
|
–
Accrued interest and other adjustments
|
|
|
|
|
|
|
|
|
|
|
|||
|
–
Other unsecured loans
|
|
(
|
|
|
(
|
|
|
|
|
|
|||
|
–
Amounts due from fellow Banco Santander
group subsidiaries and JVs
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total loans and advances to customers
|
|
(
|
|
|
(
|
|
(
|
(
|
|
|
|||
|
–
Loans and advances to banks
|
|
|
|
|
|
|
|
|
|
|
|||
|
–
Reverse repurchase agreements – non trading
|
|
|
|
|
|
|
|
(
|
(
|
|
|||
|
–
Other financial assets at amortised cost
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total financial assets at amortised cost
|
|
(
|
|
|
(
|
|
(
|
(
|
(
|
|
|||
|
Financial assets at FVOCI:
|
|||||||||||||
|
–
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total financial assets at FVOCI
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total
|
|
(
|
|
|
(
|
|
(
|
(
|
(
|
|
|||
(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 ‘Credit risk mitigation’ in the ‘Credit risk - Credit risk management’ section.
(3)
Balances include interest we have charged to the customer’s 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–collateralisation (where the
collateral has a higher value than the loan balance) and includes collateral we would receive on draw down of certain off–balance sheet commitments.
|
Annual Report 2024
|
Santander UK plc
|
62
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
impairment requirements in IFRS 9 are not applied.
|
Balance
sheet asset
gross
amount
|
Collateral
(1)
|
Netting
(2)
|
Net
exposure
|
|||
|
Cash
|
Non-cash
|
|||||
|
2024
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
|
Financial assets at FVTPL:
|
||||||
|
–
Derivative financial instruments
|
|
(
|
|
(
|
|
|
|
–
Other financial assets at FVTPL
|
|
|
|
|
|
|
|
Total
|
|
(
|
|
(
|
|
|
|
2023
|
||||||
|
Financial assets at FVTPL:
|
||||||
|
–
Derivative financial instruments
|
|
(
|
|
(
|
|
|
|
–
Other financial assets at FVTPL
|
|
|
|
|
|
|
|
Total
|
|
(
|
|
(
|
|
|
(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 ‘Credit risk mitigation’ in the ‘Credit risk – Credit risk management’ section.
In the table below, we have used a single rating scale to ensure we are consistent across all our credit risk portfolios in how we report the risk of default. It has
eight grades for non–defaulted exposures, from 9 (lowest risk) to 2 (highest risk). We define each grade by an upper and lower PD value and we scale the grades
so that the default risk increases by a factor of ten every time the grade number drops by two steps. For example, grade 9 has an average PD of 0.010%, and
grade 7 has an average PD of 0.100%. We give defaulted exposures a grade 1 and a PD value of 100%
.
In the final column of the table, we show the
approximate equivalent credit rating grade used by Standard Poor’s Ratings Services (SP).
|
Santander UK risk grade
|
PD range
|
|||
|
Mid
|
Lower
|
Upper
|
SP
equivalent
|
|
|
%
|
%
|
%
|
||
|
9
|
|
|
|
AAA to AA+
|
|
8
|
|
|
|
AA to AA-
|
|
7
|
|
|
|
A+ to BBB
|
|
6
|
|
|
|
BBB- to BB
|
|
5
|
|
|
|
BB-
|
|
4
|
|
|
|
B+ to B
|
|
3
|
|
|
|
B-
|
|
2
|
|
|
|
CCC to C
|
|
1 (Default)
|
|
|
|
D
|
The PDs in the table above are based on Economic Capital (EC) PD mappings, calculated based on the average PD over an economic cycle. This is different to
the IFRS 9 PDs which are calculated at a point in time using forward looking economic scenarios. Where possible, the EC PD values are aligned to the regulatory
capital models; however, any regulatory floors are removed and PDs are defined at every possible rating rather than grouped into rating buckets.
|
Annual Report 2024
|
Santander UK plc
|
63
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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)
|
|||
|
2024
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
Exposures - On balance sheet
|
||||||||||
|
Financial assets at amortised cost:
|
||||||||||
|
–Loans and advances to customers
(2)
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 1
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 2
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 3
|
|
|
|
|
|
|
|
|
(
|
|
|
Of which mortgages:
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–Stage 2
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 3
|
|
|
|
|
|
|
|
|
(
|
|
|
Total off–balance sheet
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–Stage 2
|
|
|
|
|
|
|
|
|
(
|
|
|
–Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Santander UK risk grade
|
Total
|
Coverage
Ratio
|
||||||||
|
9
|
8
|
7
|
6
|
5
|
4
|
3 to 1
|
Other
(1)(2)
|
|||
|
2024
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
%
|
|
ECL - On balance sheet
|
||||||||||
|
Financial assets at amortised cost:
|
||||||||||
|
–
Loans and advances to customers
(2)
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Of which mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Total off–balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
64
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Santander UK risk grade
|
Loss
allowance
|
|||||||||
|
9
|
8
|
7
|
6
|
5
|
4
|
3 to 1
|
Other
(1)(2)
|
Total
|
||
|
2023
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
Exposures - On balance sheet
|
||||||||||
|
Financial assets at amortised cost:
|
||||||||||
|
–
Loans and advances to customers
(2)
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
(
|
|
|
Of which mortgages:
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
(
|
|
|
Total off–balance sheet
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
(
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Santander UK risk grade
|
Coverage
Ratio
|
|||||||||
|
9
|
8
|
7
|
6
|
5
|
4
|
3 to 1
|
Other
(1)(2)
|
Total
|
||
|
2023
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
%
|
|
ECL - On balance sheet
|
||||||||||
|
Financial assets at amortised cost:
|
||||||||||
|
–
Loans and advances to customers
(2)
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Of which mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
Total off–balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes Joint Ventures and Business Banking (including BBLs balances)
. We use scorecards for these items, rather than rating models. .
(2)
Includes interest we have charged to the customer’s account and accrued interest we have not charged to the account yet.
|
31 December 2024
|
31 December 2023
|
||
|
%
|
%
|
||
|
Mortgages
|
|
|
|
|
Credit Cards
|
|
|
|
|
UPL
|
|
|
|
|
Overdrafts
|
|
|
|
|
Business Banking
|
|
|
|
|
Consumer Finance
|
|
|
|
|
Corporate Commercial Banking
|
|
|
2024 compared to 2023
Our underlying asset quality remained good, supported by the sale of low return mortgage assets. The improvement in the economic outlook helped drive the
reduction in Stage 2 and 3 assets. While we saw loans in Stage 2 and 3 decrease, we saw an increase in early arrears in 2024 as they returned to more
normalised levels. The decrease in CCB Stage 2 assets was driven by an overall improvement in asset quality.
For more on the credit performance of our key portfolios by business segment, see the credit risk review section for each business segment.
|
Annual Report 2024
|
Santander UK plc
|
65
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
assets measured at amortised cost,
£
9.0
bn of assets measured at FVOCI, and
£
29.9
bn of cash and balances at central banks.
|
Gross Write-offs
|
Stage 1
|
Stage 2
|
Stage 3
|
Total
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Exposures
|
|||||
|
On-balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
|
|
|
|
Off–balance sheet
|
|||||
|
Retail Business Banking
(1)
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total off–balance sheet
(2)
|
|
|
|
|
|
|
Total exposures
|
|
|
|
|
|
|
ECL and Gross write-offs
|
|||||
|
On-balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
|
|
|
|
Off–balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total off–balance sheet
|
|
|
|
|
|
|
Total ECL
|
|
|
|
|
|
|
Coverage ratio
(3)
|
%
|
%
|
%
|
%
|
|
|
On-balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
|
|
|
|
Off–balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total off-balance sheet
|
|
|
|
|
|
|
Total coverage
|
|
|
|
|
(1)
Off-balance sheet exposures include
£
6.1
bn of residential mortgage offers in the pipeline.
(2)
Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note
30
to the
Consolidated Financial Statements
.
(3)
ECL as a percentage of the related exposure.
|
Annual Report 2024
|
Santander UK plc
|
66
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Total on-balance sheet exposures at
31 December 2023
comprised
£
203.1
bn of customer loans, loans and advances to banks of
£
1.1
bn,
£
12.6
bn of sovereign
assets measured at amortised cost,
£
8.5
bn of assets measured at FVOCI, and
£
38.2
bn of cash and balances at central banks.
|
Gross Write-offs
|
Stage 1
|
Stage 2
|
Stage 3
|
Total
|
|
|
2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Exposures
|
|||||
|
On-balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
|
|
|
|
Off–balance sheet
|
|||||
|
Retail Business Banking
(1)
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total off–balance sheet
(2)
|
|
|
|
|
|
|
Total exposures
|
|
|
|
|
|
|
ECL and Gross write-offs
|
|||||
|
On-balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
|
|
|
|
Off–balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Total off–balance sheet
|
|
|
|
|
|
|
Total ECL
|
|
|
|
|
|
|
Coverage ratio
(3)
|
%
|
%
|
%
|
%
|
|
|
On-balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
|
|
|
|
Off–balance sheet
|
|||||
|
Retail Business Banking
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
Total off-balance sheet
|
|
|
|
|
|
|
Total coverage
|
|
|
|
|
|
(1)
Off-balance sheet exposures include
£
3.3
bn of residential mortgage offers in the pipeline.
(2)
Off-balance sheet amounts consist of contingent liabilities and commitments. For more, see Note
30
to the
Consolidated Financial Statements
.
(3)
ECL as a percentage of the related exposure.
The ECL provision at 31 December 2024 decreased by
£123m
to
£869m
(
2023
:
£992m
)
with a change in our economic assumptions and weights, including the
removal of our Stubborn Inflation scenario and the re-weighting of the remaining scenarios in 2024. Following the fall in inflation in 2024, we also released
judgemental adjustments which were originally made to reflect cost of living pressures on customers.
Gross write-off utilisation of
£230m
(
2023
:
£232m
) largely driven by unsecured retail.
Key movements in exposures and ECL allowance in the year by Stage were:
–
Stage 1 exposures reduced, mainly due to lower Mortgage new business. Stage 1 ECL allowance also reduced due to a reduction in Mortgage assets, as well
as the economic assumption and weights updates.
–
Stage 2 exposures reduced, driven by Corporate and Commercial Banking assets moving from Stage 1 to Stage 2 following the implementation of new
impairment models and in Mortgages due to the unwinding of the refinance JAs moving customers back into Stage 1. Stage 2 ECL allowance reduced mainly
due to the economic assumption and weights updates in the year.
–
Stage 3 exposures and ECL allowance reduced in 2024 mainly in Mortgages due to the improved economic outlook and sale of low return mortgage assets in
Q424.
|
Annual Report 2024
|
Santander UK plc
|
67
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
2024
|
Backstop
|
Quantitative
|
Qualitative
|
JAs
|
Total
|
|||
|
30 DPD
|
PD deterioration
|
PD threshold
|
Forbearance
(1)
|
Other
(2)
|
Mortgage
Refinancing
|
|||
|
Retail Business
Banking
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
Of which
-Mortgages
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
Corporate
Commercial Banking
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
Corporate Centre
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
Total Drawn
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
Undrawn
|
ECL £m
|
|
|
|
|
|
|
|
|
Total Reported
|
Exposure £m
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
2023
|
Backstop
|
Quantitative
|
Qualitative
|
JAs
|
Total
|
|||||
|
30 DPD
|
PD
deterioration
|
Forbearance
(1
)
|
Other
|
Secured
affordability
|
Unsecured
affordability
|
Mortgage
Refinancing
|
High risk
corporate
|
|||
|
Retail Business
Banking
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
|
Of which
-Mortgages
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Commercial Banking
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Centre
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
|
Total Drawn
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
|
Undrawn
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
Total Reported
|
Exposure £m
|
|
|
|
|
|
|
|
|
|
|
ECL £m
|
|
|
|
|
|
|
|
|
|
|
(1)
Where the values of ECL and/or exposures are not £nil, but round to £nil when presented in £millions, the coverage ratio is still presented in the table.
(2)
Mainly consists of Qualitative triggers for Mortgages, over-indebted customers c
£
2.5
bn
and Interest-only accounts 24 months pre-maturity c
£
1.3
bn
, and for CCB customers operating in a high-risk sector.
Where balances satisfy more than one of the criteria above for determining a SICR, we have assigned the corresponding gross carrying amount and ECL
|
Annual Report 2024
|
Santander UK plc
|
68
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
||
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Retail Business Banking
(1)
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
|
Total exposures presented in Credit Quality tables
|
|
|
|
|
|
|
|
Joint ventures
|
|
|||||
|
Other items
|
|
|||||
|
Adjusted net carrying amount
|
|
|||||
|
Assets classified at FVTPL
|
|
|||||
|
Non-financial assets
|
|
|||||
|
Total assets per the Consolidated Balance Sheet
|
|
|||||
|
2023
|
||||||
|
Retail Business Banking
(1)
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
|
Corporate Commercial Banking
|
|
|
|
|
|
|
|
Corporate Centre
|
|
|
|
|
|
|
|
Total exposures presented in Credit Quality tables
|
|
|
|
|
|
|
|
Joint ventures
|
|
|||||
|
Other items
|
|
|||||
|
Adjusted net carrying amount
|
|
|||||
|
Assets classified at FVTPL
|
|
|||||
|
Non-financial assets
|
|
|||||
|
Total assets per the Consolidated Balance Sheet
|
|
|||||
(1)
Off-balance sheet exposures include offers in the pipeline
,
undrawn flexible mortgage products
and credit cards
.
|
Annual Report 2024
|
Santander UK plc
|
69
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
|
|
|
|
|
|
|
|
|
Transfers from Stage 1 to Stage 2
(3)
|
(
|
(
|
|
|
|
|
|
|
|
Transfers from Stage 2 to Stage 1
(3)
|
|
|
(
|
(
|
|
|
|
|
|
Transfers to Stage 3
(3)
|
(
|
(
|
(
|
(
|
|
|
|
|
|
Transfers from Stage 3
(3)
|
|
|
|
|
(
|
(
|
|
|
|
Transfers of financial instruments
|
(
|
|
|
(
|
|
|
|
|
|
Net ECL remeasurement on stage transfer
(4)
|
|
(
|
|
|
|
|
|
|
|
Change in economic scenarios
(2)
|
|
(
|
|
(
|
|
|
|
(
|
|
Change to ECL models
|
(
|
(
|
|
|
(
|
(
|
|
|
|
New lending and assets purchased
(5)
|
|
|
|
|
|
|
|
|
|
Redemptions, repayments and assets sold
(7)
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Changes in risk parameters and other movements
(6)
|
|
|
(
|
(
|
|
|
(
|
|
|
Assets written off
(7)
|
|
|
|
|
(
|
(
|
(
|
(
|
|
At 31 December 2024
|
|
|
|
|
|
|
|
|
|
Net movement in the period
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Less: Discount unwind
|
|
|
(
|
(
|
||||
|
Less: Recoveries net of collection costs
|
|
|
(
|
(
|
||||
|
Total ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
At 1 January 2023
|
|
|
|
|
|
|
|
|
|
Transfers from Stage 1 to Stage 2
(3)
|
(
|
(
|
|
|
|
|
|
|
|
Transfers from Stage 2 to Stage 1
(3)
|
|
|
(
|
(
|
|
|
|
|
|
Transfers to Stage 3
(3)
|
(
|
(
|
(
|
(
|
|
|
|
|
|
Transfers from Stage 3
(3)
|
|
|
|
|
(
|
(
|
|
|
|
Transfers of financial instruments
|
(
|
|
|
(
|
|
|
|
|
|
Net ECL remeasurement on stage transfer
(4)
|
|
(
|
|
|
|
|
|
|
|
Change in economic scenarios
(2)
|
|
|
|
(
|
|
|
|
|
|
Change to ECL models
|
|
|
|
|
|
|
|
|
|
New lending and assets purchased
(5)
|
|
|
|
|
|
|
|
|
|
Redemptions, repayments and assets sold
(7)
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Changes in risk parameters and other movements
(6)
|
(
|
(
|
|
(
|
|
|
|
|
|
Assets written off
(7)
|
|
|
|
|
(
|
(
|
(
|
(
|
|
At 31 December 2023
|
|
|
|
|
|
|
|
|
|
Net movement in the period
|
(
|
|
|
(
|
|
|
(
|
(
|
|
ECL (release)/charge to the Income Statement
|
|
(
|
|
|
||||
|
Less: Discount unwind
|
|
|
(
|
(
|
||||
|
Less: Recoveries net of collection costs
|
|
|
|
|
||||
|
Total ECL (release)/charge to the Income Statement
|
|
(
|
|
|
(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.
|
Annual Report 2024
|
Santander UK plc
|
70
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
We manage our country risk exposure under our global limits framework. We set our Risk Appetite 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.
IFRS (i.e. after netting allowed under IAS 32) except for credit provisions which we add back.
Off–balance sheet values are undrawn facilities and letters of credit.
We classify location by country of risk – 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’s 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.
|
2024
|
2023
|
||||||||||||
|
Financial
institutions
|
Financial
institutions
|
||||||||||||
|
Governments
|
Banks
(1)
|
Other
|
Retail
|
Corporate
|
Total
(2)
|
Governments
|
Banks
(1)
|
Other
|
Retail
|
Corporate
|
Total
(2)
|
||
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
||
|
Eurozone
|
|||||||||||||
|
Ireland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belgium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luxembourg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Other countries
|
|||||||||||||
|
UK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jersey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
Mainly
includes
Australia
£
0.3
bn
(
2023
:
£0.3bn
),
Other
OECD
£
0.2
bn
(
2023
:
£
0.2
bn
),
Bermuda
£
0.1
bn
(
2023
:
£
0.1
bn
),
China
£
0.1
bn
(
2023
:
£
0.1
bn
),
Guernsey
£
0.1
bn
(
2023
:
£
0.2
bn
),
Singapore
£
0.1
bn
(
2023
:
£
0.0
bn
),
and
Norway
£
0.1
bn
(
2023
:
£
0.1
bn
).
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 credit risk within limits acceptable to the Board and the PRA.
|
2024
|
2023
|
||||||||
|
Financial institutions
|
Financial institutions
|
||||||||
|
Banks
|
Other
|
Corporate
|
Total
|
Banks
|
Other
|
Corporate
|
Total
|
||
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
||
|
Assets
|
|||||||||
|
Spain
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Liabilities
|
|||||||||
|
Spain
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Annual Report 2024
|
Santander UK plc
|
71
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
We provide detailed credit risk analysis for Retail Business Banking in separate sections below for Mortgages, our largest portfolio, and our Everyday Banking
portfolio.
We offer mortgages to people who want to buy a property and offer additional borrowing (known as further advances) to existing mortgage customers. The
|
Stock
|
New business
|
||||||||||
|
2024
|
2023
|
2024
|
2023
|
||||||||
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
||||
|
Home movers
(1)
|
|
|
|
|
|
|
|
|
|||
|
Remortgagers
(2)
|
|
|
|
|
|
|
|
|
|||
|
First-time buyers
|
|
|
|
|
|
|
|
|
|||
|
Buy-to-let
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||||
|
2024
|
2023
|
||||
|
Internal remortgages (£bn)
(3)
|
|
|
|||
|
Further advances and flexi drawdowns (£bn)
|
|
|
|||
|
First-time buyers - gross lending (£bn )
|
|
|
|||
|
% of customers retained with a maturing mortgage (unaudited)
(4)
|
77
|
77
|
|||
(1)
'Home movers’ 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’ are new customers who are taking a new mortgage with us.
(3)
Internal remortgages are where we moved our customers with maturing mortgages onto new ones.
(4)
Applied to mortgages three months post maturity, and is calculated as a 12-month average of retention rates to September 2024 and December 2023 respectively.
2024 compared to 2023
In
2024
, mortgage asset stock decreased across all sectors, with the stock borrower profile unchanged. Although our new business increased year-on-year in all
sectors, a decision to optimise the balance sheet in a competitively priced market has resulted in us not fully replacing the asset balances lost through repayments
and redemptions.
|
2024
|
2023
|
||||
|
£m
|
%
|
£m
|
%
|
||
|
Fixed rate
|
|
|
|
|
|
|
Of which maturing:
|
|||||
|
–
12 months
|
|
|
|
|
|
|
–
Later than 1 year but no later than 3 years
|
|
|
|
|
|
|
–
Later than 3 years but no later than 4 years
|
|
|
|
|
|
|
–
Later than 4 years but no later than 5 years
|
|
|
|
|
|
|
–
Later than 5 years
|
|
|
|
|
|
|
Variable rate
|
|
|
|
|
|
|
Standard Variable Rate (SVR)
|
|
|
|
|
|
|
Follow on Rate (FoR)
|
|
|
|
|
|
|
|
|
|
|
||
2024 compared to 2023
We continued to see customers refinance from reversion to fixed rate products in 2024, influenced by high interest rates. Demand for fixed rate products
increased, particularly with shorter fixed rate terms.
25%
of mortgages due to reach the end of their incentive period in the next 12 months (
2023
:
22%
).
|
Annual Report 2024
|
Santander UK plc
|
72
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Stock
|
New business
|
||||
|
2024
|
2023
|
2024
|
2023
|
||
|
Region
|
£bn
|
£bn
|
£bn
|
£bn
|
|
|
London
|
|
|
|
|
|
|
Midlands and East Anglia
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Northern Ireland
|
|
|
|
|
|
|
Scotland
|
|
|
|
|
|
|
South East excluding London
|
|
|
|
|
|
|
South West, Wales and other
|
|
|
|
|
|
|
|
|
|
|
||
2024 compared to 2023
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
2.93
(
2023
:
2.98
).
|
Mortgage loan size
|
2024
|
2023
|
|
|
£1.0m
|
|
|
|
|
£0.5m to £1.0m
|
|
|
|
|
£0.25m to £0.5m
|
|
|
|
|
£0.25m
|
|
|
|
|
Average loan size (stock)
(1)
|
£
|
£
|
|
|
Average loan size (new business)
|
£
|
£
|
(1) Average initial advance of existing stock.
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.
|
2024
|
2023
|
||||||||||
|
Stock
|
Stage 3
|
New
|
Stock
|
Stage 3
|
New
|
||||||
|
Total
|
ECL
|
Total
|
ECL
|
Business
|
Total
|
ECL
|
Total
|
ECL
|
Business
|
||
|
LTV
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Up to 50%
|
|
|
|
|
|
|
|
|
|
|
|
|
50-60%
|
|
|
|
|
|
|
|
|
|
|
|
|
60-70%
|
|
|
|
|
|
|
|
|
|
|
|
|
70-80%
|
|
|
|
|
|
|
|
|
|
|
|
|
80-90%
|
|
|
|
|
|
|
|
|
|
|
|
|
90-100%
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Collateral value
(1)
|
|
|
|
|
|
|
|
|
|||
|
%
|
%
|
%
|
%
|
%
|
%
|
||||||
|
Average LTV - Balance weighted
(2)
|
|
|
|
|
|
|
|||||
(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
£
244
m
(
2023
:
£
389
m
).
The balance weighted average LTV of new business in the period in London was
64
%
(
2023
:
65
%
).
2024 compared to 2023
There were no significant changes in collateral quality in 2024. Balanced weighted average LTVs of stock were broadly flat, with a reduction in new business due
to elevated price competition in the market at higher LTVs. We monitor the profile of new lending and act as needed to ensure the LTV mix of completions is in line
with our risk appetite.
|
Annual Report 2024
|
Santander UK plc
|
73
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
2024
|
2023
|
||
|
£m
|
£m
|
||
|
Mortgage loans and advances to customers
|
|
|
|
|
of which:
|
|||
|
–
Stage 1
|
|
|
|
|
–
Stage 2
|
|
|
|
|
–
Stage 3
|
|
|
|
|
Loss allowances
(1)
|
|
|
|
%
|
%
|
||
|
Stage 1 ratio
(2)
|
|
|
|
|
Stage 2 ratio
(2)
|
|
|
|
|
Stage 3 ratio
|
|
|
(1)
The ECL allowance is for both on and off–balance sheet exposures.
(2)
Stage 1/Stage 2 exposures as a percentage of customer loans.
|
Annual Report 2024
|
Santander UK plc
|
74
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Stage 1
|
Stage 2
|
Stage 3
|
Total
|
|||||
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
|
|
|
|
|
|
|
|
|
Transfers from Stage 1 to Stage 2
(3)
|
(
|
(
|
|
|
|
|
|
|
|
Transfers from Stage 2 to Stage 1
(3)
|
|
|
(
|
(
|
|
|
|
|
|
Transfers to Stage 3
(3)
|
(
|
|
(
|
(
|
|
|
|
|
|
Transfers from Stage 3
(3)
|
|
|
|
|
(
|
(
|
|
|
|
Transfers of financial instruments
|
(
|
|
|
(
|
|
(
|
|
|
|
Net ECL remeasurement on stage transfer
(4)
|
|
(
|
|
|
|
|
|
|
|
Change in economic scenarios
(2)
|
|
(
|
|
(
|
|
|
|
(
|
|
Change to ECL models
|
(
|
(
|
|
|
(
|
(
|
|
(
|
|
New lending and assets purchased
(5)
|
|
|
|
|
|
|
|
|
|
Redemptions, repayments and assets sold
(7)
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Changes in risk parameters and other movements
(6)
|
|
|
(
|
(
|
|
|
(
|
|
|
Assets written off
(7)
|
|
|
|
|
(
|
(
|
(
|
(
|
|
At 31 December 2024
|
|
|
|
|
|
|
|
|
|
Net movement in the period
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
ECL (release)/charge to the Income Statement
|
(
|
(
|
(
|
(
|
||||
|
Less: Discount unwind
|
|
|
(
|
(
|
||||
|
Less: Recoveries net of collection costs
|
|
|
|
|
||||
|
Total ECL (release)/charge to the Income Statement
|
(
|
(
|
|
(
|
||||
|
At 1 January 2023
|
|
|
|
|
|
|
|
|
|
Transfers from Stage 1 to Stage 2
(3)
|
(
|
(
|
|
|
|
|
|
|
|
Transfers from Stage 2 to Stage 1
(3)
|
|
|
(
|
(
|
|
|
|
|
|
Transfers to Stage 3
(3)
|
(
|
(
|
(
|
(
|
|
|
|
|
|
Transfers from Stage 3
(3)
|
|
|
|
|
(
|
(
|
|
|
|
Transfers of financial instruments
|
(
|
|
|
(
|
|
|
|
|
|
Net ECL remeasurement on stage transfer
(4)
|
|
(
|
|
|
|
|
|
|
|
Change in economic scenarios
(2)
|
|
|
|
(
|
|
|
|
|
|
Change to ECL models
|
|
|
|
|
|
|
|
|
|
New lending and assets purchased
(5)
|
|
|
|
|
|
|
|
|
|
Redemptions, repayments and assets sold
(7)
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Changes in risk parameters and other movements
(6)
|
|
|
|
(
|
|
|
|
(
|
|
Assets written off
(7)
|
|
|
|
|
(
|
(
|
(
|
(
|
|
At 31 December 2023
|
|
|
|
|
|
|
|
|
|
Net movement in the period
|
(
|
(
|
|
(
|
|
|
(
|
(
|
|
ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Less: Discount unwind
|
|
|
(
|
(
|
||||
|
Less: Recoveries net of collection costs
|
|
|
|
|
||||
|
Total ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Annual Report 2024
|
Santander UK plc
|
75
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Forbearance
(1)
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Financial assets modified in the period:
|
||
|
–
Amortised cost before modification
|
|
|
|
– Net modification loss
|
|
|
|
Financial assets modified since initial recognition:
|
||
|
–
Gross carrying amount of financial assets for which the loss allowance changed to 12 months ECL in the period
|
|
|
|
Capitalisation
|
Term
extension
|
Interest-only
|
Concessionary
interest rate
|
Reduced
repayment
plan
|
Total
|
Loss
allowances
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Stage 2
|
|
|
|
|
|
|
|
|
Stage 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proportion of portfolio
|
|
|
|
|
|
|
|
|
2023
|
|||||||
|
Stage 2
|
|
|
|
|
n/a
|
|
|
|
Stage 3
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
n/a
|
|
|
|
|
Proportion of portfolio
|
|
|
|
|
n/a
|
|
(1)
We base forbearance type on the first forbearance on the accounts.
At
31 December 2024
, the proportion of the mortgage portfolio in forbearance was at
0.9
%
(
2023
:
0.9
%
) and
the proportion of accounts in forbearance for more
than six months that had made their last six months’ contractual payments was
83
%
(
2023
:
81
%
).
The weighted average LTV of all accounts in forbearance was
At
31 December 2024
, the carrying value of mortgages classified as multiple forbearance was
£
9
m
(
2023
:
£
121
m
).
2024 compared to 2023
In 2024, the proportion of the mortgage portfolio in forbearance remained flat. We enhanced our definition of forbearance to include reduced repayment plans, but
this was more than offset by reductions in the balances in other categories of forbearance.
Santander UK supports the Mortgage Charter which was published in July 2023. There were
no
modification gains or losses arising from the Charter.
We have made additional customer support solutions available since then, 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. The following table provides information on such loan modifications.
|
2024
|
2023
|
|||
|
Term Extension
|
Interest-only
|
Term Extension
|
Interest-only
|
|
|
£m
|
£m
|
£m
|
£m
|
|
|
Stage 1
|
|
|
|
|
|
Stage 2
|
|
|
|
|
|
Stage 3
|
|
|
|
|
|
|
|
|
|
|
There were
no
other loan modifications made in
2024
and
2023
.
|
Annual Report 2024
|
Santander UK plc
|
76
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Introduction
We are mainly a residential prime lender and we do not originate sub-prime or second charge mortgages.
Despite that, some types of mortgages have higher
risks and others stand out for different reasons. These are:
|
Product
|
Description
|
|
Interest-only loans
|
With an interest-only mortgage, the customer pays interest every month, but the principal is only repaid at the end of the mortgage
term. Some mortgages have a part that is interest-only, with the rest being a normal repayment mortgage.
We mitigate the risk from new interest-only mortgages by having lower maximum LTVs. For most applicants, the maximum LTV is
50%. For high net worth customers, it can be up to 75%. When a customer plans to repay their mortgage by selling the property,
we require a minimum equity buffer of £300k. We also remind customers that they have to arrange to repay the principal at the
end of the mortgage. We send them messages with their annual mortgage statements, and we contact them throughout the
mortgage term to encourage them to tell us how they plan to repay. We increase the frequency of contact as the loan approaches
maturity. If customers know they will not be able to repay their mortgage when it ends, or if their mortgage has already passed the
date when it should have ended, we talk to them. If we think it is in their interests and they can afford it, we look at other ways to
manage it, such as turning the mortgage into a repayment one and extending it. If the customer is waiting for their way to repay it,
such as an investment plan, to mature, we may permit an extension.
|
|
Part interest-only, part
repayment loans
|
Customers with part interest-only, part repayment mortgages still have to pay back a lump sum at the end of their mortgage for
the interest-only part. This means these loans have a higher credit risk as we depend on the customers to pay back a lump sum.
We design new account LTV maximums to mitigate this risk. We also make sure the customer has a plausible repayment plan
before we lend to them and stays on track for the loan term.
We mitigate the risk from these loans in similar ways to those we use for interest-only mortgages. The maximum LTV for new
loans is 85%. For most applicants, up to 50% of that can be interest-only. For high net worth customers, it can be up to 75%.
When a customer plans to repay the interest-only element of their mortgage by selling the property, we require a minimum equity
buffer of £300k. We manage communications and extension options in similar ways to those we use for interest-only mortgages.
|
|
Flexible loans
|
Flexible mortgages allow customers to pay more or less than their usual amount each month, or even to take ‘payment holidays’
when they pay nothing at all. There are conditions on when and how much customers can draw down, and they do not have to
take or draw down the whole loan all at once. A customer can ask us to raise their credit limit, but that means we will go through
our full credit approval process. We can also lower a customer’s credit limit at any time, so it never goes above 90% of the
property’s current market value. We no longer offer flexible loans for new mortgages. This is an area of interest if any customers
might be using these facilities to self-forbear, such as regularly drawing down small amounts. We reflect signs that the credit risk
has significantly increased in our ECL calculations.
|
|
Loans with an LTV 100%
|
In some cases, property prices have fallen, so mortgages we gave in the past with lower LTVs now have LTVs greater than 100%.
Where the mortgage balance is more than the property is now worth, we cannot recover the full value of the loan by repossessing
and selling the property. This means there is a higher credit risk on these loans, so we monitor them as part of our assessment of
ongoing portfolio performance. We design new account LTV maximums to mitigate an increase in accounts with an LTV 100%.
|
|
Buy-to-Let (BTL) loans
|
We have specific policies for BTL and focus on non-professional landlords. We have prudent lending criteria and the maximum
LTV is 75%. The first applicant must earn a minimum of £25,000 per year, and we require proof of income in all cases. We also
use a BTL affordability rate as part of our lending assessment. This means that the rental income must cover the monthly
mortgage interest payments by a prescribed amount when calculated using a stressed interest rate. We regularly review the
prescribed amount and adjust it as needed.
|
Climate change
The value of property collateral for mortgages might be affected by physical risks, such as flood and subsidence risk, as well as transitional risks including evolving
energy performance standards. In 2024, we introduced a new in-house CISA capability to assess these risks, incorporating a range of factors to deliver granular
insights. Our analysis indicated that while climate related risks have the potential to intensify other risk factors, we remain resilient within the context of the
scenarios examined, supported by our stable average LTV ratio and the flood reinsurance scheme.
|
Annual Report 2024
|
Santander UK plc
|
77
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Of which: Portfolio of particular interest
(1)
|
||||||
|
Total
|
Interest-only
|
Part interest-
only, part
repayment
(2)
|
Flexible
|
LTV 100%
|
Buy-to-let
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Mortgage portfolio
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
Stage 3 ratio
|
|
|
|
|
|
|
|
Properties in possession
|
|
|
|
|
|
|
|
Balance weighted LTV (indexed)
|
|
|
|
|
|
|
|
2023
|
||||||
|
Mortgage portfolio
|
|
|
|
|
|
|
|
–
Stage 1
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
Stage 3 ratio
|
|
|
|
|
|
|
|
Properties in possession
|
|
|
|
|
|
|
|
Balance weighted LTV (indexed)
|
|
|
|
|
|
|
(1)
Where a loan falls into more than one category, we include it in all the categories that apply.
(2)
Mortgage balance includes both the interest-only part of
£
9,046
m
(
2023
:
£
9,531
m
)
and the non-interest-only part of the loan.
2024 compared to 2023
In
2024
, the combined total proportion of interest-only loans, part interest-only, part repayment loans and flexible loans decreased to
31.7%
(
2023
:
32.9%
).
BTL mortgage balance
s
decreased by
£0.7bn
to
£14.9bn
(
2023
:
£15.6bn
)
driven by our strategy to deleverage our mortgage portfolio and changes in the market
dynamic. In
2024
, the balance weighted average LTV of mortgage total new BTL lending was
59%
(
2023
:
58%
).
|
Interest-only
(2)
|
Flexible
|
LTV 100%
|
Buy-to-Let
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
|
Total
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
2023
|
||||
|
Total
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
(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.
2024 compared to 2023
New mortgage forbearance stock reduced, mainly due to portfolio sales, lower interest-only maturities and the improvement of our risk profile.
|
Annual Report 2024
|
Santander UK plc
|
78
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Business
banking
|
Other unsecured
|
|||||
|
Personal
loans
|
Credit
cards
|
Overdrafts
|
Total other
unsecured
|
Total
|
||
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Loans and advances to customers
|
|
|
|
|
|
|
|
of which:
|
||||||
|
–
Stage 1
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
Loss allowances
(1)
|
|
|
|
|
|
|
|
Stage 3 undrawn exposures
|
|
|
|
|
|
|
|
Stage 3 ratio
|
|
|
|
|
|
|
|
Gross write-offs (12 months)
|
|
|
|
|
|
|
|
2023
|
||||||
|
Loans and advances to customers
|
|
|
|
|
|
|
|
of which:
|
||||||
|
–
Stage 1
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
Loss allowances
(1)
|
|
|
|
|
|
|
|
Stage 3 undrawn exposures
|
|
|
|
|
|
|
|
Stage 3 ratio
|
|
|
|
|
|
|
|
Gross write-offs (12 months)
|
|
|
|
|
|
|
(1)
The ECL allowance is for both on and off–balance sheet exposures.
|
2024
|
2023
|
||||||
|
% of credit card customers that repay balance in full each month (unaudited)
|
56
%
|
55
%
|
|||||
|
UPL average customer balance (£)
|
|
|
2024 compared to 2023
Business Banking loans continued to reduce due to the pay down of the BBL portfolio. Other unsecured Stage 2 loans reduced driven by Personal loans and
Overdrafts, due to the release of the cost of living JAs. Credit card balances increased due to the impact of our SICR updates in the year. Other unsecured Stage
3 assets remained stable in 2024. Gross write-offs increased in the year, primarily driven by Personal loans, reflecting the current economic environment.
|
Annual Report 2024
|
Santander UK plc
|
79
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Forbearance
|
Credit
cards
|
Overdrafts
|
Total
|
|
|
2024
|
£m
|
£m
|
£m
|
|
Financial assets modified in the period:
|
|||
|
–
Amortised cost before modification
|
|
|
|
|
–
Net modification loss
|
|
|
|
|
Financial assets modified since initial recognition:
|
|||
|
–
Gross carrying amount of financial assets for which the loss allowance changed to 12m ECL in the period
|
|
|
|
|
2023
|
|||
|
Financial assets modified in the period:
|
|||
|
–
Amortised cost before modification
|
|
|
|
|
–
Net modification loss
|
|
|
|
|
Financial assets modified since initial recognition:
|
|||
|
–
Gross carrying amount of financial assets for which the loss allowance changed to 12m ECL in the period
|
|
|
|
|
Other unsecured
|
||||||
|
Business
banking
|
Personal
loans
|
Credit cards
|
Overdrafts
|
Total other
unsecured
|
Total
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Total
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
|
2023
|
||||||
|
Total
|
|
|
|
|
|
|
|
–
Stage 2
|
|
|
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
Other loan modifications
There were
no
other loan modifications made in
2024
and
2023
.
|
Annual Report 2024
|
Santander UK plc
|
80
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
2024
|
2023
|
||
|
£m
|
£m
|
||
|
Loans and advances to customers
|
|
|
|
|
of which:
|
|||
|
–
Stage 1
|
|
|
|
|
–
Stage 2
|
|
|
|
|
–
Stage 3
|
|
|
|
|
Loss allowances
(1)
|
|
|
|
|
Stage 3 ratio
|
|
|
|
|
Gross write-offs
|
|
|
(1)
The ECL allowance is for both on and off–balance sheet exposures.
|
2024
|
2023
|
||
|
Consumer (auto) finance new business gross lending (£m)
|
|
|
|
|
Wholesale loans (stock finance) to car dealerships as approximate % of the Consumer loan book
|
|
|
|
|
% of lending collateralised on the vehicle
|
|
|
|
|
Average Consumer (auto) finance loan size (£)
|
|
|
2024 compared to 2023
In 2024, we maintained our prudent Consumer (auto) finance underwriting criteria. The product mix was broadly unchanged, with wholesale balances
decreasing slightly.
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.
Forbearance
At
31 December 2024
the amount of forborne assets net of deferred income was
£
5.4
m
(
2023
: £
nil
).
Other loan modifications
There were
no
other loan modifications made in
2024
.
The gross carrying amount of financial assets for which the ECL allowance changed to a 12-month measurement at
31 December 2024
was
£
6
m
(
2023
:
£
30
m
).
|
Annual Report 2024
|
Santander UK plc
|
81
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Stage 1
|
Stage 2
|
Stage 3
|
Total
|
|||||
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
|
|
|
|
|
|
|
|
|
Transfers from Stage 1 to Stage 2
(3)
|
(
|
(
|
|
|
|
|
|
|
|
Transfers from Stage 2 to Stage 1
(3)
|
|
|
(
|
(
|
|
|
|
|
|
Transfers to Stage 3
(3)
|
(
|
(
|
(
|
(
|
|
|
|
|
|
Transfers from Stage 3
(3)
|
|
|
|
|
(
|
(
|
|
|
|
Transfers of financial instruments
|
(
|
|
|
(
|
|
(
|
|
|
|
Net ECL remeasurement on stage transfer
(4)
|
|
(
|
|
(
|
|
|
|
|
|
Change in economic scenarios
(2)
|
|
(
|
|
(
|
|
(
|
|
(
|
|
Change to ECL models
|
(
|
(
|
|
(
|
(
|
|
|
(
|
|
New lending and assets purchased
(5)
|
|
|
|
|
|
|
|
|
|
Redemptions, repayments and assets sold
(7)
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Changes in risk parameters and other movements
(6)
|
(
|
|
(
|
(
|
|
|
(
|
|
|
Assets written off
(7)
|
|
|
|
|
(
|
(
|
(
|
(
|
|
At 31 December 2024
|
|
|
|
|
|
|
|
|
|
Net movement in the period
|
|
(
|
(
|
(
|
(
|
|
(
|
(
|
|
ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Less: Discount unwind
|
|
|
(
|
(
|
||||
|
Less: Recoveries net of collection costs
|
|
|
|
|
||||
|
Total ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Stage 1
|
Stage 2
|
Stage 3
|
Total
|
|||||
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
Exposures
(1)
|
ECL
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2023
|
|
|
|
|
|
|
|
|
|
Transfers from Stage 1 to Stage 2
(3)
|
(
|
(
|
|
|
|
|
|
|
|
Transfers from Stage 2 to Stage 1
(3)
|
|
|
(
|
(
|
|
|
|
|
|
Transfers to Stage 3
(3)
|
(
|
(
|
(
|
(
|
|
|
|
|
|
Transfers from Stage 3
(3)
|
|
|
|
|
(
|
(
|
|
|
|
Transfers of financial instruments
|
(
|
|
|
(
|
|
|
|
|
|
Net ECL remeasurement on stage transfer
(4)
|
|
(
|
|
|
|
|
|
|
|
Change in economic scenarios
(2)
|
|
|
|
(
|
|
|
|
|
|
New lending and assets purchased
(5)
|
|
|
|
|
|
|
|
|
|
Redemptions, repayments and assets sold
(7)
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Changes in risk parameters and other movements
(6)
|
(
|
(
|
|
(
|
|
|
(
|
(
|
|
Assets written off
(7)
|
|
|
|
|
(
|
(
|
(
|
(
|
|
At 31 December 2023
|
|
|
|
|
|
|
|
|
|
Net movement in the period
|
(
|
(
|
|
(
|
|
|
(
|
(
|
|
ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Less: Discount unwind
|
|
|
(
|
(
|
||||
|
Less: Recoveries net of collection costs
|
|
|
(
|
(
|
||||
|
Total ECL (release)/charge to the Income Statement
|
(
|
(
|
|
|
||||
|
Annual Report 2024
|
Santander UK plc
|
82
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
Total
(1)
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
SME and mid corporate
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
Social Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|||||||||
|
Stage 1
|
|
|
|
|
|
|
|
|
|
|
Stage 2
|
|
|
|
|
|
|
|
|
|
|
Stage 3
|
|
|
|
|
|
|
|
|
|
|
2023
|
|||||||||
|
SME and mid corporate
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
Social Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|||||||||
|
Stage 1
|
|
|
|
|
|
|
|
|
|
|
Stage 2
|
|
|
|
|
|
|
|
|
|
|
Stage 3
|
|
|
|
|
|
|
|
|
|
(1)
Credit risk exposures include derivatives exposures. For invoice finance the credit risk exposures represent the full facility limit present on the credit agreement papers, a total limit before consideration of
underlying collaterals and application of prepayment caps for any given point.
We typically classify geographical location according to the counterparty’s country of domicile unless a full risk transfer guarantee is in place, in which case we use
the guarantor’s country of domicile instead. At
31 December 2024
and
31 December 2023
this is mainly focused in the UK.
|
Gross exposure
|
Collateral
|
Net exposure
|
|
|
Stage 3
|
Stage 3
|
Stage 3
|
|
|
2024
|
£m
|
£m
|
£m
|
|
SME and mid corporate
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
2023
|
|||
|
SME and mid corporate
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
83
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
we classify as Stage 3 by portfolio at
31 December 2024
and
31 December 2023
.
|
Committed exposure
|
||||||
|
Watchlist
|
||||||
|
Fully
performing
|
Enhanced
monitoring
|
Proactive
management
|
Stage 3
|
Total
(1)
|
Loss
allowances
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
SME and mid corporate
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
Social Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
||||||
|
SME and mid corporate
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
Social Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes committed facilities and derivatives.
2024 compared to 2023
The watchlist exposures decreased by
7.9%
, with a reduction in Proactive management of
16.6%
, and an increase in Enhanced Monitoring of
31.6%
. The
increase in Enhanced Monitoring was due to a small number of large exposures moving from Proactive management.
Forbearance
|
2024
|
2023
|
||
|
£m
|
£m
|
||
|
Financial assets modified in the period:
|
|||
|
–
Amortised cost before modification
|
|
|
|
|
–
Net modification loss
|
|
|
|
|
Financial assets modified since initial recognition:
|
|||
|
–
Gross carrying amount of financial assets for which the loss allowance changed to 12-month ECL in the period
|
|
|
the forbearance we applied, were:
|
2024
|
2023
|
||
|
£m
|
£m
|
||
|
Stock
(1)
|
|||
|
–
Term extension
|
|
|
|
|
–
Interest-only
|
|
|
|
|
–
Other payment rescheduling
|
|
|
|
|
|
|
||
|
Of which:
|
|||
|
–
Stage 1
|
|
|
|
|
–
Stage 2
|
|
|
|
|
–
Stage 3
|
|
|
|
|
|
|
||
|
Proportion of portfolio
|
|
|
(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.
|
Annual Report 2024
|
Santander UK plc
|
84
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Rating distribution
(audited)
Corporate Centre committed exposures mainly comprise Sovereign exposures and Structured Products (High Quality Liquid Assets, mainly Asset Backed
Securities and covered bonds) managed as part of our Eligible Liquidity Pool. These are low risk, high quality, investment grade exposures with a credit rating of 8
or 9 according to our internal rating scale (see the ‘Santander UK group level – credit risk review’ section).
We typically classify geographical location according to the counterparty’s country of domicile unless a full risk transfer guarantee is in place, in which case we use
the guarantor’s country of domicile instead. At
31 December 2024
and
31 December 2023
this was mainly focused in the UK.
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 2024
and
31 December 2023
.
There were
no
loan modifications made in
2024
and
2023
.
|
Annual Report 2024
|
Santander UK plc
|
85
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Overview
Liquidity risk is the risk that we do not have sufficient liquid financial resources available to
meet our obligations when they fall due, or we can only secure such resources at
excessive cost.
In this section, we describe our key liquidity risks, including our sources and uses of
liquidity, and how we manage liquidity risk. We also analyse our key liquidity metrics,
including our LCRs and our eligible liquidity pools.
We then explain our funding strategy and structure and we analyse our wholesale
funding. Finally, we analyse how we have encumbered some of our assets to support our
funding activities.
|
Key metrics
LCR of
154%
(
2023
:
159%
)
RFB DoLSub NSFR of
135%
(
2023
:
136%
)
RFB DoLSub LCR of
151%
(
2023
:
157%
)
Wholesale funding with maturity 1 year
£
£
11.9
bn)
RFB DoLSub LCR eligible liquidity pool of £
44.4
bn (
2023
:
£
48.3
bn)
|
Through our Liquidity Risk Appetite (LRA) framework, we manage our market liquidity risks, funding or structural liquidity risk, contingent liquidity risk, wherever
they arise. This can be in retail and corporate deposit outflows, outflows in wholesale secured and unsecured funding 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
,
25
and
29
to 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 consolidate, manage 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, 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 manage liquidity risk on a consolidated basis in our CFO division, which is our centralised function for managing funding, liquidity and capital. We created our
governance, oversight and control frameworks, and our LRA, on the same consolidated basis.
Under
the PRA’s liquidity rules, Santander UK plc and its subsidiary Cater Allen Limited form the RFB Domestic Liquidity Sub-group (the RFB DoLSub), which
allows them to collectively meet regulatory requirements to manage liquidity risk. Each member of the RFB DoLSub will support the other by transferring surplus
liquidity in times of stress.
Risk appetite
Our LRA is based on the principles of liquidity management we use to manage our balance sheet. It also supports our need to meet or exceed regulatory rules.
In
line with our liquidity management principles, we avoid an over-reliance on funding from a single product, customer or counterparty. We also maintain enough
unencumbered customer assets to support current and future funding and collateral requirements and maintain enough capacity to monetise liquid assets and
other counterbalancing capacity on a timely basis.
Our LRA is proposed to the Risk division
and the Board, which is then approved under advice from the Board Risk Committee. Our LRA, in the context of our
overall Risk Appetite, is
reviewed and approved by the Board each year, or more often if needed.
|
Annual Report 2024
|
Santander UK plc
|
86
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Risk measurement
We use a number of metrics to manage liquidity risk. These include market and internal Early Warning Indicators (EWIs) that include both qualitative and
quantitative measures including outflows in retail and corporate deposits, funding concentration metrics, LCR and LRA metrics.
They also include structural
metrics, such as our level of encumbered assets and our Net Stable Funding Ratio (NSFR).
Ongoing business management
Within our framework of prudent funding and liquidity management, we manage our activities to our LRA. We have clear responsibilities for short-term funding,
medium-term funding, encumbrance, collateral and liquid asset management. This ensures we manage liquidity risks as part of our daily operations, strategy and
planning.
Our liquidity management framework is split between short-term and strategic activities. Our short-term activities focus on intra-day collateral management and
maintaining liquid assets to cover unexpected demands on cash in a stress, such as large and unexpected deposit withdrawals by customers and loss of
wholesale funding. Our strategic activities focus on ensuring we are not over reliant on any one source for funding and that we avoid excessive concentrations in
the maturity of our funding.
We regularly test the liquidity of our eligible liquidity pool, in line with PRA rules and Basel guidelines. We do this by realising some of the assets by repurchase or
outright sale to the market. We make sure that over any 12-month period we realise a significant part of our eligible liquidity pool. As well as our eligible liquidity
pool, we always hold a portfolio of unencumbered liquid assets. Our LRA and PRA requirements determine the size and composition of this portfolio. These
assets give us a source of contingent liquidity, as we can realise some of them in a stress to create liquidity by repurchase or outright sale to the market.
Stress testing
Our liquidity stress testing framework is central to our LRA measurement and monitoring. To fit with our Risk Appetite, the liquidity outflows that come from these
stress tests must be fully covered with high-quality liquid assets, other liquid assets and appropriate management actions.
Our Risk division runs a range of stress tests. Our LRA stress test consists of three tests that cover idiosyncratic, market-wide and combined scenarios.
Our other tests consider scenarios such as a global economic slowdown that results in reduced confidence in banks, a slowdown in a major economy or a decline
in access to liquidity. We consider the scenarios on both an acute and protracted basis. We also run severe combined stress tests which look at both a deep and
prolonged UK recession that results in a reduction in wholesale funding availability and an idiosyncratic shock that would lead to retail and commercial outflows.
We also run climate change stresses. These include severe physical risks which result in a reduction in retail deposits, increased use of corporate lending facilities
and an increase in mortgage defaults and a scenario where there is disorderly transition to net zero, resulting in supply shocks and data transparency concerns.
We also run a technological stress, in which disruptions to the traditional banking system due to digital innovations and adverse social media coverage could lead
to a banking crisis leading to outflows of retail and corporate deposits.
We also conduct sensitivity analysis and reverse stress testing for instant liquidity shocks by each key liquidity risk. We do this to understand the impacts they
would have on our LRA and our regulatory liquidity metrics.
As part of this, we monitor our
LCR
and our NSFR to ensure we continue to meet the requirements in
the event of a liquidity stress.
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. The work is 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 a 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 our 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.
Our resolution capabilities are underpinned by comprehensive governance, testing and assurance arrangements, which seek to ensure that we maintain and
enhance our resolution readiness on an ongoing basis.
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.
|
Annual Report 2024
|
Santander UK plc
|
87
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Liquidity Coverage Ratio
This table shows our LCR at
31 December 2024
and
31 December 2023
.
|
2024
|
2023
|
||
|
RFB DoLSub LCR
(2)
|
£bn
|
£bn
|
|
|
Eligible liquidity pool (liquidity value)
(1)
|
43.7
|
47.8
|
|
|
Net stress outflows
|
(28.9)
|
(30.4)
|
|
|
Surplus
|
14.8
|
17.4
|
|
|
Eligible liquidity pool as a percentage of anticipated net cash flows
|
151
%
|
157
%
|
(1)
The liquidity value is calculated by applying an applicable haircut to the carrying value.
(2)
The RFB LCR was
154%
(
2023
:
159%
).
This table shows the carrying value of our eligible liquidity pool assets at
31 December 2024
and
31 December 2023
. It also shows the weighted average carrying
value in the year.
|
RFB DoLSub
|
Carrying value
|
Weighted average
carrying
value in the year
|
||||||
|
2024
|
2023
|
2024
|
2023
|
|||||
|
Level 1
|
Level 2
|
Total
|
Level 1
|
Level 2
|
Total
|
Total
|
Total
|
|
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
|
Cash and balances at central banks
|
29.0
|
—
|
29.0
|
36.1
|
—
|
36.1
|
30.8
|
38.6
|
|
Government bonds
|
10.2
|
0.9
|
11.1
|
8.7
|
0.3
|
9.0
|
13.7
|
6.8
|
|
Supranational bonds and multilateral development banks
|
0.4
|
—
|
0.4
|
0.3
|
—
|
0.3
|
0.2
|
0.1
|
|
Covered bonds
|
1.4
|
1.7
|
3.1
|
1.2
|
1.0
|
2.2
|
2.9
|
1.7
|
|
Asset-backed securities
|
—
|
0.8
|
0.8
|
—
|
0.7
|
0.7
|
0.7
|
0.4
|
|
41.0
|
3.4
|
44.4
|
46.3
|
2.0
|
48.3
|
48.3
|
47.6
|
|
We hedge term duration in the LCR eligible liquidity pool with swaps. We use swaps to offset mark to market movements due to interest rate changes.
Currency analysis
This table shows the
carrying value of our eligible liquidity pool
by major currencies at
31 December 2024
and
31 December 2023
. The composition of the pool is
consistent with the currency profile of our net liquidity outflows.
|
RFB DoLSub
|
US Dollar
|
Euro
|
Sterling
|
Other
|
Total
|
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
|
2024
|
1.2
|
1.2
|
40.8
|
1.2
|
44.4
|
|
2023
|
2.4
|
1.1
|
44.0
|
0.8
|
48.3
|
|
2024
|
2023
|
||
|
%
|
%
|
||
|
RFB DoLSub NSFR
|
135
|
136
|
2024 compared to 2023
We remain in a strong liquidity position.
We hold sufficient liquid resources and have adequate governance and controls in place to manage the liquidity risks
arising from our business and strategy.
At
31 December 2024
and
31 December 2023
, the LCR and NSFR
significantly exceeded regulatory requirements.
RFB
DoLSub
LCR
reduced following TFSME repayments.
In
2024
, Santander UK purchased UK Gilts on a 'Hold-To-Collect-Cash-flows' basis. The notional value at
31 December 2024
was
£3.0bn
(2023:
£nil
). This
means that there is an increased allocation of liquid assets to longer-dated UK sovereign bonds to support ongoing HQLA requirements in our LCR eligible
liquidity pool.
|
Annual Report 2024
|
Santander UK plc
|
88
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Funding strategy
Our funding strategy continues to be based on maintaining a conservatively structured balance sheet and diverse sources of funding to meet the needs of our
business strategy and plans. The CFO Division maintains a funding plan that complies with the LRA and regulatory liquidity and capital requirements.
Most of our funding comes from customer deposits. We source the rest from a mix of secured and unsecured funding in the wholesale markets. Overall, this
means that we do not rely too heavily on wholesale funds. We manage funding requirements by targeting a specific Liquidity Coverage Ratio, we ensure
maturities are prefunded and capital/
Minimum Requirements for Eligible Liabilities (MREL) requirements for Santander UK Group Holdings plc and internal MREL
for Santander UK plc are prioritised. We also have controls to limit our asset encumbrance from our secured funding operations.
As part of maintaining a diverse funding base, we raise funding in a number of currencies, including EUR and USD, and convert it into sterling through currency
swaps to fund our commercial assets which are largely sterling denominated.
Our base of stable retail and corporate deposits is a key funding source for us. We leverage our large and diverse customer base to offer products that give us a
long-term sustainable source of funding. We do this by focusing on building long-term relationships. At 31 December 2024, 86% of our total core retail customer
liabilities were covered by the Financial Services Compensation Scheme (the FSCS).
Behavioural maturities
The contractual maturity of our balance sheet assets and liabilities highlights the maturity transformation that underpins the role of banks to lend long term, but to
fund themselves mainly with shorter-term liabilities, like customer deposits. We do this by diversifying our funding operations across a wide customer base, both
in numbers and by type of depositor. In practice, the behavioural profiles of many liabilities show more stability and longer maturity than their contractual maturity.
This is especially true of many retail and corporate deposits that, while they may be repayable on demand or at short notice, have shown good stability even in
times of stress. We model behaviour profiles using our experience of customer behaviour. We use this data to determine the funds transfer pricing rates at which
we reward and charge our business units for sources and uses of funds. We apply this rate until a customer changes to a different product or service offered by us
or by one of our competitors.
We continue to maintain the quality of our retail, commercial and wholesale deposits. We aim to deepen our customer relationships across all customer segments.
We do this to lengthen the contractual and behavioural profile of our liability base.
|
Annual Report 2024
|
Santander UK plc
|
89
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
business strategy and plans. The CFO Division maintains a funding plan that complies with our LRA and regulatory liquidity and capital requirements.
Wholesale funding
|
Balance sheet line item
|
||||||||
|
Funding
analysis
|
Deposits
by banks
(1)
|
Deposits
by
customers
(2)
|
Repurchas
e
agreement
s - non
trading
|
Financial
liabilities
designated
at fair
value
|
Debt
securities
in issue
|
Subordinated
liabilities
|
Other equity
instruments
(3)
|
|
|
2024
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
Deposits by banks
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and commercial paper
|
|
|
|
|
|
|
|
|
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
|
–
privately placed
|
|
|
|
|
|
|
|
|
|
Covered bonds
|
|
|
|
|
|
|
|
|
|
Securitisation and structured issuance
(4)
|
|
|
|
|
|
|
|
|
|
TFSME
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities and equity
|
|
|
|
|
|
|
|
|
|
Total wholesale funding
|
|
|
|
|
|
|
|
|
|
Repos
|
|
|
|
|
|
|
|
|
|
Foreign exchange and hedge accounting
|
(
|
|
|
|
|
(
|
|
|
|
Other
|
|
|
|
|
|
(
|
|
|
|
Balance sheet total
|
|
|
|
|
|
|
|
|
|
2023
|
||||||||
|
Deposits by banks
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and commercial paper
|
|
|
|
|
|
|
|
|
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
|
–
privately placed
|
|
|
|
|
|
|
|
|
|
Covered bonds
|
|
|
|
|
|
|
|
|
|
Securitisation and structured issuance
(4)
|
|
|
|
|
|
|
|
|
|
TFSME
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities and equity
|
|
|
|
|
|
|
|
|
|
Total wholesale funding
|
|
|
|
|
|
|
|
|
|
Repos
|
|
|
|
|
|
|
|
|
|
Foreign exchange and hedge accounting
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Balance sheet total
|
|
|
|
|
|
|
|
|
(1)
Consists of
Perpetual Capital Securities
. See Note
32
to the Consolidated Financial Statements.
(2)
This is included in our balance sheet total of
£
180,967
m
(
2023
:
£
190,850
m
).
(3)
Other consists of items in the course of transmission and other deposits. See Note
21
to the Consolidated Financial Statements.
|
Annual Report 2024
|
Santander UK plc
|
90
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
38
to the
Consolidated Financial Statements
.
|
≤ 1
month
|
1 and ≤ 3
months
|
3 and ≤ 6
months
|
6 and ≤ 9
months
|
9 and ≤
12 months
|
Sub-total
≤ 1 year
|
1 and
≤ 2 years
|
2 and
≤ 5 years
|
5 years
|
Total
|
|
|
2024
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
|
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
(1)
|
||||||||||
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
|
|
|
–privately placed
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities and equity (incl. AT1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Santander UK plc
|
||||||||||
|
Deposits by banks
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and commercial paper
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
|
|
|
–privately placed
|
|
|
|
|
|
|
|
|
|
|
|
Covered bonds
|
|
|
|
|
|
|
|
|
|
|
|
Securitisation structured issuance
(2)
|
|
|
|
|
|
|
|
|
|
|
|
TFSME
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other group entities
|
||||||||||
|
Securitisation structured issuance
(3)
|
|
|
|
|
|
|
|
|
|
|
|
Total at 31 December 2024
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
||||||||||
|
– Secured
|
|
|
|
|
|
|
|
|
|
|
|
– Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
Total at 31 December 2023
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
||||||||||
|
– Secured
|
|
|
|
|
|
|
|
|
|
|
|
– Unsecured
|
|
|
|
|
|
|
|
|
|
|
(1)
95
%
of senior unsecured debt issued from Santander UK Group Holdings plc has been downstreamed to Santander UK plc as ‘secondary non-preferential debt’ 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.
|
Annual Report 2024
|
Santander UK plc
|
91
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
2024
|
2023
|
||||||||
|
Sterling
|
US Dollar
|
Euro
|
Other
|
Sterling
|
US Dollar
|
Euro
|
Other
|
||
|
%
|
%
|
%
|
%
|
%
|
%
|
%
|
%
|
||
|
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
|
|||||||||
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
|
|
–
privately placed
|
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities and equity (incl. AT1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Other Santander UK plc
|
|||||||||
|
Deposits by banks
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and commercial paper
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
|
|
–
privately placed
|
|
|
|
|
|
|
|
|
|
|
Covered bonds
|
|
|
|
|
|
|
|
|
|
|
Securitisation structured issuance
|
|
|
|
|
|
|
|
|
|
|
TFSME
|
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Other group entities
|
|||||||||
|
Securitisation structured issuance
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Sterling
|
US Dollar
|
Euro
|
Other
|
Total 2024
|
Total 2023
|
||
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
||
|
Downstreamed from Santander UK Group Holdings plc to Santander UK plc
|
|||||||
|
Senior unsecured – public benchmark
|
|
|
|
|
|
|
|
|
Subordinated debt and equity (inc. AT1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Other Santander UK plc
|
|||||||
|
Securitisations and other secured funding
|
|
|
|
|
|
|
|
|
Covered bonds
|
|
|
|
|
|
|
|
|
Senior unsecured – privately placed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Other group entities
|
|||||||
|
Securitisations
|
|
|
|
|
|
|
|
|
Total gross issuances
|
|
|
|
|
|
|
Together with our immediate parent, Santander UK Group Holdings plc,
o
ur 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.
In
2024
we issued
£8.4bn
Sterling equivalent medium-term funding, including Covered bond, Senior unsecured and RMBS issuances.
We repaid
£6.0bn
of
TFSME in 2024 as planned, with an outstanding balance of
£11.0bn
at
31 December 2024
. £7.1bn
is due for repayment in October 2025,
£2.5bn
in 2027, and the
remaining
£1.4bn.
in 2031. We expect to issue
£10-£12bn
of medium-term funding in 2025, including
£3.7bn
equivalent already issued.
At
31 December 2024
,
65%
(
2023
:
79%
) of wholesale funding had a maturity of greater than one year, with an overall residual duration of
37
months
(
2023
:
35
months).
|
Annual Report 2024
|
Santander UK plc
|
92
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
We encumber an asset if we pledge or transfer it as collateral against a liability. This means it is no longer available to secure funding, meet our collateral needs or
be sold to reduce funding needs. Being able to pledge or transfer assets as collateral is a key part of a bank’s operations. The main ways we encumber assets are
that we: enter into securitisation, covered bonds, and repurchase agreements to access medium and long-term funding; enter into short-term funding transactions
(including repurchase agreements and stock borrowing) as part of our liquidity management; pledge collateral as part of participating in payment and settlement
systems; and post collateral as part of derivatives activity. We control levels of encumbrance by setting a minimum level of unencumbered assets after we factor in
our funding plans, whether we can use our assets for our future collateral needs, the impact of a stress and our current encumbrance level.
Assets classified as readily available for encumbrance include cash and securities in our eligible liquidity pool. All other loans and advances are classified as not
readily available for encumbrance, however, they may still be suitable for use in secured funding structures.
We issued securitised products to a diverse investor base through our prime mortgage-backed and other asset-backed funding programmes. We raised funding
with mortgage-backed notes, both issued to third parties and retained – the latter being central bank eligible collateral for funding purposes in other Bank of
England facilities. We also have a covered bond programme, under which we issue securities to investors secured by a pool of residential mortgages. For more
on these programmes, see Notes
14
and
25
to the
Consolidated Financial Statements
.
|
Encumbered with counterparties other than central banks
|
Assets
positioned
at central
banks
(3)
|
||||
|
Covered
bonds
|
Securitis-
ations
|
Other
|
Total
|
||
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Cash and balances at central banks
(1)(2)
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
Loans and advances to banks
|
|
|
|
|
|
|
Repurchase agreements – non trading
|
|
|
|
|
|
|
Other financial assets at amortised cost
|
|
|
|
|
|
|
Financial assets at fair value through other comprehensive income
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
2023
|
|||||
|
Cash and balances at central banks
(1)(2)
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
Loans and advances to banks
|
|
|
|
|
|
|
Repurchase agreements – non trading
|
|
|
|
|
|
|
Other financial assets at amortised cost
|
|
|
|
|
|
|
Financial assets at fair value through other comprehensive income
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
(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.
|
Annual Report 2024
|
Santander UK plc
|
93
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
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
14.9%
(
2023
:
15.4%
)
Total qualifying regulatory capital of £
13.7
bn (
2023
: £
14.6
bn)
|
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 stresses without the
support of our
ultimate parent, Banco Santander SA.
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.
Risk appetite
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:
–
An adverse economic stress, which we expect once in
20
years, we should remain profitable and exceed all regulatory capital minimums at all times.
–
A very severe economic stress, which we expect once in
100
years, and which has been designed to test any specific weaknesses of our business model, we
should meet all regulatory capital minimums at all times. This is subject to using regulatory buffers designed to absorb losses in such a stress.
Risk measurement
We apply Banco Santander’s approach to capital measurement and risk management for CRD IV.
Santander UK
plc is classified as a large subsidiary of Banco
Santander SA.
For more on the CRD IV risk measurement of our exposures, see Banco Santander’s Pillar 3 report.
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.
Key metrics
The main metrics we use to measure capital risk are CET1 capital ratio,
total capital ratio
and UK leverage ratio.
We continue to be in excess of overall capital
requirements, minimum leverage requirements and minimum requirements for own funds and eligible liabilities (
Internal
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.
Our CISA was developed to understand the impact of climate change on our business. We invested in a strategic solution which delivers the capability to run long-
term horizon multi-scenario assessments which reflect a range of climate outcomes. These outcomes cover shorter and longer-term horizons and reflect physical
and transition risks. The CISA outputs are used in 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 act against unexpected changes.
|
Annual Report 2024
|
Santander UK plc
|
94
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
,
risk and capital management policies, and 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 loans and 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
‘Liquidity risk’ section.
Capital support arrangements
At
31 December 2024
, 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 dated 3 December 2024 which was effective from 3 December 2024 (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 3 December 2027. 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
entities to any of the regulated entities in the event that one of the regulated entities 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.
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)
.
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 meant that adverse CET1 effects from increases in ECL-based provisions from the level of such
provisions at 1 January 2018 were 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
consider the volatility of ECL in our capital planning strategy.
|
2024
|
2023
|
||
|
%
|
%
|
||
|
CET1 capital ratio
|
14.9
|
15.4
|
|
|
AT1
|
2.8
|
2.9
|
|
|
Tier 2
|
3.3
|
3.2
|
|
|
Total capital ratio
|
21.0
|
21.5
|
|
|
Total subordination available to Santander UK plc senior unsecured bondholders as a % of RWAs
|
21.0
|
21.5
|
|
|
Return on assets - profit after tax divided by average total assets
|
0.36
|
0.55
|
|
2024
|
2023
|
||
|
£m
|
£m
|
||
|
CET1 capital
|
|
|
|
|
AT1 capital
|
|
|
|
|
Tier 1 capital
|
|
|
|
|
Tier 2 capital
|
|
|
|
|
Total capital
(1)
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
95
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Market risk
|
Overview
Market risk comprises non-traded market risk and traded market risk.
Non-traded market risk is the risk of loss of income, economic or market value due to
changes to interest rates in the non-trading book or to changes in other market risk
factors (e.g. credit spread and inflation risk), where such changes would affect our net
worth through an adjustment to revenues, assets, liabilities, and off-balance sheet
exposures in the non-trading book.
Traded market risk is the risk of changes in market factors that affect the value of the
positions in the trading book. We have no significant traded market risk exposure.
In this section, we set out which of our assets and liabilities are exposed to non-traded
and traded market risk. Then we explain how we manage these risks and discuss our
key market risk metrics.
|
Key metrics
Net Interest Income (NII) sensitivity to +100bps was
£
and to ‑100bps was
£(
Economic Value of Equity (EVE) sensitivity to +100bps was
£(496)m
and to ‑100bps was
£425m
(
2023
:
£(299)m
and
£265m
).
|
We classify all our assets and liabilities exposed to market risk as non-traded market risk, except for certain portfolios that we must classify as trading books for
regulatory purposes (such as selling derivatives or derivative-based products to clients), of which we must fair value for accounting reasons (such as assets in the
eligible liquidity pool). For accounting purposes, we classify all derivatives as held for trading unless they are designated as being in a hedging relationship. For
more, see Note
11
to the Consolidated Financial Statements.
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 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 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.
|
Category
|
Description
|
|
Interest rate risk
|
Interest rate risk mainly consists of yield curve risk, which 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.
|
|
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 ‘Wholesale funding’ in the ‘Liquidity risk’ 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.
|
NON-TRADED MARKET RISK MANAGEMENT
Risk appetite
Our Structural and Market Risk framework sets out our high-level arrangements and standards to manage, control and oversee non-traded market risk (also
known as structural risk), and is part of our overall Risk Framework.
Our
Risk Appetite sets the controls, risk limits and key risk metrics for non-traded market risk.
We show risk appetite by the income and value sensitivity limits we set in
our
Risk Appetite, at both Santander UK and Banco Santander group levels.
Risk measurement
We mainly measure our exposures with NII and EVE sensitivity analysis. We support this with VaR risk measures and stress testing. We also monitor our interest
rate repricing gap. We regularly review our risk models and metrics including underlying model assumptions to ensure they continue to reflect the risks inherent in
the current rate environment and regulatory expectations.
|
Annual Report 2024
|
Santander UK plc
|
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|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
|
–
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 – usually
12
or
36
months.
|
|
–
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
|
|
–
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.
|
The limitations of sensitivities
We use sensitivities to measure the impact of standard, instantaneous, parallel shifts in relevant yield curves. The advantage of using standard parallel shifts is
they generally give us a constant measure of the size of our market risk exposure, with a simple and consistent stress.
We also run non-parallel stress tests, to
calculate the impact of some plausible non-parallel scenarios, and over various time periods for income stresses, usually one or three years.
|
VaR
|
|
–
VaR indicates possible losses from market changes in non-stressed conditions.
|
|
–
We run a historical simulation. We use two years of historical daily price moves. We report a
|
The limitations of VaR
VaR is a standard risk measure. It has limitations including:
–
It assumes the past is a reliable guide to the possible future.
–
It uses end of day positions. It would miss higher risk run only during the day.
–
It does not predict the loss on the
1
% largest-loss days (outside the
99
%
confidence interval).
–
We use a history of one day price moves. This is reasonable for our business but VaR does not cover positions we could not sell or hedge quickly, or products
whose prices cannot be observed.
Back-testing – comparing VaR estimates with actual profit and loss
To check that our VaR is reasonable, we compare it against our observed profits and losses for the same area. This confirms the VaR model is working. If we
found it were not, we would investigate, and correct it if required.
Stress testing
Stress testing is an essential part of our risk management. It helps us to measure and evaluate the potential impact on portfolio values of more extreme, although
plausible, events or market moves.
Limits reflect our risk appetite and are expressed relative to the loss given a stress event, thereby restricting how much risk we
take.
Stress testing scenarios
Simple stress tests (like parallel shifts in relevant curves) give us clear measures of risk and a consistent starting point for setting limits. More complex, multi-factor
and multi-time period stress tests give us information about specific potential events. They can also test outcomes that we might not capture through parallel
stresses or VaR-type measures. We use stress tests to estimate losses in extreme market events beyond the confidence level used in VaR models.
We can adapt our stress tests to reflect concerns such as climate change risk, other macroeconomic and geopolitical events or changing market conditions. We
run individual business area stresses and Santander UK-wide scenarios.
Other ways of measuring risk
As well as using sensitivities and stress tests, we can measure non-traded market risk using net notional positions. This can give us a simple view of our
exposure, although we generally need to combine it with other risk measures to cover all aspects of a risk profile, such as projected changes over time.
Other
metrics we can use include Earnings at Risk (EaR). EaR is like VaR but captures changes in income rather than value.
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 ‘spot’ 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 ‘Funding strategy‘ and ‘Term issuance’ in the ‘Liquidity risk’ 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 volatility.
|
Annual Report 2024
|
Santander UK plc
|
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|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
NON-TRADED MARKET RISK REVIEW
Interest rate risk
Yield curve risk
31 December 2024
and
31 December 2023
. Sensitivity to parallel shifts represents the amount of risk in a way that we think is both simple and scalable.
|
2024
|
2023
|
||||
|
+100bps
|
-100bps
|
+100bps
|
-100bps
|
||
|
£m
|
£m
|
£m
|
£m
|
||
|
NII sensitivity (audited)
(1)
|
|
(
|
|
(
|
|
|
EVE sensitivity
|
(496)
|
425
|
(299)
|
265
|
|
(1)
Based on modelling assumptions of repricing behaviour.
NII Sensitivity is adversely exposed to down-shock scenarios driven by margin compression of core liabilities, partly offset by the structural position. EVE
sensitivity is adversely exposed to rising interest rate scenarios.
EVE sensitivity reflects the potential impact on economic value due to the structural mismatch of assets and liabilities (excluding equity) over the longer term.
The EVE metric excludes equity as a source of non-rate sensitive funding, as equity is invested into the structural position the metric typically reflects an adverse
exposure to rising rate scenarios.
Interest rate repricing gap
The table below shows the interest rate repricing gap of our balance sheet by repricing buckets.
|
3 months
|
1 year
|
3 years
|
5 years
|
5years
|
Not sensitive
|
Total
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Assets
|
93,430
|
51,502
|
93,136
|
21,899
|
8,357
|
15,118
|
283,442
|
|
Liabilities
|
110,187
|
51,152
|
52,767
|
43,930
|
2,081
|
24,157
|
284,274
|
|
Off-balance sheet
|
4,673
|
2,414
|
(20,185)
|
15,835
|
(1,905)
|
—
|
832
|
|
Net gap
|
(12,084)
|
2,764
|
20,184
|
(6,196)
|
4,371
|
(9,039)
|
—
|
|
2023
|
|||||||
|
Assets
|
104,985
|
48,416
|
79,635
|
40,553
|
5,650
|
14,640
|
293,879
|
|
Liabilities
|
117,154
|
49,904
|
54,127
|
46,107
|
2,558
|
24,908
|
294,758
|
|
Off-balance sheet
|
12,345
|
1,429
|
(14,771)
|
(278)
|
2,154
|
—
|
879
|
|
Net gap
|
176
|
(59)
|
10,737
|
(5,832)
|
5,246
|
(10,268)
|
—
|
Spread risk
The table below shows the risk metrics covering the portfolios of securities we hold for liquidity and investment purposes.
|
2024
|
2023
|
||
|
£m
|
£m
|
||
|
VaR
|
5
|
5
|
|
|
Worst three month stressed loss
|
110
|
86
|
We regularly review our risk models and metrics including the scenarios and underlying modelling assumptions we use, to ensure they continue to reflect the risks
in the current economic environment, and incorporate regulatory expectations.
2024 compared to 2023
In
2024
NII sensitivity decreased, and EVE sensitivity increased, mainly reflecting the overall increase in the structural hedge position relative to non-rate
sensitive liabilities.
TRADED MARKET RISK
We have no significant traded market risk exposure. The risk we do have is from providing permitted financial services to permitted customers.
Traded market risk
can reduce our net income. Movements in interest rates, credit spreads, and foreign exchange rates affect the value of products we have.
We have
two trading desks. The Link Desk transacts derivatives with our corporate clients. The Structured Products Group (SPG) sells investments to retail
investors, through our UK branches and other channels. Banking Reform legislation requires
us
to have immaterial market risk. We hedge risks from customer
trades, mostly with Banco Santander SA. We calculate market risk capital using standard rules.
The Internal VaR for exposure to traded market risk at
31 December 2024
was less than £1m (2023: less than £1m).
|
Annual Report 2024
|
Santander UK plc
|
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|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Pension risk
|
Overview
Pension risk is the risk caused by our statutory contractual or other liabilities with
respect to a pension scheme (whether set up for our employees or those of a related
company or otherwise). It also refers to the risk that we will need to make payments or
other contributions with respect to a pension scheme due to some other reason.
In this section, we explain how we manage pension risk, including our investment and
hedging strategies. We also discuss our key metrics and developments in the year.
|
Key metrics
Funding Deficit at Risk was
£830m
(
2023
:
£980m
)
Funded defined benefit pension scheme accounting
surplus was
£439m
(
2023
:
£723m
)
|
OUR KEY PENSION RISKS
Pension risk is one of our key financial risks. Santander UK plc is the sponsor of the Santander (UK) Group Pension Scheme (the Scheme), a defined benefit
scheme. Our risk is that, over the long-term, the Scheme’s assets are not enough to meet its liabilities as they fall due. If this happens, we could have to (or
choose to) make extra contributions. We might also need to hold more capital to reflect this risk.
The Scheme, risk metrics and regulatory capital can be sensitive to changes in the assumptions of the risk categories shown below.
|
Categories
|
Description
|
|
Interest rate risk
|
The risk that a decrease in (long-term) interest rates causes an increase in the value of the Scheme’s liabilities that are not matched by an
increase in the value of its assets.
|
|
Inflation risk
|
Annual pension increases are directly linked to RPI or CPI. The risk is that an increase in inflation causes an increase in the value of the
Scheme’s liabilities that are not matched by an increase in the value of its assets.
|
|
Longevity risk
|
The Scheme’s liabilities are in respect of current and past employees and are expected to stretch beyond 2080 due to the long-term nature of
the obligation. Therefore, the Scheme’s liabilities are also impacted by changes to the life expectancy of Scheme members over time.
|
|
Investment risk
|
The risk that the return on the Scheme’s assets is insufficient to meet the liabilities.
|
For more on our defined benefit schemes, including sensitivity analysis of our key actuarial assumptions, see Note
28
to the Consolidated Financial Statements.
Defined contribution schemes
We also have defined contribution schemes for some of our employees. These schemes carry far less market risk for us, although we are still exposed to
operational and reputational risks.
For more on our defined contribution schemes, see Note
28
to the Consolidated Financial Statements.
The impact of our defined benefit schemes on capital
We take account of the impact of pension risk on our capital as part of our planning and stress testing process, considering measures such as the impact on
CET1 and Pillar 2A, and also where relevant the impact on the related measures such as the leverage ratio.
Our defined benefit pension schemes affect capital in two ways:
–
We treat an IAS 19 deficit as a liability on our balance sheet. We recognise deficit movements in Other Comprehensive Income, so this reduces shareholders’
equity and CET1 capital. We treat an IAS 19 surplus as an asset. This increases shareholders’ equity, but it is deducted in determining CET1 capital. An IAS 19
surplus/deficit is partially offset by a deferred tax liability/asset. These may be recognised for calculating CET1 capital depending on our overall tax position.
–
The PRA takes pension risk into account in the Pillar 2A capital assessment in the annual ICAAP exercise. Pillar 2A is part of our overall regulatory requirement
for CET1 capital, Tier 1 capital and total capital. For more on our regulatory requirements, see the ‘Capital risk’ section.
PENSION RISK MANAGEMENT
For details of how the Scheme is governed and operates, see Note
28
to the Consolidated Financial Statements.
Risk appetite
Our Risk Appetite is a key consideration in all decisions and risk management activities related to the Scheme. Our pension risk appetite is reviewed by our
Pension Forum at least once a year. It is then sent to the Board for approval. We measure pension risk on both a technical provisions (funding) basis and an
accounting (IAS 19) basis. We manage pension risk on both the accounting and the funding basis. Both bases are inputs into our capital calculations.
Risk measurement
Our key risk metrics include:
|
Key risk metrics
|
Description
|
|
Funding Deficit at Risk
|
We use a VaR and a forward-looking stress testing framework to model the Scheme’s assets and liabilities to show the potential
deterioration in the funding position.
|
|
Sponsor Contributions
|
We use a VaR and a forward-looking stress testing framework to model the potential contribution that could be payable to the Scheme by a
pre-defined fixed date in the future.
|
|
Pensions Volatility
|
We use a VaR and a forward-looking stress testing framework to model the volatility in the pension-related capital deduction.
|
In addition to investing in liquid debt markets, the Scheme invests in certain assets whose values are not based on market observable data, such as investments
in private equity funds and property. For more on this, see Note
28
to the Consolidated Financial Statements. The risks of these assets are included in the metrics
described above.
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We perform stress tests for regulators, including for ICAAPs and PRA stress tests. For more on our stress testing, see the 'Risk governance' section.
Climate change scenario testing gives us the capacity to simulate risk exposures over an extended time horizon. The Trustee has an ambition to achieve net zero
by 2050, which it factors into its decision making.
Risk mitigation
The key tools we use to maintain the above key risk metrics within appetite are:
|
Key tools
|
Description
|
|
Investment strategies
|
The Trustee developed the following investment objectives to reflect their main duty to act in the best interests of Scheme beneficiaries:
–
To maintain a diversified portfolio of assets of appropriate quality, security, liquidity and profitability to generate income and capital growth
to meet, with new contributions from members and employers, the cost of current and future benefits that the Scheme provides
–
To limit the risk that the assets fail to meet the liabilities
–
To invest in a manner appropriate to the nature and duration of the expected future retirement benefit payments under the Scheme
–
To minimise the Scheme's long-term costs by maximising asset returns net of fees and expenses whilst reflecting the objectives above.
The investment strategy is regularly reviewed, and its impact on Funding Deficit at Risk is considered.
|
|
Hedging strategies
|
The Trustee employs asset-liability matching arrangements including the use of liability driven investment strategies, and has a hedging
strategy to reduce key market risks, mainly interest rate and inflation risk, but also currency and longevity risk. We monitor available collateral
and liquidity with the objective of ensuring we have sufficient collateral and/or liquidity available to meet any margin calls.
|
|
Environmental, social
and governance (ESG)
|
The Trustee has established a Sustainability Committee which is responsible for overseeing the Scheme’s policies, regulatory obligations
and priorities in respect of climate change and wider ESG related matters.
|
We look at the impact on our risk metrics when determining the appropriateness of the investment and hedging strategies.
Risk monitoring and reporting
We monitor pension risk each month and report on it at the Pension Forum, ERCC and, where thresholds are exceeded (or likely to be), to the Board Risk
Committee and the Board in line with our pension risk appetite. This also includes quarterly monitoring of corporate credit exposures to assess any concentrations
of risk. We discuss any remedial action with the Trustee.
In addition, we monitor the performance of third parties who support the valuation of the Scheme’s assets
and liabilities.
PENSION RISK REVIEW
2024 compared to 2023
We made further refinements in
2024
as part of the CISA exercise.
The underlying level of risk in the Scheme reduced in
2024
. This was mainly driven by increased interest and inflation hedging in the first half of the year and the
continuing disposals of illiquid assets, including the sale of some private equity assets.
Our main focus is to ensure the Scheme achieves the right balance between risk and reward whilst minimising the impact on our capital and financial position. At
31 December 2024
, the Funding Deficit at Risk decreased to
£830m
(
2023
:
£980m
), mainly due to the hedging noted above with the interest rate hedge ratio at
98%
(
2023
:
89%
) and the inflation hedge ratio at
99%
(
2023
:
82%
) on a funding basis.
The Scheme's collateral and liquidity position continued to be monitored closely in light of the increase in long term gilt yields seen over the second half of
2024
.
We also monitor the potential impact from variations in the IAS 19 position of CET1 capital. There was a moderate impact on CET1 capital caused by movements
in the IAS 19 position in the year. For more on the impact of our defined benefit schemes on capital, see the 'Capital Risk' section.
In
2024
, we adopted a new version of the model that we use to set the IAS19 discount rate. The updated model is based on an expanded data set which is
expected to improve its stability. We also updated the mortality improvement assumption we use to value the floating leg of the longevity swap following a mortality
basis review carried out by the insurer and the Trustee. We also updated the mortality improvement assumption underlying the liability valuation to reflect latest
data available.
The accounting position deteriorated in
2024
. For the section in deficit, this deterioration was more than offset by the deficit contributions paid
. The Scheme
sections in surplus had an aggregate surplus of
£439m
at
31 December 2024
(
2023
:
£723m
) while there were
no
sections which had a deficit
at
31 December
2024
(
2023
:
one
). The overall funded position was a
£439m
surplus (
2023
:
£682m
surplus). There were also unfunded liabilities of
£23m
at
31 December 2024
(
2023
:
£25m
).
The overall deterioration was mainly due to a rise in gilt yields which caused assets to decrease by more than the liabilities, and decreases in the
value of certain illiquid assets. There remains considerable market uncertainty and our position could change materially over a short period.
For more on our pension schemes, including the asset allocation and our accounting assumptions, see Note
28
to the
Consolidated Financial Statements
.
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Strategic and business risk
|
Overview
Strategic and business risk is the risk of significant loss or underperformance against planned objectives; damage arising from strategic decisions or their
poor implementation; an inability to adapt to external developments that impact the long-term interests of our key stakeholders.
In this section, we describe our key strategic and business risks and explain how we manage them. We also describe developments in the year.
|
OUR KEY STRATEGIC AND BUSINESS RISKS
Strategic and business risk could impact our long-term success if it caused our business model to become ineffective, out of date, or inconsistent with our goals.
This could happen if we are unable to identify threats arising from the economy, competitors, regulations, and/or changes in technology and customer
expectations. We could be exposed to this risk if we misjudge our capabilities, or the ability to implement our strategy, or pursue initiatives that do not fit with our
business model or miss opportunities we could benefit from.
STRATEGIC AND BUSINESS RISK MANAGEMENT
|
Risk management
|
Description
|
|
Risk appetite
|
We have a low to moderate appetite for strategic and business risk. This limits the risks we are prepared to take to achieve our strategic
objectives and is aligned to our balanced, customer-centric business model.
|
|
Risk measurement
|
Our Board and senior management regularly review potential risks in our operations and plans to ensure we stay within risk appetite.
|
|
Risk mitigation
|
We manage strategic and business risk by having a clear and consistent strategy that takes account of external factors and our own
capabilities. We have an effective planning process which ensures we adapt our strategy to reflect changes in risks and opportunities.
|
|
Risk monitoring and
reporting
|
We closely track our business environment, including long-term trends that might affect us in the future. As part of this, we report a
range of indicators.
|
STRATEGIC AND BUSINESS RISK REVIEW
2024 compared to 2023
In 2024, we continued to transform ourselves and made changes to serve our customers better by offering them the best products at the best value and with
a frictionless digital experience. To deliver this we focused our transformation on three core pillars:
–
Commercial Transformation: creating better propositions,
–
Operational Transformation: creating better capabilities, and
–
Cultural Transformation: creating an organisation with an even greater focus on high performance and customer focus.
We successfully delivered phase 2 of the Consumer Duty mandate which delivered a sustainable customer-focused operating model, and shifted us to a more
customer outcome-focused culture. We continue to face a demanding regulatory agenda and have multiple ongoing projects to ensure regulatory compliance. We
will continue to work through these requirements in 2025, while keeping good customer outcomes at the heart of everything we do. Regulatory mandates we
delivered include the Payment Systems Regulator's requirement on Confirmation of Payee for all Payment Service Providers and an Authorised Push Payment
mandatory reimbursement regulation, both of which became effective from 7 October 2024.
Our ambition is to be net zero by 2050 and we are supporting our customers to help them to make the green transition in a fair way. In 2024, we identified ways to
help our customers in their journey to transition to a low carbon economy whilst continuing to assess the underlying risks they face. We launched new Green
Finance products as well as strategic partnerships with energy companies such as Octopus Energy and Scottish Power. Our Green Finance taskforce continued
to consolidate ongoing and future Green Finance initiatives enabling us to ensure we deliver on our green finance public ambition.
Competitive pressures continued in 2024 with overall market volumes for assets and deposits resuming growth. The recent consolidation drive by our peers
is creating larger and more diversified competitors, while digital banks continue to build their customer base and expand their product offerings. In 2024, we
protected our core business franchise by deleveraging mortgages and optimising our balance sheet. We launched several new propositions for our customers,
including OneApp, our new business banking app, Edge Home, Edge credit card and our Self Invested Pension Plan. In Corporate and Commercial Banking,
we signed a commercial agreement with Dentsu to expand the Santander Navigator proposition. Santander Navigator is a SaaS platform designed to support
international trade by providing market-leading insights and connecting businesses across the globe. We believe our customer-focused business model and
strategy, and our adaptable and innovative approach, will support our continued success.
We remain focused on supporting customer needs, improving efficiency, and building a responsible and sustainable business, while continuing to progress with
our agenda to tackle climate change. This will enable us to meet the changing needs of our customers and deliver improved returns over the long-term.
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Reputational risk
|
Overview
Reputational risk is the risk of damage to the way our reputation and brand are perceived by the public, clients, government, colleagues, investors, or any
other interested party.
In this section, we describe our key reputational risks and explain how we manage them. We also describe developments in the year.
|
OUR KEY REPUTATIONAL RISKS
Reputational risks can arise from internal and external factors. We seek to manage our reputation proactively, underpinned by our aim to be a responsible bank,
and through our reputational risk framework.
Reputational risk is not static; today’s decisions may be judged by different standards tomorrow. We build this into our
risk culture, evaluation and sanction procedures.
REPUTATIONAL RISK MANAGEMENT
|
Risk management
|
Description
|
|
Risk appetite
|
We have a low appetite for reputational risk, which is agreed by the Board at least each year.
|
|
Risk measurement
|
We assess our exposure to reputational risk daily. We base this on expert judgement and analysis of social, print, and broadcast media,
and the views of political and market commentators. We also commission independent third parties to analyse our activities and those of
our UK peers to identify reputational events, a decline in our reputation, and sector or thematic issues that impact our business. We also
measure the perception of Santander UK by key stakeholders through regular interactions and review staff sentiment each year.
|
|
Risk mitigation
|
Our business units consider reputational risk as part of their operational risk and control assessments. We also consider it as part of our
new product reviews. Our Corporate Communications and Responsible Banking, Legal and Compliance and Marketing teams help
business units to mitigate the risk and agree action plans as needed, as part of their role to protect our brand and reputation.
|
|
Risk monitoring and
reporting
|
We monitor and report reputational risks and issues on a timely basis. Our Reputational Risk Forum reviews and escalates key issues to
ERCC, RBC and the Board. We also report regularly to ExCo on Sustainability and Public Affairs policies.
|
Our Reputational and ESCC risk policies define how we create long-term value while managing those risks. Our ESCC policy covers Oil Gas, Power
Generation Transmission, Mining Metals and Soft Commodities. For example, financing is prohibited for project-related financing for new CFPP projects
worldwide and we will only work with new clients with CFPPs to provide specific financing for renewable energy projects.
REPUTATIONAL RISK REVIEW
2024 compared to 2023
In 2024, key reputational risks related to the uncertain economic environment and continued pressures from increases in the cost of living. Increased mortgage
payments remained a significant issue for our customers. We continued to support the government's Mortgage Charter, and proactively contacted customers to
offer support and help. There was criticism that banks were failing to pass on increases in the Bank of England Bank Rate to savers. To address this, we ran
campaigns and issued direct communications to customers to advise them of our products and rates, several of which were market leading.
In May 2024, we faced significant reputational risks arising from the Banco Santander global data breach, even though the breach had no material effect on
Santander UK. To manage this, we worked closely with colleagues across the Banco Santander group to develop communications for both external and internal
audiences to mitigate risks. In February 2024, we also faced significant reputational risks arising from allegations that companies linked to Iran were using
accounts held with Santander UK to evade US sanctions.
We also monitored developments in relation to historical motor finance commission payments and its potential impact on Reputational risk. For more details, see
Notes
27
and
30
to the Consolidated Financial Statements.
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Operational risk
|
Overview
Operational risk is the risk of loss or adverse impact due to inadequate or failed internal processes, people and systems, or external events. Operational
resilience is the ability to prevent disruption occurring to the extent practicable; adapt systems and processes to continue to provide services and functions
in the event of an incident; return to normal running promptly when a disruption is over; and learn and evolve from both incidents and near misses.
Operational Resilience is the outcome of executing sound Operational Risk practices.
In this section, we describe our key operational risks and explain how we manage them, with a focus on our top operational risks. We also describe our
operational risk event losses and developments in the year.
|
OUR KEY OPERATIONAL RISKS
Operational risk is inherent in our business. As a result, we aim to manage it down to as low a level as possible, in line with our Risk Appetite, rather than eliminate
it entirely. Operational risk events can have a financial impact and can also affect our business objectives, customer service and regulatory obligations. These
events can include product misselling, fraud, process failures, system downtime and damage to assets or external events.
Our key operational risks are divided into 11 categories:
|
Category
|
Description
|
|
Business
disruption
|
Business Disruption risk is the risk that we are unable to maintain and/or recover our normal day-to-day operation and secure our tangible
assets, to support continued delivery of good customer outcomes.
In addition, we must ensure that we meet our operational resilience obligations to recover our important business services within our agreed
Impact Tolerances in the event of severe operational disruptions to mitigate harm to our customers and wider financial sector.
|
|
Cybersecurity
and
information
security
|
Information Security risk is the potential for unauthorised access, use, disclosure, alteration, destruction, or disruption of information. This
covers all types of data whether stored digitally or non-digitally including client data, employee data and organisational proprietary data.
Cybersecurity risk is one aspect of Information Security risk and is the risk of a malicious cyber-attack that may result in unauthorised access
to (or theft of) sensitive data, loss of data integrity and/or disruption of services. Information Security and Cybersecurity risks may result in
material impacts to our customers, business disruption, financial loss, reputational damage, and regulatory censure.
|
|
Data
|
Data risk is the risk that we do not collect, store, organise, maintain, protect, process, use and/or dispose of data effectively and efficiently.
Effective data management supports our goals by giving timely, accurate and relevant data for decision making and business operations.
|
|
Financial
reporting and
Tax
|
Financial Reporting and Tax risk is the risk associated with producing internal and external financial statements, financial regulatory reporting
(including liquidity and capital) and tax reporting.
|
|
Fraud
|
Fraud can be committed by first parties (our customers), second parties (people known to our customers or us), third parties (people unknown
to our customers or us), and internally by our staff. We are committed to protecting ourselves and our customers from fraud and to mitigating
our fraud risk in an ever-evolving external fraud environment.
|
|
IT
|
IT risk is the risk of adverse impact to the availability, continuity and performance of technology systems including hardware, software,
networks and data centres. This risk may give rise to poor customer outcomes or experience and business disruption, financial loss, legal
claims, reputational damage, regulatory fines or censure.
|
|
Legal
|
Legal risk is the risk of legal deficiencies in contracts and failures in protecting assets, managing legal disputes, interpretation and compliance
with existing laws and regulations or implementation and compliance with new ones. Failure to manage legal risk may expose Santander UK
to financial loss, litigation costs, fines, higher capital or liquidity requirements, criminal sanctions, regulatory action or censure, customer
complaints, and/or reputational damage.
|
|
Outsourcing
and Third
party
|
Third Party risk is the risk to our operations due to the use of Third Party entities supplying goods or services. The risk can arise from
outsourcing and non-outsourcing arrangements.
|
|
People
|
People risk is the risk of loss or adverse impact due to undesired employee behaviours; gaps in employee knowledge and capability;
insufficient resources or lack of capacity; inadequate management of occupational health and workplace safety risks; and failure to comply
with employment legislation and regulations. This risk may result in poor customer outcomes, failure to deliver our strategy and key business
objectives and regulatory, reputational, and financial impacts and personal injury.
|
|
Transaction
and payments
processing
|
Transaction and Payments Processing risk is the risk that we do not process payment instructions effectively and efficiently. This includes
inbound and outbound electronic payments, clearing of cheques and other instruments, deposits/withdrawals of cash and authorisation/
settlement of credit/debit card payments.
|
|
Transformatio
n and Change
|
Transformation and Change risk relates to any activity that transforms our business strategy, organisation, products, services, systems and
processes. These activities differ from our normal day-to-day activities as they aim to achieve specific outcomes and benefits, with a clear
scope, schedule, and budget. The risk covers the strategic and business risks of not investing in the right things, failing to manage an
appropriate and complete change portfolio, failing to execute change effectively, and failing to manage risk of change to the business, causing
potential adverse consequences.
|
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OPERATIONAL RISK MANAGEMENT
We manage our operational risks (and other Non-Financial risks (NFRs)) in line with our NFR framework, as follows:
Non-Financial Risk Management
Our NFR framework (formerly known as the Operational Risk and Resilience framework) sets out our high-level arrangements and standards to manage
operational risks, and is part of our overall Risk Framework. Our Risk Appetite sets the risk limits and key risk metrics for non-financial risks.
Risk appetite
We maintain NFR appetite across Santander UK through Board approved Risk Appetite Statements. These are in place for all principal risks and describe the
extent and type of activities that can be undertaken. The Risk Appetite statements consist of qualitative statements of appetite supported by risk limits and triggers
which operate as a defence against excessive risk taking. Risk measures and their associated limits are an integral part of embedding risk appetite in day-to-day
risk management decisions.
We set a clear tolerance in line with business activities, and we also set lower level triggers, parameters and quantitative thresholds across our business areas.
We monitor our risk profile and performance against the risk appetite, and we have processes to identify, assess, manage, and report risks and events. We
incorporate Banco Santander group principles and standards, regulatory requirements, and best practice, where applicable. Coverage across the seven CRD IV
loss event types is comprehensive and aligns to the principal risks approved by ERCC.
Our policies directly support the qualitative aspects of Risk Appetite. They define expectations, guidance and standards and support consistency of permissible
risk taking across the business.
Risk measurement
The key components of the operational risk toolset we use to measure risks under our NFR framework are:
|
NFR risk toolset
|
Description
|
|
Operational risk and
control assessments
|
Our business units identify and assess their operational risks to ensure they manage and control them within our operational risk appetite,
and prioritise actions needed. Every area must identify and record their material risks, assess their controls for adequacy and then accept the
risk or plan to address any deficiencies. We perform independent testing of our most important controls to ensure enhanced rigour and
challenge of how effectively they are mitigating our largest risks. We also use operational risk assessments and risk rating tools as key parts
of change risk management.
|
|
Risk scenario analysis
|
We perform this across business units. It involves a top down assessment of our key operational risks. We update our scenarios each year.
The analysis gives us insight into rare but high impact events and allows us to understand potential impacts and address issues.
Our Operational risk scenario analysis covers major Operational risks that are extreme but plausible and requires participants across the
business to consider and assess the financial and qualitative impacts on Santander UK, in the event these exposures were to materialise. We
complete the scenario analysis for risk management and regulatory purposes. We also use it as a business tool for their own stress testing to
help understand the largest exposures and agree key actions required to prevent, control or mitigate risks. We review and update our
scenarios each year to ensure they still represent our key operational risk exposures.
|
|
Key indicators (metrics)
|
Key indicators and their tolerance levels give us an objective view of risk exposure or the strength of a control at any point in time. They also
show trends and give us early warning of potential increasing risk exposures. Our business-wide risk appetite indicators are of primary
importance which show adherence to our Risk Appetite statements.
|
|
Operational risk event
and loss management
|
Operational risk events occur when our controls do not operate as we planned and this leads to customer impact, financial loss, regulatory
impacts and/or damage to our reputation. We use data from these processes to identify and correct any control weaknesses. We also use
root cause analysis to identify emerging themes, to prevent or reduce the impacts of recurrence and to support risk and control assessments,
scenario analysis and risk reporting. Our operational risk loss appetite sets the level of total operational risk loss (expected and unexpected)
in any given year (on a 12-month rolling basis) that we consider to be acceptable. We track actual losses against our appetite, and we
escalate as needed.
|
Risk mitigation
Mitigation Is a critical aspect of ensuring that our risk profile remains within our Risk Appetite. Risk mitigation strategies are discussed and agreed at various Risk
committees within Santander.
When we consider strategies, cost and benefits, we also consider residual risks (those retained) and secondary risks (which may be consequential). Monitoring
and review processes are in place to evaluate results. Early identification and effective management are critical to successful mitigation. We assess the effects of
changes for materiality impact and those assessed as high or medium high impact are managed closely.
|
Mitigation tools
|
Description
|
|
Training and
competence
|
We train our staff and require them to maintain a suitable level of competence to ensure customers can achieve appropriate outcomes. We
invest in all our people to ensure that we achieve our mandatory risk objectives and that everyone acknowledges their personal responsibility
to manage risk. We focus on ensuring we train our colleagues to recognise and support customers who may be vulnerable, or who may be
experiencing financial stress, financial difficulty or financial abuse. We also have a dedicated Specialist Support Team that offers guidance to
colleagues helping customers who may need more tailored solutions.
|
|
Action management
|
Where risk exposures are outside our Risk Appetite, our business units identify, assess, manage and monitor material actions to reduce the
exposure back to within appetite.
|
|
Event root cause
analysis
|
Where new material and significant events are reported, steps are taken to identify the root cause of the event. This enables a read across and
the sharing of lessons learned with appropriate mitigating actions taken to address the root cause and successfully resolve the event, and
enhancements made to the control environment to prevent re-occurrence.
|
|
Emerging risk
monitoring
|
We monitor key threats, developments, and risks, including consideration of which risk types or Business areas may be impacted or stressed
by them.
|
|
Risk based insurance
|
Where appropriate, we use insurance to complement other risk mitigation measures.
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We manage our operational risks in line with our NFR framework, as outlined earlier. In addition, to mitigate specific cybersecurity risks, we have the following
tailored approach:
|
Category
|
Risk mitigation
|
|
Cybersecurity
|
Protecting our customers, systems and data remains a top priority for us. We operate a layered information and cybersecurity defence which is
aligned to the National Institute of Standards and Technology (NIST).
|
|
We constantly look to adapt our capabilities to the evolving threats. We do this by gathering intelligence on threat actors, motives, and their attack
techniques. We protect our most critical people, assets, and data with preventative controls in line with the identified threats. We also assume that
breaches will happen in any case, and so we seek to mitigate these by ensuring their timely detection and that appropriate response and recovery
activities are in place. We do this by leveraging industry standard threat analysis, identifying specific real-life scenarios, developing detailed response
playbooks, and testing them regularly using bank-wide simulation exercises involving up to the CEO. Cybersecurity controls are also thoroughly
captured in policies, standards, guidelines and procedures available to all staff.
|
|
|
Third parties are vital for the functioning and resilience of our business. As such, we operate a dedicated risk and control assessment prior to, and
during, the lifecycle of engagements. This ensures the controls operated by the third party are in line with our policies and integrated with our
|
|
|
We regularly assess the state of our environment by reviewing the maturity of our controls in line with our internal risk management framework. We
engage with regulatory authorities through regular oversight meetings and we participate in the CBEST programme. The CBEST programme aims to
evaluate the resilience of firms and financial market infrastructures through testing performed by accredited and independent specialist firms. We also
have a team of penetration testers in our Internal Audit function, that reviews our cybersecurity risks and controls, and reports the results to the BAC.
We participate in industry recognised intelligence sharing groups with other banks (e.g. Cyber Defence Alliance), and we speak regularly to
|
|
|
We campaign to raise awareness and give customers the knowledge they need to avoid becoming victims of cybersecurity incidents. As part of this,
we run customer education campaigns and offer advice through our online security operations centre. We also have a cybersecurity insurance policy
to give us comprehensive cover to respond to and recover losses and damages from security breaches.
|
|
|
Our Chief Information Security Officer (CISO) is responsible for the day-to-day running of security operations and the immediate response to
information and cybersecurity incidents. The CISO relies on a comprehensive specialist team, supported by cybersecurity controls and capabilities
|
|
|
The CISO and most staff who manage cybersecurity risk across all lines of defence are industry specialists with substantial experience in leadership
and technical aspects. This experience is gained via previous cybersecurity related roles in top global financial organisations, global multinationals,
UK government security agencies, UK regulators, such as the PRA, industry leading cybersecurity risk management suppliers, and relevant university
education. Many hold specialist security certifications that are kept relevant by attending dedicated training and specialist conferences.
|
|
|
The CISO is responsible for cybersecurity risk operations and risk management and falls under the COO SMF accountability framework. The CRO is
responsible for overseeing and challenging the risk management activities enacted by the CISO and the COO to ensure they remain within appetite.
|
|
|
The CISO and the COO report regularly and frequently to the Board, ExCo, BRC and ERCC. They provide detailed commentaries on the threat
environment, key incidents across the industry, geopolitical considerations, the overall residual risk, progress on key projects, the control environment
position, and appetite going forward. In addition, BRC and ERCC receive monthly cybersecurity updates as part of the standard risk reporting suite.
|
|
|
|
|
|
The Board and BRC include members who have substantial experience of technology risk, including Non-Executive Directors and the Chief
Operating and Technology Officer. We also provide targeted training for Board members, senior management and other employees to enhance their
knowledge per the evolving and emerging threat landscape.
|
Risk monitoring and reporting
Regulators continue to emphasise the importance of effective risk culture, personal accountability and the adoption and enforcement of risk-based requirements
and adequate internal reporting processes and procedures. Monitoring and Reporting is a key part of how we manage risk. We can identify exposures through our
Non-Financial Risk and control assessments, risk scenario analysis, key indicators, change risk assessments and incidents and events.
Subject matter experts across the business engage across risk management and monitoring activities and support effective communication of policy changes. We
report exposures for each business unit through regular risk and control forums. These include details of the risks, level of exposure and how we plan to mitigate
them. We prioritise and highlight events that have a material impact on our customers, reputation or finance by reporting them to key executives and committees.
We use The Standardised Approach (TSA) to calculate our Pillar 1 operational risk capital. We use an internal model aligned to the CRD IV advanced
measurement approach to validate our Pillar 2 capital needs.
Our crisis management framework covers all levels of the business. It sets out possible triggers and how we will manage a crisis, and we test it at least annually. If
an event occurs, our business continuity plans help us recover as quickly as possible and we undertake post incident reviews to identify learnings.
We closely monitor emerging threats that could affect future operations and performance. We act to mitigate potential risks as and when required. We also carry
out further in depth analysis, including stress testing of exposures.
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OPERATIONAL RISK REVIEW
2024 compared to 2023
Operational risk event losses by Basel category
The table below shows our operational risk losses in
2024
and
2023
for reportable events with an impact over £10,000, by CRD IV loss event types. The data is
presented in line with the Basel 2.5 requirement to aggregate and recognise losses in the year of the first point of recognition, rather than in any subsequent
year(s) in which further costs are recognised under IFRS. Due to the nature of risk events that keep evolving, prior year losses are updated:
|
2024
|
2023
|
||||
|
Value %
|
Volume %
|
Value %
|
Volume %
|
||
|
Internal fraud
|
1
|
—
|
—
|
—
|
|
|
External fraud
|
74
|
87
|
12
|
93
|
|
|
Employment practices and workplace safety
|
1
|
1
|
—
|
1
|
|
|
Clients, products and business practices
|
11
|
3
|
87
|
1
|
|
|
Damage to physical assets
|
1
|
1
|
—
|
—
|
|
|
Business disruption and systems failures
|
2
|
—
|
—
|
—
|
|
|
Execution, delivery, and process management
|
10
|
8
|
1
|
5
|
|
|
100
|
100
|
100
|
100
|
||
Business disruption
We continued to mature our frameworks and capabilities to support meeting the Operational Resilience requirements by the March 2025 regulatory deadline, with
regular updates provided to our Executive and Board Risk committees throughout the year. We assessed the resilience of our important business services using a
broad range of severe but plausible disruption scenarios. We ran successful cyberattack and loss of third party scenarios, to ensure that our contingency and
recovery strategies were effective in minimising harm to our customers, risk to the safety and soundness of Santander UK, and risk to the orderly functioning or
stability to the UK market. We continued to invest in strategic programmes that will further strengthen our resilience position, in particular across our IT estate.
Cybersecurity
Cybersecurity remains a key focus. In 2024, Banco Santander experienced a reportable data breach that impacted, amongst other group entities, Santander UK.
The impact was limited to Santander UK staff personal information.
We also responded to third party incidents affecting our suppliers. We continued to
enhance our threat prevention controls and test our business area recovery plans against a range of scenarios. We continued to see increasing
ransomware attacks across all sectors, driven by compromises in supply chain tools, and we expect this trend to remain. We also invested in skills and
resources to manage cybersecurity risks, and monitor cybersecurity threats, including from the geopolitical environment. Our business strategy and
financial results were not significantly affected by either cybersecurity threats or incidents. However, we cannot give assurance that they will not be
significantly affected by such risks and incidents in the future.
Data
We continued to manage the risk with enhanced governance and investments, focusing on our critical data and processes. We continued to develop, implement,
and enhance new and existing data controls through various initiatives. These initiatives included establishing appropriate processes, prioritising the resolution of
gaps in data controls and data lineage testing, and ensuring that remediation plans are in place as part of our Data Management Programme to further enhance
data quality and data privacy and protection.
Fraud
Authorised Push Payment fraud remains our largest fraud type. We continued to make progress in mitigating operational risk losses from fraud. This included
implementing new detection controls and coordinated customer awareness campaigns that led to a significant reduction in specific frauds risks for our customers,
especially in terms of onboarding and payment card fraud. We maintained a leading, collaborative role in fraud management with industry partners, through
CIFAS, UK Finance and Stop Scams UK.
IT
We made significant progress in addressing key IT risks through a programme of remediation activities, including continued improvement in reducing IT related
incidents and the ongoing management of technology obsolescence. As a result of the progress made, the FCA recognised our improvement in IT resilience.
Legal
Our legal risk profile remained heightened in 2024. The Court of Appeal judgment in October 2024 in relation to motor finance commission cases involving other
lenders represented a deterioration in our legal risk position and led to a £295m provision. The decision is subject to an appeal to the Supreme Court. The
outcome of that appeal and the appeal to the Court of Appeal of the High Court’s judicial review of a final decision by the Financial Ombudsman against another
lender are expected to influence our legal risk in relation to litigation and complaints relating to historical motor finance commission arrangements and the outcome
of the FCA review. We continued to evaluate and react to the evolving legal and regulatory environment, including the Consumer Duty, the Financial Services and
Markets Act 2023, the Economic Crime and Corporate Transparency Act 2023, the Digital Markets, Competition and Consumers Act 2024 and reforms to the ring-
fencing regime. We materially completed the alignment of material third party contracts to PRA Supervisory Statement 2/21, and in relation to international data
transfers, to the Schrems II judgment. The in-flow litigated PPI claims reduced and an appeal by a PPI complainant to the Court of Appeal to re-open a settlement
agreement was unsuccessful. However, on-going large scale complex PPI related litigation brought by AXA, and a German criminal and tax investigation relating
to historical dividend tax arbitrage transactions remain. We continue to manage our legal risk in relation to thematic Court actions and FOS complaints related to
fraud, irresponsible lending, mortgages and commissions. For more, see Note
30
to the Consolidated Financial Statements.
Outsourcing Third Party Supplier
We rely extensively on third parties for a range of goods and services, provided by both Banco Santander and external suppliers. We reviewed our suppliers
against a revised set of controls and implemented new metrics to monitor and manage our risk exposure. We continue to manage risk to our Third Party Supplier
estate.
People
We saw improvements in 2024 with reduced levels of attrition and of aged vacancies. We continue to be alert and respond to any risks that could arise from our
ongoing transformation, including providing ongoing support to enable colleagues to attend the office regularly.
Transformation and change
We continue our transformation to simplify the bank, digitise processes, build smarter solutions, and strengthen our foundations whilst reducing costs, extending
internal capabilities and ensuring a resilient operating model. This includes delivery against a diverse change agenda with a focus on modernising our operations
and building fit for the future technology, transforming customer interactions, growth and productivity. Ensuring change does not result in unacceptable impacts on
our customers and risk profile underpins our strategic decisions and is robustly managed.
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Financial crime risk
|
Overview
Financial crime risk is the risk that we are used to further financial crime, including money laundering, sanctions evasion, terrorist financing, facilitation of tax
evasion, bribery and corruption. We recognise that financial crime and associated illegal activity poses a threat to the UK's national security, economy and
its institutions and causes serious harm to the customers and communities we serve.
In this section, we describe our key financial crime risks and explain how we manage them. We also describe developments in the year.
|
OUR KEY FINANCIAL CRIME RISKS
Financial crime is a high priority risk for us, and addressing it is a key priority for senior management. We remain committed to countering it by maintaining robust
systems and controls, and conducting business in line with regulatory and legal requirements. We adopt a risk-based approach in line with UK and international
laws and standards.
Our main financial crime risk categories are:
|
Category
|
Description
|
|
Money laundering
|
We are used by criminals to transform the proceeds of crime into seemingly legitimate money or other assets.
|
|
Terrorist financing
|
We are used by terrorists to deposit, distribute or collect funds that are used to fund their activity.
|
|
Sanctions
|
We do not identify payments, customers or entities that are subject to economic or financial sanctions.
|
|
Bribery and corruption
|
We fail to put in place effective controls to prevent or detect bribery and corruption.
|
|
Facilitation of tax evasion
|
We fail to put in place effective systems and controls to prevent the facilitation of tax evasion.
|
FINANCIAL CRIME RISK MANAGEMENT
We manage our financial crime risks in line with our NFR framework, as outlined earlier. In addition, we have financial crime policies tailored to the key risks and
we maintain a control framework in line with a standalone economic crime risk framework. We continue to partner with public authorities, the Home Office and the
wider financial services industry to pool expertise and data to mitigate specific financial crime risks. We are also involved in partnerships such as the Joint Money
Laundering Intelligence Taskforce (JMLIT) which supports public-private collaboration to tackle financial crime.
FINANCIAL CRIME RISK REVIEW
2024 compared to 2023
We understand the importance of protecting the communities we serve from the social and economic impacts of financial crime. We recognise that the financial
crime landscape is constantly evolving, influenced by regulatory changes, legal requirements, geopolitical factors and changing criminal methods. As a result, we
continue to prioritise and remain vigilant in addressing financial crime risks and actively partner with industry, law enforcement and government to deter, detect and
disrupt financial crime and terrorist financing. In 2024, we:
–
Continued to invest in our financial crime systems and controls with a focus on reducing the residual risk and returning to Board Risk Appetite, adequacy of
resources and key deliverables across the remediation plan.
–
Adapted our financial crime policies to reflect the latest external requirements, best practice and Banco Santander policy requirements.
–
Maintained our focus on providing colleagues with the appropriate skills, knowledge and qualifications to support our efforts to fight financial crime through
enhanced and targeted training. Our Economic Crime Academy provides training modules on high risk Financial Crime areas in line with industry standards,
and these modules are endorsed by the International Compliance Association (ICA).
–
Played an active role externally on policy and related strategies and maintained extensive involvement in UK public private partnerships. As part of this, we
worked closely with government, trade bodies, industry, law enforcement and regulators on issues that many impact our Financial Crime Compliance
capabilities.
–
Remained a committed member of the JMLIT and other public-private information sharing initiatives with law enforcement and industry, to exchange and
analyse data on high-end money laundering and wider economic threats.
Following changes to the Governance framework in Q424, we transferred oversight for the Financial Crime Remediation Programme to the Special Projects
Committee.
Financial crime risk management remains one of our top risks and a key focus area for senior management and the Board. We continue to enhance our risk
management capabilities with key activity planned in 2025 including:
–
Accelerating risk mitigation responses and controls to new or evolving financial crime risk threats.
–
Continuing to enhance our sanctions systems and controls in response to internal and external lessons learned from the external sanctions developments in
2024, notably the continued impacts of the Russia sanctions and increased use of OFSI powers.
–
Maturing our financial crime operations, including continuing to improve our customer data records to help increase the effectiveness and sustainability of our
efforts to manage financial crime risks.
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Model risk
|
Overview
Model risk is the risk that the predictions from models may be inaccurate, causing sub-optimal decisions to be made; or that a model may be used
inappropriately. These potential adverse consequences can lead to reputational damage, regulatory non-compliance, a deterioration in our prudential
position, or financial losses.
In this section, we describe our key model risks and explain how we manage them. We also describe developments in the year.
|
OUR KEY MODEL RISKS
A model is a quantitative repeatable method or system that relies on assumptions to process input data into estimates of uncertain outcomes. Our key model risks
arise from inadequate or flawed design leading to weaknesses and limitations in our models, implementation errors or poor deployment of the models, or the
incorrect or inappropriate use of a model. The most material models we use help us calculate our regulatory capital and credit losses, and perform stress tests.
We are seeing increasing interest in using Artificial Intelligence (AI) which creates new model risks such as explainability - the ability to understand why an
algorithm made a particular prediction.
MODEL RISK MANAGEMENT
We manage our Model risks in line with our NFR framework, as outlined earlier. In addition, to mitigate specific model risks, we have the following tailored policies:
–
Model Risk Policy – sets out the action, outcome or standard of behaviour expected to manage and control model risk and remain within risk appetite
–
Tiering and Materiality Policy – ensures the consistent methodology in determining the significance of models used across the business
–
Change Classification Policy – explains how model changes are managed and controlled
–
Changes to IRB Rating Systems Policy – sets the criteria for assessing the materiality of extensions and changes to IRB models
–
Validation Policy – sets out the general criteria for internal validation activities, with the aim to provide an objective, unbiased and critical opinion on the
adequacy of models we use.
In line with our risk organisational structure, our first line of defence drives effective management of the risk and fully embeds the framework. In the second line,
the oversight team sets a clear framework, related policies, risk appetite and provides oversight and governance. The independent valuation function reviews new
developments for all models, particularly for capital adequacy, provisions and stress testing, which all have regulatory focus. The third line of defence assesses
periodically the robustness of the model risk management framework, compliance with policies and regulatory requirements, and material changes taking place.
MODEL RISK REVIEW
2024 compared to 2023
In 2024, Model risk remained a significant focus, as we continued to work on the regulatory agenda, focusing on models to reflect the most accurate and recent
data. The PRA’s Model Risk Supervisory Statement (SS1/23) policy has been in effect since May 2024 and we have aligned our framework, policies and
procedures to the new regulation. We are embedding enhancements across our business as a result. We will maintain a strong focus on aligning with supervisory
expectations as we address remediation efforts in the next two years.
We continued to recognise model risk as a key risk and maintained a strong management
and oversight framework that is embedded across all three lines of defence.
In 2024, we continued to redevelop key regulatory capital models, and the enhancements to our most material provision models went live. In line with SS1/23 we
embedded a robust post-model adjustment framework, including independent review of adjustments made to the ECL to mitigate against weaknesses and
limitations. We continued to focus on our new climate change stress test models to consider the effects of climate change risk on our portfolios.
We delivered several new machine learning and generative AI solutions in 2024, including Agent Assist, which have helped improve productivity.
We expect industry use of AI to continue to grow and we plan to expand our use of it, allowing our colleagues to focus on the more complex customer cases. We
will continue to build on the progress made in 2024 and will focus on ensuring our models remain accurate and reliable given the momentum of change.
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Conduct and regulatory risk
|
Overview
Conduct risk is the risk where our decisions and behaviours could lead to detriment or
poor outcomes for our customers. It also refers to the risk that we fail to maintain high
standards of market behaviour and integrity.
Regulatory risk is the risk of financial or reputational loss, or imposition of our conditions
on regulatory permission, due to failing to comply with applicable codes, regulator’s
rules, guidance and regulatory expectations.
In this section, we describe where our key conduct and regulatory risks can originate
from and set out how we manage them. We also describe developments in the year.
|
Key metrics
Customer remediation provision was
£348m
(
2023
:
£106m
)
Litigation and other regulatory provision was
£112m
(
2023
:
£132m
)
|
OUR KEY CONDUCT AND REGULATORY RISKS
We are committed to ensuring Conduct and Regulatory Risk strategy is embedded within our business, as good outcomes for our customers are at the heart
of what we do. Conduct and Regulatory Risk can stem from
errors in our product design, sales practices, post-sale servicing, operational processes, complaint
handling, and the failure to supervise, monitor or control the activities of our employees. All of these may result in the risk that we do not deliver better outcomes for
our customers, align to the expectations of our regulators or observe required standards of market behaviour. Understanding the drivers of Conduct and
Regulatory risk enables us to update and ensure our frameworks are robust to mitigate against the risk of causing consumer harm on an on-going basis.
CONDUCT AND REGULATORY RISK MANAGEMENT
We manage our Conduct and regulatory risks in line with our NFR framework, as outlined earlier.
In addition, to mitigate specific Conduct and Regulatory risks, we
have the following tailored policies:
|
Policies
|
Description
|
|
Fair Value policy for
regulated products
(Retail customers)
|
Our fair value policy details our approach to assessing whether a regulated product provides fair value to our retail customers,
considering all stages of value during the product design phase, and on a regular basis.
|
|
Fair treatment of vulnerable
customers
|
Some customers may be impacted financially or personally as a result of their circumstances. Our Vulnerable Customer Policy gives
business units a clear and consistent view of what vulnerability can mean and situations when customers may need more support. Our
guidelines focus on identifying characteristics of vulnerability, understanding customer needs and the support and flexibility we can give
to help.
In addition to mandatory training, we train our customer-facing staff using real customer scenarios to enable our people to deal with
a wide range of sensitive issues. Our online Vulnerable Customer Support Tool gives our people more guidance and support, and our
Specialist Support Team gives guidance for the most complex situations. We also consider vulnerability in every initiative and adapt our
technology to the needs of customers with vulnerability characteristics in our design and testing stages. We work with charities,
authorities, trade associations and other specialists to develop our understanding of vulnerability.
|
|
Conduct Regulatory
risk policy for regulated
products (Retail customers)
|
Our policy sets out the actions that we must take and the standards of behaviour we comply with to deliver good outcomes
for retail customers, to comply with applicable regulatory requirements and expectations, and to deliver a strong conduct and
compliance culture.
|
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CONDUCT AND REGULATORY RISK REVIEW
2024 compared to 2023
In 2024, the Conduct and Regulatory environment saw a demanding agenda, and we expect this to continue. To fully consider customer and conduct impacts
across our business, our customers remain at the centre of our culture and purpose. We monitor and regularly review our customers' experiences and act to
address outcomes. As part of this, we:
–
Continued to proactively contact customers who may be at risk of experiencing early signs of financial stress, to support them and try to help avoid longer term
financial difficulty. We referred them to internal and external sources of support alongside ongoing customer engagement and support plans.
–
Evolved our Financial Support team and SME support, with more investment in people and IT to ensure we continue to drive good outcomes for customers,
including those in pre-arrears, and can provide tailored support relevant to a customer's individual circumstances and needs.
–
Continued to review our products and services to ensure our customers receive communications they understand, products and services that meet their needs
and that offer fair value, and the support they need, when they need it, to deliver good customer outcomes.
–
Continued to actively participate in schemes to ensure the long-term future of access to cash, including supporting the setup of shared banking hubs and wider
engagement with LINK and industry partners.
–
Assessed ongoing and new policy areas in the FCA's 2023/24 Business Plan. Our key focus continued to be on reducing and preventing serious consumer
harm, setting and testing higher standards, and promoting competition and positive change. We continued to address these in our controls, product and service
processes and frameworks, and we continued to adapt in line with the evolution of a digital economy.
Payments services continue to be particularly active, with the recently published National Payments Vision setting out key ways to ensure that the UK's payment
systems deliver for consumers and contribute to growth. This includes the continued development of account-to-account payments, such as Open Banking and
Open Finance, exploration of a Central Bank Digital Currency and the future structure of the payments ecosystem.
We will continue to monitor the regulatory landscape and contribute to debates on regulatory issues. We expect the key areas of regulatory focus in 2025 to
include the ongoing supervision of the FCA’s Consumer Duty (with a focus on customer outcomes), the FCA’s implementation for the Advice Guidance Boundary
review, the outcome of the FCA's review into discretionary commission arrangements for motor finance, and a review of the role of the Financial Ombudsman
Service. We also expect continued focus from the FCA on how firms protect customers from financial crime. We expect the PRA and FCA to work jointly on issues
such as operational resilience and outsourcing, non-financial misconduct, and remuneration reform. We also expect an increased focus on funding and liquidity
management as the Bank of England continues to unwind its balance sheet, and further expectations on managing climate risk. We are waiting for more
information on the review of Pillar 2 capital requirements, following the delayed implementation of Basel 3.1.
Overall, we expect to see an increased focus from UK regulators and the UK Government on policies that will enhance the international competitiveness of the
sector, and contribute to economic growth.
The outlook for the economic environment remains challenging and so conduct risks are likely to rise, as banks deal with households that continue to face
pressures from increases in the cost of living and higher interest rates.
We will maintain a strong focus on robust oversight and control of the customer journey across all our products. We will also ensure our strategy, leadership,
governance arrangements, and approach to managing and rewarding staff do not lead to a detrimental impact on customers, competition, or to market integrity.
For key movements in our financial crime risk profile, see the 'Financial crime risk review' section.
For more on our provisions, see Note
27
to the
Consolidated Financial Statements
. For more on our contingent liabilities, see Note
30
to the
Consolidated
Financial Statements
.
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|
Financial statements
|
|
In this section
|
|||
|
|
|||
|
Report of Independent Registered Public Accounting Firm
(PCAOB ID
|
|||
|
Primary financial statements
|
|||
|
Consolidated Income Statement
|
|||
|
Consolidated Statement of Comprehensive Income
|
|||
|
Consolidated Balance Sheet
|
|||
|
Consolidated Cash Flow Statement
|
|||
|
Consolidated Statement of Changes in Equity
|
|||
|
Notes to the financial statements
|
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Santander UK plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Santander UK plc and its subsidiaries (the “Company”) as of 31 December 2024 and 2023,
and the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and
consolidated cash flow statements for each of the three years in the period ended 31 December 2024, including the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of 31 December 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended 31 December
2024 in conformity with i) International Financial Reporting Standards as issued by the International Accounting Standards Board and ii) UK-adopted International
Accounting Standards.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated
or required to be communicated to the Board Audit Committee and that (i) relate to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Credit impairment loss allowance on loans and advances to customers
As described in Notes 1, 13 and 27 to the consolidated financial statements, an expected credit loss (‘ECL’) is recognised for financial assets measured at
amortised cost. The measurement of ECL reflects: a probability weighted amount that is determined by evaluating a range of possible outcomes; the time value of
money; and 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. Management calculates ECL using the following factors: a survival rate (‘SR’), a probability of default (‘PD’), the exposure
at default (‘EAD’) and a loss given default (‘LGD’). The application of the ECL impairment methodology for calculating credit impairment loss allowances is
susceptible to change from period to period and requires management to make judgemental assumptions in determining the estimates. The key judgements
made by management in applying the ECL impairment methodology for the residential mortgages and Corporate and Commercial Bank (‘CCB’) portfolios are: (i)
the forward looking multiple economic scenarios; (ii) the probability weights assigned to multiple economic scenarios; and (iii) assessing corporate stage 3
exposures individually. The LGD is expressed as a percentage and is calculated based on value of subsequent write-offs and collateral values adjusted for
historical discounts. The ECL allowance was £869 million as of 31 December 2024.
The principal considerations for our determination that performing procedures relating to the credit impairment loss allowance on loans and advances to
customers is a critical audit matter are due to the significant judgements being applied by management in the residential mortgages and Corporate and CCB
portfolios (i) the forward looking economic scenarios; (ii) the probability weights applied to those scenarios; (iii) the key assumptions used in the LGD models
related to subsequent write off and historical discounts applied to collateral values; and (iv) individual corporate stage 3 provisions. This in turn led to a high degree
of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence related to the methodology and judgement in assumptions
used to determine the allowance; and the audit effort involved the use of professionals with specialised skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included testing the effectiveness of controls relating to the credit impairment loss allowance on loans and advances to customers.
These procedures also included, among others, testing management’s process for estimating expected credit losses; evaluating the appropriateness of model
methodologies; testing the completeness and accuracy of underlying data used in determining the accounting estimate; evaluating the reasonableness of
management’s assumptions related to (i) forward looking multiple economic scenarios; (ii) the probability weights applied to multiple economic scenarios; (iii) the
subsequent write off and historical discounts applied to collateral values incorporated into the LGD model; and (iv) expected future cash flows and collateral
valuations of individually assessed corporate stage 3 exposures; and evaluating the disclosures made in the consolidated financial statements in relation to the
credit impairment loss allowance on loans and advances to customers. Professionals with specialised skill and knowledge were used to assist in evaluating the
reasonableness of the forward looking economic scenarios, probability weight assumptions, the appropriateness of the key assumptions used in the LGD model
related to subsequent write off and historical discounts applied to collateral values.
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Valuation of defined benefit pension surplus
As described in Notes 1 and 28 to the consolidated financial statements, the Company operates a number of defined benefit pension schemes. The main scheme
is the Santander (UK) Group Pension Scheme (the “Scheme”). The funded defined benefit pension surplus was £416 million as of 31 December 2024. Any
surplus or deficit of scheme assets over liabilities is recognised in the balance sheet as an asset (surplus) or liability (deficit). Management estimates the present
value of the defined benefit obligation by projecting forward the growth in current accrued pension benefits to reflect inflation and salary growth to the date of
pension payment. This is then discounted to present value. In determining the value of scheme liabilities, demographic and financial assumptions are made by
management about the life expectancy of the beneficiaries, inflation and discount rates. The scheme invests in certain assets whose values are not based on
market observable data. These assets include investments in unquoted equities and bonds, as well as property and infrastructure, which are valued by reference
to the latest manager statements provided by the managers, adjusted for any cash movements since the latest valuation, with the exception of property, where the
underlying asset valuations are determined by an independent expert.
The principal considerations for our determination that performing procedures relating to the valuation of the defined benefit pension surplus is a critical audit
matter are the significant judgements made by management in determining (i) the life expectancy of the beneficiaries, inflation and discount rate assumptions; and
(ii) the fair value of the assets with no market observable valuation inputs, including adjustments for any potential fair value movements since the last valuation
date. This, in turn, led to significant auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence. The audit effort involved the
use of professionals with specialised skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included testing the effectiveness of controls relating to the valuation of the defined benefit pension obligation and the valuation of
assets with no market observable data. These procedures also included, among others, evaluating the defined benefit pension obligation by (1) testing the
completeness, accuracy and relevance of the underlying data; and (2) involving professionals with specialised skill and knowledge to assist in (a) assessing the
appropriateness of the methodologies used by management to determine the inflation rate, the discount rate and life expectancy assumptions; (b) developing an
independent range for these assumptions; and (c) comparing the independent range of assumptions to management's assumptions to evaluate the
reasonableness of management’s assumptions. Procedures over directly held property included, among others (i) the involvement of professionals with
specialised skill and knowledge to assist in assessing the appropriateness of the methodology and reasonableness of the key assumptions used by
management’s expert valuer for property; and (ii) evaluating the reasonableness of the valuation for a sample of properties. For the other assets with no market
observable valuation inputs, the procedures included, among others, (i) obtaining third-party confirmations of the valuation directly from investment managers and
comparing these against management’s reported values; (ii) recalculating management’s valuation calculations and comparing our recalculation to the third-party
confirmations, and, if applicable, testing material capital changes in the period between the valuation and the entity’s balance sheet date, where there was a time
lag; and (iii) assessing other evidence regarding the valuations, such as performing back testing of historical valuations used by management against the audited
fund financial statements as at the equivalent date and reviewing controls reports for the investment managers, where available.
Goodwill impairment assessment - for the personal financial services cash generating unit
As described in Notes 1 and 19 to the consolidated financial statements, the carrying value of goodwill relating to the personal financial services (‘PFS’) cash
generating unit (“CGU”) was £1.2 billion as of December 31, 2024. Management undertakes an annual assessment to evaluate whether the carrying value of
goodwill is impaired, carrying out this assessment more frequently if reviews identify indicators of impairment or when events or changes in circumstances dictate.
Impairment is required where the carrying amount of goodwill exceeds its recoverable amount. The recoverable amount of the CGU was determined based on the
value in use (“VIU”) methodology at each testing date. The VIU is calculated by discounting the cash flow projections for the CGU. The goodwill impairment
assessment is based on key judgements including the testing methodology, planning assumptions and internal capital allocations. 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. Estimates
include forecast cash flows for the CGU, including estimated allocations of regulatory capital, the growth rate for the period beyond the initial cash flow projections
and discount rates which factor in risk-free rates and applicable risk premiums.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the personal financial services
cash generating unit is a critical audit matter are due to the significant judgements by management in developing (i) the forecast cash flows and (ii) the discount
rate. This, in turn, led to significant auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s
judgements and assumptions. In addition, the audit effort involved the use of professionals with specialised skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included, among others (i) testing management’s process for determining the carrying value of the CGU, including internal capital
allocations; (ii) evaluating the appropriateness of the methodology used to estimate the VIU; (iii) testing the completeness and accuracy of underlying data used in
the model; (iv) comparing an independent range of assumptions for the discount rate to management’s rate to evaluate the reasonableness of management’s
assumptions; (v) evaluating the reasonableness of the forecasted cash flows, including comparing performance in recent years to the budgets and 3 years-plan
for the equivalent periods and (vi) assessing the appropriateness of the related disclosures. Professionals with specialised skill and knowledge assisted in the
evaluation of the reasonableness of the discount rate and assessing the determination of the carrying value of the PFS CGU.
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Specific customer remediation, litigation and regulatory matters
As described in Notes 1, 27 and 30 to the consolidated financial statements, as of 31 December 2024, the provision for customer remediation, litigation and other
regulatory matters of £460 million includes, among other items, provisions relating to: (i) a legal dispute regarding allocation of responsibility for a specific Payment
Protection Insurance (“PPI”) portfolio of complaints; and (ii) court claim and complaints in respect of historic motor finance broker commissions for Santander
Consumer (UK) plc. There is also an ongoing 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 for which management has
determined that there are uncertainties that mean it is not currently possible to make a reliable assessment of the size of any potential liability. Significant
judgement may be required when accounting for provisions, including in determining whether a present obligation exists, determining the likely outcome of future
legal decisions and in estimating the probability, timing, nature and amount of any outflows that may arise from past events. 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.
The principal considerations for our determination that performing procedures relating to the specific litigation and regulatory matters is a critical audit matter are
the significant judgements made by management when estimating the probability, timing, nature and amount of any outflows for the legal dispute for a specific PPI
portfolio of complaints, the motor finance broker commissions court claim and complaints, and the German dividend tax arbitrage investigation. This in turn led to a
high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s assessment of the
specific litigation and regulatory matters.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included testing the effectiveness of controls relating to management’s assessment of the specific litigation and regulatory matters
against the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. These procedures also included, among others (i) inquiries of
internal legal counsel on the developments in respect to the significant cases; (ii) obtaining and evaluating letters of audit inquiry from external legal counsel; (iii)
evaluating the reasonableness of management’s assessment regarding the probability of an outflow and the estimated amount of the obligation, where a reliable
estimate can be formed; and (iv) evaluating the sufficiency of the disclosures made in relation to each of these specific matters.
/s/
PricewaterhouseCoopers LLP
7 March, 2025
We have served as the Company's auditor since 2016.
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Consolidated Income Statement
For the
year ended
31 December
|
2024
|
2023
|
2022
|
||
|
Notes
|
£m
|
£m
|
£m
|
|
|
Interest and similar income
|
3
|
|
|
|
|
Interest expense and similar charges
|
3
|
(
|
(
|
(
|
|
Net interest income
|
|
|
|
|
|
Fee and commission income
|
4
|
|
|
|
|
Fee and commission expense
|
4
|
(
|
(
|
(
|
|
Net fee and commission income
|
|
|
|
|
|
Other operating income
|
5
|
|
|
|
|
Total operating income
|
|
|
|
|
|
Operating expenses before credit impairment charges, provisions and charges
|
6
|
(
|
(
|
(
|
|
Credit impairment charges
|
8
|
(
|
(
|
(
|
|
Provisions for other liabilities and charges
|
8
|
(
|
(
|
(
|
|
Total credit impairment charges, provisions and charges
|
(
|
(
|
(
|
|
|
Profit before tax
|
|
|
|
|
|
Tax on profit
|
9
|
(
|
(
|
(
|
|
Profit after tax
|
|
|
|
|
|
Attributable to:
|
||||
|
Equity holders of the parent
|
|
|
|
|
|
Profit after tax
|
|
|
|
The accompanying Notes to the Financial Statements form an integral part of these
Consolidated Financial Statements
.
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Consolidated Statement of Comprehensive Income
For the
year ended
31 December
|
2024
|
2023
|
2022
|
||
|
Notes
|
£m
|
£m
|
£m
|
|
|
Profit after tax
|
|
|
|
|
|
Other comprehensive (expense)/income that may be reclassified to profit or loss subsequently:
|
||||
|
Movement in fair value reserve (debt instruments):
|
||||
|
- Change in fair value
|
(
|
|
(
|
|
|
- Income statement transfers
|
|
(
|
|
|
|
- Taxation
|
9
|
|
|
|
|
(
|
(
|
(
|
||
|
Cash flow hedges:
|
||||
|
- Effective portion of changes in fair value
|
11
|
(
|
(
|
|
|
- Income statement transfers
|
11
|
|
|
(
|
|
- Taxation
|
(
|
(
|
|
|
|
|
|
(
|
||
|
Net other comprehensive income/(expense) that may be reclassified to profit or loss subsequently
|
|
|
(
|
|
|
Other comprehensive (expense)/income that will not be reclassified to profit or loss subsequently:
|
||||
|
Pension remeasurement:
|
||||
|
- Change in fair value
|
28
|
(
|
(
|
(
|
|
- Taxation
|
9
|
|
|
|
|
(
|
(
|
(
|
||
|
Own credit adjustment:
|
||||
|
- Change in fair value
|
(
|
(
|
|
|
|
- Taxation
|
9
|
|
|
(
|
|
(
|
(
|
|
||
|
Net other comprehensive (expense) that will not be reclassified to profit or loss subsequently
|
(
|
(
|
(
|
|
|
Total other comprehensive (expense)/income net of tax
|
(
|
|
(
|
|
|
Total comprehensive income/(expense)
|
|
|
(
|
|
|
Attributable to:
|
||||
|
Equity holders of the parent
|
|
|
(
|
|
|
Total comprehensive income/(expense)
|
|
|
(
|
|
The accompanying Notes to the Financial Statements form an integral part of these
Consolidated Financial Statements
.
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|
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Consolidated Balance Sheet
At
31 December 2024
|
2024
|
2023
|
||
|
Notes
|
£m
|
£m
|
|
|
Assets
|
|||
|
Cash and balances at central banks
|
|
|
|
|
Derivative financial instruments
|
11
|
|
|
|
Other financial assets at fair value through profit or loss
|
12
|
|
|
|
Loans and advances to banks
|
|
|
|
|
Loans and advances to customers
|
13
|
|
|
|
Reverse repurchase agreements - non-trading
|
16
|
|
|
|
Other financial assets at amortised cost
|
17
|
|
|
|
Macro hedge of interest rate risk
|
(
|
(
|
|
|
Financial assets at fair value through other comprehensive income
|
|
|
|
|
Interests in other entities
|
18
|
|
|
|
Intangible assets
|
19
|
|
|
|
Property, plant and equipment
|
20
|
|
|
|
Current tax assets
|
9
|
|
|
|
Retirement benefit assets
|
28
|
|
|
|
Other assets
|
|
|
|
|
Assets held for sale
|
40
|
|
|
|
Total assets
|
|
|
|
|
Liabilities
|
|||
|
Deposits by banks
|
21
|
|
|
|
Deposits by customers
|
22
|
|
|
|
Repurchase agreements - non-trading
|
23
|
|
|
|
Derivative financial instruments
|
11
|
|
|
|
Other financial liabilities at fair value through profit or loss
|
24
|
|
|
|
Debt securities in issue
|
25
|
|
|
|
Macro hedge of interest rate risk
|
|
|
|
|
Other liabilities
|
26
|
|
|
|
Provisions
|
27
|
|
|
|
Deferred tax liabilities
|
9
|
|
|
|
Retirement benefit obligations
|
28
|
|
|
|
Subordinated liabilities
|
29
|
|
|
|
Total liabilities
|
|
|
|
|
Equity
|
|||
|
Share capital
|
31
|
|
|
|
Share premium
|
31
|
|
|
|
Other equity instruments
|
32
|
|
|
|
Other reserves
|
(
|
(
|
|
|
Retained earnings
|
|
|
|
|
Total equity
|
|
|
|
|
Total liabilities and equity
|
|
|
The accompanying Notes to the Financial Statements form an integral part of these
Consolidated Financial Statements
.
The Financial Statements were approved and authorised for issue by the Board on
7 March 2025
and signed on its behalf by:
|
Mike Regnier
|
Angel Santodomingo
|
|
Chief Executive Officer
|
Chief Financial Officer
|
|
Company Registered Numb
er: 02294747
|
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|
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Consolidated Cash Flow Statement
For the
year ended
31 December
|
2024
|
2023
|
2022
|
||
|
Notes
|
£m
|
£m
|
£m
|
|
|
Cash flows from operating activities
|
||||
|
Profit before tax
|
|
|
|
|
|
Adjustments for:
|
||||
|
Non-cash items included in profit
|
||||
|
– Depreciation and amortisation
|
6
|
|
|
|
|
– Loss from disposal of mortgage portfolio
|
|
|
|
|
|
– Provisions for other liabilities and charges
|
|
|
|
|
|
– Impairment losses
|
|
|
|
|
|
– Other non-cash items
|
|
(
|
|
|
|
– Pension charge for defined benefit pension schemes
|
|
|
|
|
|
|
|
|
||
|
Net change in operating assets and liabilities:
|
||||
|
– Cash and balances at central banks
|
|
(
|
|
|
|
– Derivative assets
|
|
|
(
|
|
|
– Other financial assets at fair value through profit or loss
|
|
|
|
|
|
– Loans and advances to banks and customers
|
|
|
(
|
|
|
– Reverse repurchase agreements - non-trading
|
|
(
|
|
|
|
– Other assets
|
|
(
|
(
|
|
|
– Deposits by banks and customers
|
(
|
(
|
(
|
|
|
– Repurchase agreements - non-trading
|
|
|
(
|
|
|
– Derivative liabilities
|
(
|
(
|
|
|
|
– Other financial liabilities at fair value through profit or loss
|
|
|
(
|
|
|
– Debt securities in issue
|
|
|
|
|
|
– Other liabilities
|
(
|
(
|
(
|
|
|
(
|
(
|
(
|
||
|
Corporation taxes paid
|
9
|
(
|
(
|
(
|
|
Effects of exchange rate differences
|
(
|
(
|
|
|
|
Net cash flows from operating activities
|
(
|
(
|
(
|
|
|
Cash flows from investing activities
|
||||
|
Purchase of property, plant and equipment and intangible assets
|
(
|
(
|
(
|
|
|
Proceeds from sale of property, plant and equipment and intangible assets
|
|
|
|
|
|
Purchase of financial assets at amortised cost and financial assets at FVOCI
|
(
|
(
|
(
|
|
|
Proceeds from sale and redemption of financial assets at amortised cost and financial assets at FVOCI
|
|
|
|
|
|
Net cash flows from investing activities
|
(
|
(
|
(
|
|
|
Cash flows from financing activities
|
||||
|
Issue of other equity instruments
|
33
|
|
|
|
|
Issue of debt securities and subordinated notes
|
|
|
|
|
|
Issuance costs of debt securities and subordinated notes
|
(
|
(
|
(
|
|
|
Repayment of debt securities and subordinated notes
|
(
|
(
|
(
|
|
|
Repurchase of other equity instruments
|
33
|
(
|
|
(
|
|
Dividends paid on ordinary shares
|
10
|
(
|
(
|
(
|
|
Dividends paid on preference shares and other equity instruments
|
(
|
(
|
(
|
|
|
Principal elements of lease payments
|
33
|
(
|
(
|
(
|
|
Net cash flows from financing activities
|
|
|
|
|
|
Change in cash and cash equivalents
|
(
|
(
|
(
|
|
|
Cash and cash equivalents at beginning of the year
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents
|
(
|
(
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
|
|
|
Cash and cash equivalents consist of:
|
||||
|
Cash and balances at central banks
|
|
|
|
|
|
Less: restricted balances
|
(
|
(
|
(
|
|
|
|
|
|
||
|
Other cash equivalents: Loans and advances to banks - Non-trading
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
|
The accompanying Notes to the Financial Statements form an integral part of these
Consolidated Financial Statements
.
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|
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|
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|
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|
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|
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|
||||||
Consolidated Statement of Changes in Equity
|
Other reserves
|
Non-
controlling
interests
|
|||||||||
|
Share
capital
|
Share
premium
|
Other equity
instruments
|
Fair value
|
Cash flow
hedging
|
Currency
translation
|
Retained
earnings
|
||||
|
Total
|
Total
|
|||||||||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
|
|
|
(
|
(
|
|
|
|
|
|
|
Profit after tax
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
—
|
|
|
Other comprehensive (expense)/income, net of tax:
|
||||||||||
|
- Fair value reserve (debt instruments)
|
—
|
—
|
—
|
(
|
—
|
—
|
—
|
(
|
—
|
(
|
|
- Cash flow hedges
|
—
|
—
|
—
|
—
|
|
—
|
—
|
|
—
|
|
|
- Pension remeasurement
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
- Own credit adjustment
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
Total other comprehensive (expense)/income
|
—
|
—
|
—
|
(
|
|
—
|
(
|
(
|
—
|
(
|
|
Total comprehensive (expense)/income
|
—
|
—
|
—
|
(
|
|
—
|
|
|
—
|
|
|
Issue of other equity instruments
|
—
|
—
|
|
—
|
—
|
—
|
—
|
|
—
|
|
|
Repurchase of other equity instruments
|
—
|
—
|
(
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
Dividends on ordinary shares
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
Dividends on preference shares and other equity
instruments
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
At 31 December 2024
|
|
|
|
(
|
(
|
|
|
|
|
|
|
At 1 January 2023
|
|
|
|
|
(
|
|
|
|
|
|
|
Profit after tax
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
—
|
|
|
Other comprehensive (expense)/income, net of tax:
|
||||||||||
|
- Fair value reserve (debt instruments)
|
—
|
—
|
—
|
(
|
—
|
—
|
—
|
(
|
—
|
(
|
|
- Cash flow hedges
|
—
|
—
|
—
|
—
|
|
—
|
—
|
|
—
|
|
|
- Pension remeasurement
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
- Own credit adjustment
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
Total other comprehensive (expense)/income
|
—
|
—
|
—
|
(
|
|
—
|
(
|
|
—
|
|
|
Total comprehensive (expense)/income
|
—
|
—
|
—
|
(
|
|
—
|
|
|
—
|
|
|
Other
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
—
|
|
|
Dividends on ordinary shares
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
Dividends on preference shares and other equity
instruments
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
At 31 December 2023
|
|
|
|
(
|
(
|
|
|
|
|
|
|
At 1 January 2022
|
|
|
|
|
|
|
|
|
|
|
|
Profit after tax
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
—
|
|
|
Other comprehensive (expense)/income, net of tax:
|
||||||||||
|
- Fair value reserve (debt instruments)
|
—
|
—
|
—
|
(
|
—
|
—
|
—
|
(
|
—
|
(
|
|
- Cash flow hedges
|
—
|
—
|
—
|
—
|
(
|
—
|
—
|
(
|
—
|
(
|
|
- Pension remeasurement
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
- Own credit adjustment
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
—
|
|
|
Total other comprehensive expense
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
(
|
—
|
(
|
|
Total comprehensive (expense)/income
|
—
|
—
|
—
|
(
|
(
|
—
|
|
(
|
—
|
(
|
|
Issue of other equity instruments
|
—
|
—
|
|
—
|
—
|
—
|
—
|
|
—
|
|
|
Repurchase of other equity instruments
|
—
|
—
|
(
|
—
|
—
|
—
|
—
|
(
|
—
|
(
|
|
Dividends on ordinary shares
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
Dividends on preference shares and other equity
instruments
|
—
|
—
|
—
|
—
|
—
|
—
|
(
|
(
|
—
|
(
|
|
At 31 December 2022
|
|
|
|
|
(
|
|
|
|
|
|
The accompanying Notes to the Financial Statements form an integral part of these
Consolidated Financial Statements
.
|
Annual Report 2024
|
Santander UK plc
|
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|
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Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
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|
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|
||||||
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 and registered in
England and Wales
having a registered office
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’ 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 ‘Financial Instruments: Disclosure’ relating to the nature and extent of risks arising from financial instruments, and IAS 1
‘Presentation of Financial Statements’ 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 aligning with the objectives of the Paris Agreement on climate change and
to support the UK’s 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’ 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 require any material adjustments at
31 December 2024
and
2023
,
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 2024
and
2023
, management specifically considered the potential impact of climate change and the transition to a low carbon economy on:
–
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:
–
ECL calculations are based on multiple forward-looking economic scenarios developed by management covering a period of
five years
, during which
timeframe climate change risks may crystallise;
–
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.
–
For automotive loans in Consumer Finance, the residual value of automotive vehicles might be impacted by diesel obsolescence and the transition to electric
vehicles.
–
For corporate lending in Corporate Commercial Banking, certain sectors give rise to fossil fuel exposures, such as Oil Gas, Mining Extraction and
Power Generation.
–
Goodwill impairment assessment (see Note
19
). 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.
–
Unity Place our new corporate headquarters in Milton Keynes has been built with sustainability at its core. All property assets are evaluated annually for
potential flood damage and are currently considered low risk.
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.
In 2024, Santander UK voluntarily changed its accounting policy to remove reverse repurchase agreements (reverse repos) from being treated as cash
equivalents under IAS 7 for the purposes of the cashflow statement. This change provides reliable and more relevant information to users of the financial
statements where the bank is using reverse repos as an investment instrument to manage net interest income and operational liquidity rather than as cash
equivalents.
The change in accounting policy has no effect on any other primary financial statements, income statement metrics, key indicators, liquidity ratios, or
maturity and offsetting disclosures. This change aligns Santander UK's accounting policy on the treatment of reverse repos under IAS 7 with the policy applied by
|
Annual Report 2024
|
Santander UK plc
|
130
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
For the
year ended
31 December
|
Group
|
|||
|
Balance before
change
|
(Decrease)/
increase
|
Balance after
change
|
|
|
2023
|
£m
|
£m
|
£m
|
|
Cash and cash equivalents at beginning of the year
|
|
(
|
|
|
Cash and cash equivalents at the end of the year
|
|
(
|
|
|
Effects of exchange rate changes on cash and cash equivalents
|
(
|
|
(
|
|
Net change in operating assets and liabilities:
|
|||
|
– Reverse repurchase agreements – non trading
|
(
|
(
|
(
|
|
– Repurchase agreements – non trading
|
|
(
|
|
|
– Other liabilities
|
—
|
—
|
—
|
|
Net cash flows from operating activities
|
(
|
(
|
(
|
|
2022
|
|||
|
Cash and cash equivalents at beginning of the year
|
|
(
|
|
|
Cash and cash equivalents at the end of the year
|
|
(
|
|
|
Effects of exchange rate changes on cash and cash equivalents
|
|
(
|
|
|
Net change in operating assets and liabilities:
|
|||
|
– Reverse repurchase agreements – non trading
|
|
(
|
|
|
– Repurchase agreements – non trading
|
(
|
|
(
|
|
Net cash flows from operating activities
|
(
|
(
|
(
|
The value of reverse repo transactions at 31 December 2024 no longer included as cash and cash equivalents was
£
6,193
m
.
The IASB issued the following new/amended accounting standards which are not yet effective and have not been endorsed for use in the UK:
–
Effective 1 January 2026: ‘Amendments to the Classification and Measurement of Financial Instruments’ (Amendments to IFRS 9 ‘Financial Instruments’ and
IFRS 7 ‘Financial Instruments: Disclosures’) - the amendments set out changes to settling financial liabilities using an electronic payment system, assessing
contractual cash flow characteristics of financial assets including those with environmental, social and governance (ESG)-linked features and requiring
additional disclosures for certain financial instruments.
–
Effective 1 January 2027: IFRS 18 ‘Presentation and Disclosure in Financial Statements’ – the new standard will replace IAS 1 ‘Presentation of Financial
Statements’ and introduces changes to the categories for classifying income and expenses and subtotals presented in the income statement and new or
amended disclosures in respect of management-defined performance measures and specified expenses by nature.
The
Santander UK group
is assessing these new/amended accounting standards to determine the potential impacts on the financial statements when they
become effective or if they are otherwise earlier adopted when available.
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
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 – ‘Business Combinations’, 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’s 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.
|
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|
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|
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|
||
|
Strategic Report
|
Sustainability
|
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|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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 ‘Significant increase in credit risk’ in the ‘Santander UK group level –
credit risk management’ 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’s 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 ‘Interest income’.
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
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 ‘Administration expenses’, within the line item ‘Operating expenses before impairment
losses, provisions and charges’ with the net interest on the defined benefit asset or liability included within ‘Net interest income’ 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.
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’s 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.
|
Annual Report 2024
|
Santander UK plc
|
132
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
generally over a
three
year useful economic life 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 generally over a
three
year useful life 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 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 ‘Goodwill and other intangible assets’ 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).
|
Owner-occupied properties
|
Not
exceeding
|
|
Office fixtures and equipment
|
|
|
Computer software
|
Generally
|
|
Right-of-use assets
|
Shorter of the lease term or the useful life of the underlying asset
|
|
Operating lease assets - vehicles
|
|
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.
In
2024
, the range of useful lives for Office fixtures and equipment expanded to
35
years due to the addition of fixtures and equipment in Unity Place.
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:
–
Financial assets and financial liabilities held for trading.
–
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
–
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.
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Financial assets: debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer’s perspective, such as loans and debt securities which consist
mainly of government bonds and covered bonds. Classification and subsequent measurement of debt instruments depend on the
Santander UK group’s
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’s
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
‘other’ 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’ 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’ 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:
–
Amortised cost – 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 ‘Interest and similar income’ 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.
–
FVOCI – Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets’ 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 ‘Other operating income’. Interest income from
these financial assets is included in ‘Interest and similar income’ using the effective interest rate method.
–
FVTPL – 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 ‘Other operating income’ 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’s perspective, being instruments that do not contain a contractual obligation to
pay cash and that evidence a residual interest in the issuer’s 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 ‘Other operating income’ 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:
–
Financial liabilities at FVTPL
(see Note
24
)
: 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)
–
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
–
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.
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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:
–
An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
–
The time value of money, and
–
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.
–
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.
–
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 ‘Credit impairment charges’.
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.
–
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’s original EIR and any gain or loss arising from the modification is
recognised in the income statement.
–
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 ‘new’ 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.
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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
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
‘Hedge accounting’ 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
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
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, infla
tion
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’s effectiveness in offsetting the exposure to changes in the hedged item’s 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.
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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 variability in future cash flows attributable
to i) interest rate and inflation risks on its GBP floating rate assets and liabilities ii) foreign currency risk on debt issuances denominated in foreign currency and
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,
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’s
or
cash-generating unit’s 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’s expected future cash flows obtainable as a result of the asset’s 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.
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’s 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’s 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
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
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For the purposes of the cash flow statement, cash and cash equivalents comprise balances with not more than three months maturity from the date of acquisition,
including cash and non-restricted balances with central banks and loans and advances to banks.
Balances with central banks represent amounts held at the Bank
of England as part of the Santander UK group’s liquidity management activities. It includes reserves collateralised accounts in respect of Santander UK’s
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
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. Management has considered the impact of developments in principal risks and uncertainties, as set out in the Risk review, on critical judgements
and accounting estimates.
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:
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
|
–
Establishing the criteria for a significant increase in credit risk (SICR) and, for corporate borrowers, internal credit risk rating
|
|
|
–
Determining the need for any judgemental adjustments
|
||
|
–
Determining an appropriate definition of default
|
||
|
–
Establishing low credit risk exemption (LCRE) criteria to determine that the credit risk did not increase significantly since initial recognition
|
||
|
–
Determining the need to assess corporate Stage 3 exposures individually
|
||
|
Key estimates
|
–
Forward-looking multiple economic scenario assumptions
|
|
|
–
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 ‘Credit risk –
credit risk management’ section of the Risk review.
Sensitivity of ECL allowance
For detailed disclosures, see 'Sensitivity of ECL allowance' in the ‘Credit risk – credit risk management’ section of the Risk review.
|
Key judgements
|
–
Determining whether a present obligation exists
|
|
–
Determining the likely outcome of future legal decisions
|
|
|
Key estimates
|
–
Probability, timing, nature and amount of any outflows that may arise from past events
|
Included in Litigation and other regulatory provisions in Note
27
are amounts in respect of management’s best estimates of liability relating to a legal dispute
regarding allocation of responsibility for a specific PPI portfolio of complaints,
and Plevin related litigation. Note
30
provides disclosure relating to ongoing factual
issues and reviews that could impact the timing and amount of any outflows.
It 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 by 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 each of these key judgements and estimates, see Notes
27
and
30
.
|
Annual Report 2024
|
Santander UK plc
|
138
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
The
Santander UK
group operates a number of defined benefit pension schemes as described in Note
28
and estimates their position as described in the
accounting policy ‘Pensions and other post retirement benefits’.
|
Key judgements
|
–
Setting the criteria for constructing the corporate bond yield curve used to determine the discount rate
|
|
–
Determining the methodology for setting the inflation assumption
|
|
|
Key estimates
|
–
Discount rate applied to future cash flows
|
|
–
Rate of price inflation
|
|
|
–
Expected lifetime of the schemes' members
|
|
|
–
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
28
.
Sensitivity of defined benefit pension scheme estimates
For detailed disclosures, see ‘Actuarial assumption sensitivities’ in Note
28
.
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 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.
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 judgement:
|
–
Determining the basis of goodwill impairment testing methodology, including the need for planning assumptions and internal capital allocations
|
|
Key estimates:
|
–
Forecast cash flows for cash generating units
|
|
–
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’s 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
19
.
Sensitivity of goodwill
For detailed disclosures, see ‘Sensitivities of key assumptions in calculating 'VIU’ in Note
19
.
|
Annual Report 2024
|
Santander UK plc
|
139
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Santander UK’s 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’s activities are in the UK.
–
Retail Business 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 as wealth management for high-net-worth clients.
–
Consumer Finance
provides prime auto consumer financing for individuals, businesses, and automotive distribution networks.
–
Corporate Commercial Banking
provides banking products and services to SMEs, mid-sized and larger corporates, typically with annual turnovers of
between
£
2
m
and
£
500
m
as well as to Local Authorities and Housing Associations.
–
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 covers clients' needs both in the UK and overseas.
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’s 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.
For the
year ended
31 December
|
Retail
Business
Banking
|
Consumer
Finance
|
Corporate
Commercial
Banking
|
Corporate
Centre
|
Total
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Net interest income
|
|
|
|
|
|
|
Non-interest income/(expense)
|
|
|
|
(
|
|
|
Total operating income/(expense)
|
|
|
|
(
|
|
|
Operating expenses before credit impairment charges, provisions and charges
|
(
|
(
|
(
|
(
|
(
|
|
Credit impairment charges
|
(
|
(
|
(
|
|
(
|
|
Provisions for other liabilities and charges
|
(
|
(
|
(
|
(
|
(
|
|
Total credit impairment charges, provisions and charges
|
(
|
(
|
(
|
(
|
(
|
|
Profit/(loss) before tax
|
|
(
|
|
(
|
|
|
Revenue/(expense) from external customers
|
|
|
|
(
|
|
|
Inter-segment (expense)/revenue
|
(
|
(
|
|
|
|
|
Total operating income/(expense)
|
|
|
|
(
|
|
|
Revenue/(expense) from external customers includes the following fee and commission income:
(1)
|
|||||
|
–
Current account and debit card fees
|
|
|
|
|
|
|
–
Insurance, protection and investments
|
|
|
|
|
|
|
–
Credit cards
|
|
|
|
|
|
|
–
Non-banking and other fees
(2)
|
|
|
|
|
|
|
Total fee and commission income
|
|
|
|
|
|
|
Fee and commission expense
|
(
|
(
|
(
|
(
|
(
|
|
Net fee and commission income/(expense)
|
|
|
|
(
|
|
|
Customer loans
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
Average number of full-time equivalent staff
|
|
|
|
|
|
(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.
|
Annual Report 2024
|
Santander UK plc
|
140
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Retail
Business
Banking
|
Consumer
Finance
|
Corporate
Commercial
Banking
|
Corporate
Centre
|
Total
|
|
|
2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Net interest income/(expense)
|
|
|
|
(
|
|
|
Non-interest income/(expense)
|
|
|
|
(
|
|
|
Total operating income/(expense)
|
|
|
|
(
|
|
|
Operating expenses before credit impairment charges, provisions and charges
|
(
|
(
|
(
|
(
|
(
|
|
Credit impairment charges
|
(
|
(
|
(
|
(
|
(
|
|
Provisions for other liabilities and charges
|
(
|
(
|
(
|
(
|
(
|
|
Total credit impairment charges, provisions and charges
|
(
|
(
|
(
|
(
|
(
|
|
Profit/(loss) before tax
|
|
|
|
(
|
|
|
Revenue from external customers
|
|
|
|
|
|
|
Inter-segment revenue/(expense)
|
|
(
|
|
(
|
|
|
Total operating income/(expense)
|
|
|
|
(
|
|
|
Revenue from external customers includes the following fee and commission income:
(1)
|
|||||
|
–
Current account and debit card fees
|
|
|
|
|
|
|
–
Insurance, protection and investments
|
|
|
|
|
|
|
–
Credit cards
|
|
|
|
|
|
|
–
Non-banking and other fees
(2)
|
|
|
|
|
|
|
Total fee and commission income
|
|
|
|
|
|
|
Fee and commission expense
|
(
|
(
|
(
|
(
|
(
|
|
Net fee and commission income/(expense)
|
|
|
|
(
|
|
|
Customer loans
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
Average number of full-time equivalent staff
|
|
|
|
|
|
|
Retail
Business
Banking
|
Consumer
Finance
|
Corporate
Commercial
Banking
|
Corporate
Centre
|
Total
|
|
|
2022
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Net interest income/(expense)
|
|
|
|
(
|
|
|
Non-interest income/(expense)
|
|
|
|
(
|
|
|
Total operating income/(expense)
|
|
|
|
(
|
|
|
Operating expenses before credit impairment charges, provisions and charges
|
(
|
(
|
(
|
(
|
(
|
|
Credit impairment charges
|
(
|
(
|
(
|
|
(
|
|
Provisions for other liabilities and charges
|
(
|
(
|
(
|
(
|
(
|
|
Total credit impairment charges, provisions and charges
|
(
|
(
|
(
|
(
|
(
|
|
Profit/(loss) before tax
|
|
|
|
(
|
|
|
Revenue/(expense) from external customers
|
|
|
|
(
|
|
|
Inter-segment (expense)/revenue
|
(
|
(
|
(
|
|
|
|
Total operating income/(expense)
|
|
|
|
(
|
|
|
Revenue from external customers includes the following fee and commission income:
(1)
|
|||||
|
–
Current account and debit card fees
|
|
|
|
|
|
|
–
Insurance, protection and investments
|
|
|
|
|
|
|
–
Credit card fees
|
|
|
|
|
|
|
–
Non-banking and other fees
(2)
|
|
|
|
|
|
|
Total fee and commission income
|
|
|
|
|
|
|
Fee and commission expense
|
(
|
(
|
(
|
(
|
(
|
|
Net fee and commission income/(expense)
|
|
|
|
(
|
|
|
Customer loans
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
Average number of full-time equivalent staff
|
|
|
|
|
|
(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.
|
Annual Report 2024
|
Santander UK plc
|
141
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Customer assets exclude intercompany balances (including joint ventures), as they carry low credit risk and therefore have an immaterial ECL, Accrued interest
that we have not yet charged to the customer's account, and Other items, consisting mainly of cash collateral. It also shows the relationship between Customer
deposits (see above) and Deposits by customers as presented in the Consolidated Balance Sheet.
|
Assets
|
Liabilities
|
|||
|
2024
|
2023
|
2024
|
2023
|
|
|
£m
|
£m
|
£m
|
£m
|
|
|
Customer balances (gross)
|
|
|
|
|
|
Loan loss allowance
|
(
|
(
|
—
|
—
|
|
Customer balances (net)
|
|
|
|
|
|
Intercompany balances (including joint ventures)
|
|
|
|
|
|
Accrued interest
|
|
|
|
|
|
Other items
|
|
|
(
|
(
|
|
Loans and advances to customers / Deposits by customers
|
|
|
|
|
For the
year ended
31 December
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Interest and similar income:
|
|||
|
Loans and advances to customers
|
|
|
|
|
Loans and advances to banks
|
|
|
|
|
Reverse repurchase agreements – non-trading
|
|
|
|
|
Other
|
|
|
|
|
Total interest and similar income
(1)
|
|
|
|
|
Interest expense and similar charges:
|
|||
|
Deposits by customers
|
(
|
(
|
(
|
|
Deposits by banks
|
(
|
(
|
(
|
|
Repurchase agreements – non-trading
|
(
|
(
|
(
|
|
Debt securities in issue
|
(
|
(
|
(
|
|
Subordinated liabilities
|
(
|
(
|
(
|
|
Other
|
(
|
(
|
(
|
|
Total interest expense and similar charges
(2)
|
(
|
(
|
(
|
|
Net interest income
|
|
|
|
(1)
Includes
£
296
m
(
2023
:
£
230
m
,
2022
:
£
87
m
) of interest income on financial assets at FVOCI.
(2)
Includes
£
762
m
(
2023
:
£
706
m
,
2022
:
£
6
m
) of interest expense on the effective part of derivatives hedging debt issuances and
£
3
m
(
2023
:
£
3
m
,
2022
:
£
3
m
) of interest expense on lease liabilities.
For the
year ended
31 December
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Fee and commission income:
|
|||
|
Current account and debit card fees
|
|
|
|
|
Insurance, protection and investments
|
|
|
|
|
Credit cards
|
|
|
|
|
Non-banking and other fees
(1)
|
|
|
|
|
Total fee and commission income
|
|
|
|
|
Total fee and commission expense
|
(
|
(
|
(
|
|
Net fee and commission income
|
|
|
|
(1) Non-banking and other fees include mortgages (except mortgage account fees), consumer finance, commitment commission, asset finance, invoice finance and trade finance.
|
Annual Report 2024
|
Santander UK plc
|
142
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Net (losses)/gains on financial instruments designated at fair value through profit or loss
(1)
|
(
|
(
|
|
|
Net (losses) on financial instruments mandatorily at fair value through profit or loss
(2)
|
(
|
(
|
(
|
|
Hedge ineffectiveness
|
|
|
|
|
Income from operating lease assets
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(1)
Net
(losses)
/gains
on financial
instruments
designated at fair value through profit or loss includes
losses of
£
16
m
on deposits (
2023
:
£
24
m
losses,
2022
£
35
m
gains
), losses of
£
22
m
on debt securities
2023
:
£
32
m
losses,
2022
:
£
31
m
gains).
(2)
Net
losses
on financial instruments mandatorily at fair value through profit or loss include gains of
£
7
m
on debt securities (
2023
:
£
5
m
gains,
2022
:
£
13
m
gains).
Net gains on financial instruments mandatorily at FVTPL includes fair value losses of
£
21
m
(
2023
: losses of
£
12
m
,
2022
: gains of
£
14
m
) 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
£
21
m
(
2023
: gains of
£
12
m
,
2022
: losses of
£
14
m
). As a
result, the net fair value movements recognised on the equity index-linked deposits and the related economic hedges were net gains of
£
nil
(
2023
:
£
nil
,
2022
:
£
nil
).
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Exchange rate differences in the consolidated income statement on items not at fair value through profit and loss
|
|
|
(
|
|
These are principally offset by related releases from the cash flow hedge reserve
|
(
|
(
|
|
In
2024
,
no
subordinated liabilities were repurchased as part of ongoing liability management exercises
(
2023
: profit of
£
4
m
).
AND CHARGES
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Staff costs:
|
|||
|
Wages and salaries
|
|
|
|
|
Performance-related payments
|
|
|
|
|
Social security costs
|
|
|
|
|
Pensions costs: – defined contribution plans
|
|
|
|
|
–
defined benefit plans
|
|
|
|
|
Other personnel costs
|
|
|
|
|
|
|
|
|
|
Other administration expenses
|
|
|
|
|
Depreciation, amortisation and impairment
|
|
|
|
|
|
|
|
Staff costs
Performance-related payments include bonuses paid in cash and share awards granted under the arrangements described in Note
35
. 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 ‘Shares awards’.
Performance-related
payments above include amounts related to deferred performance awards as follows:
|
Costs recognised in 2024
|
Costs expected to be recognised in 2025 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
|
||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
Cash
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Annual Report 2024
|
Santander UK plc
|
143
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
||||||
|
2024
|
2023
|
2024
|
2023
|
2024
|
2023
|
|||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|||
|
Cash award – not deferred
|
|
|
|
|
|
|
||
|
–
deferred
|
|
|
|
|
|
|
||
|
Shares award – not deferred
|
|
|
|
|
|
|
||
|
–
deferred
|
|
|
|
|
|
|
||
|
Total discretionary bonus
|
|
|
|
|
|
|
||
Other share-based payments consist of options granted under the Employee Sharesave scheme which comprise the Santander UK group’s cash-settled share-
based payments. For more, see Note
35
.
The average number of full-time equivalent staff in the year is set out in Note
2
.
Depreciation, amortisation and impairment
In
2024
, depreciation, amortisation and impairment included depreciation of
£
75
m
(
2023
:
£
64
m
,
2022
:
£
73
m
) on operating lease assets (where the Santander UK
group is the lessor) with a carrying amount of
£
574
m
at
31 December 2024
(
2023
:
£
488
m
,
2022
:
£
577
m
). It also included depreciation of
£
18
m
(
2023
:
£
30
m
,
2022
:
£
19
m
) on right-of-use assets with a carrying amount of
£
79
m
at
31 December 2024
(
2023
:
£
90
m
,
2022
:
£
112
m
).
Other administration expenses includes
£
18
m
(
2023
:
£
19
m
,
2022
:
£
21
m
)
related to short-term leases.
In
2024
, depreciation, amortisation and impairment included an impairment charge of
£
nil
(
2023
:
£
25
m
,
2022
:
£
10
m
) associated with branch and head office site
closures as part of our transformation. For more, see Note
20
.
For the
year ended
31 December
|
Group
|
|||
|
|
2024
|
2023
|
2022
|
|
£m
|
£m
|
£m
|
|
|
Audit fees:
|
|||
|
Fees payable to the Company’s auditor and its associates for the audit of the Santander UK group’s annual financial
statements
|
|
|
|
|
Fees payable to the Company’s auditor and its associates for other services to the Santander UK group:
|
|||
|
–
Audit of the Santander UK group's subsidiaries
|
|
|
|
|
Total audit fees
(1)
|
|
|
|
|
Non-audit fees:
|
|||
|
Audit-related assurance services
|
|
|
|
|
Other assurance services
|
|
|
|
|
Other non-audit services
|
|
|
|
|
Total non-audit fees
|
|
|
|
(1)
2024
audit fees included
£
0.1
m
(
2023
:
£
0.7
m
,
2022
:
£
0.6
m
) which related to the prior year.
Audit fees payable for the statutory audit of Santander UK plc were
£
12.9
m
(
2023
:
£
12.7
m
,
2022
:
£
10.9
m
).
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 non-audit services mainly comprised services performed in support of various debt issuance programmes.
Of the total non-audit fees,
£
0.2
m
(
2023
:
£
0.3
m
,
2022
:
£
0.2
m
accords with the definition of 'Audit Fees' per US Securities and Exchange Commission (SEC)
guidance,
£
2.0
m
(
2023
:
£
1.0
m
,
2022
:
£
0.7
m
) accords with the definition of 'Audit related fees' per that guidance and
£
48,300
(
2023
:
£
12,550
,
2022
:
£
nil
) accords
with the definition of 'All other fees' per that guidance.
Santander SA.
|
Annual Report 2024
|
Santander UK plc
|
144
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
For the
year ended
31 December
|
|
Group
|
||
|
|
2024
|
2023
|
2022
|
|
£m
|
£m
|
£m
|
|
|
Credit impairment charges:
|
|||
|
Loans and advances to customers
|
|
|
|
|
(Recoveries)/charges of loans and advances, net of collection costs
|
(
|
|
|
|
Off-balance sheet credit exposures (See Note 27)
|
|
|
|
|
|
|
|
|
|
Provisions for other liabilities and charges (excluding off-balance sheet credit exposures) (See Note 27)
|
|
|
|
|
Charge/(release) for residual value and voluntary termination
|
|
|
(
|
|
|
|
|
|
|
|
|
|
In
2024
,
2023
and
2022
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.
For the
year ended
31 December
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Current tax:
|
|||
|
UK corporation tax on profit for the year
|
|
|
|
|
Adjustments in respect of prior years
|
(
|
(
|
(
|
|
Total current tax
|
|
|
|
|
Deferred tax:
|
|||
|
Charge/(credit) for the year
|
|
|
(
|
|
Adjustments in respect of prior years
|
|
(
|
|
|
Total deferred tax
|
|
|
|
|
Tax on profit from continuing operations
|
|
|
|
The standard rate of UK corporation tax was
28
%
for banking entities
and
25
%
for non-banking entities
(
2023
:
27.75
%
)
for banking entities and
23.50
%
for non-
banking entities;
2022
:
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.
follows:
For the
year ended
31 December
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Profit before tax
|
|
|
|
|
Tax calculated at the statutory rate of
|
|
|
|
|
Bank surcharge on profits
|
|
|
|
|
Non-deductible preference dividends paid
|
|
|
|
|
Non-deductible UK Bank Levy
|
|
|
|
|
Non-deductible conduct remediation, fines and penalties
|
|
|
|
|
Other non-deductible costs and non-taxable income
|
|
|
|
|
Effect of change in tax rate on deferred tax provision
|
|
|
(
|
|
Tax relief on dividends in respect of other equity instruments
|
(
|
(
|
(
|
|
Adjustment to prior year provisions
|
(
|
(
|
(
|
|
Tax on profit
|
|
|
|
It is not anticipated that the
OECD Pillar Two rules which became effective from 1 January 2024
will impact the Santander UK group.
|
Annual Report 2024
|
Santander UK plc
|
145
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Current tax assets
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Assets
|
|
|
|
At 1 January
|
|
|
|
Income statement charge (including discontinued operations)
|
(
|
(
|
|
Other comprehensive income charge
|
(
|
(
|
|
Corporate income tax paid
|
|
|
|
Other movements
|
(
|
|
|
|
|
|
|
Assets
|
|
|
|
At 31 December
|
|
|
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 group engages in discussion, and co-operates, with HM Revenue Customs (HMRC) in their oversight of the Santander UK group'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 consistently applies the UK’s Code of Practice on Taxation for Banks. For more information, see our Taxation Strategy on our website.
Deferred tax
balance sheet after offsetting assets and liabilities where
the Santander UK group
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
|
Accelerated
tax
depreciation
|
Other
temporary
differences
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
(
|
(
|
|
|
|
(
|
(
|
|
Income statement charge
|
(
|
(
|
|
|
(
|
(
|
(
|
|
Transfers/reclassifications
|
|
|
|
|
|
|
|
|
Credited to other comprehensive income
|
|
|
|
|
|
|
|
|
At 31 December 2024
|
(
|
(
|
|
|
(
|
(
|
(
|
|
At 1 January 2023
|
|
(
|
|
(
|
|
(
|
(
|
|
Income statement (charge)/credit
|
(
|
(
|
|
|
(
|
|
(
|
|
Transfers/reclassifications
|
|
|
(
|
(
|
|
|
|
|
Credited/(charged) to other comprehensive income
|
|
|
(
|
|
|
|
(
|
|
At 31 December 2023
|
(
|
(
|
|
|
|
(
|
(
|
The deferred tax assets
and liabilities
above have been recognised
in
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’s three-year plan (described in Note
19
) would not cause a reduction in the deferred tax assets
recognised. In
2024
, there were
£
nil
unrecognised deferred tax assets on capital losses carried forward (
2023
:
£
nil
).
|
Annual Report 2024
|
Santander UK plc
|
146
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
For the
year ended
31 December
|
Group
|
Group
|
||||||
|
2024
|
2023
|
2022
|
2024
|
2023
|
2022
|
||
|
Pence per
share
|
Pence per
share
|
Pence per
share
|
£m
|
£m
|
£m
|
||
|
In respect of current year – first interim
|
|
|
|
|
|
|
|
|
– second interim
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
In 2024, an interim dividend of
£
1,311
m
(
2023
:
£
1,530
m
,
2022
:
£
1,014
m
) was paid on the Company's ordinary shares in issue. In 2024,
£
804
m
(
2023
:
£
750
m
,
2022
:
£
300
m
) of the dividends were special dividends. These were paid following review and approval by the Board in line with our dividend policy.
|
Annual Report 2024
|
Santander UK plc
|
147
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
Group
|
|||||||
|
2024
|
2023
|
||||||
|
Fair value
|
Fair value
|
||||||
|
Notional
amount
|
Assets
|
Liabilities
|
Notional
amount
|
Assets
|
Liabilities
|
||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
Derivatives held for trading:
|
|||||||
|
Exchange rate contracts
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
Equity and credit contracts
|
|
|
|
|
|
|
|
|
Total derivatives held for trading
|
|
|
|
|
|
|
|
|
Derivatives held for hedging
|
|||||||
|
Designated as fair value hedges:
|
|||||||
|
Exchange rate contracts
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Designated as cash flow hedges:
|
|||||||
|
Exchange rate contracts
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
Inflation rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Total derivatives held for hedging
|
|
|
|
|
|
|
|
|
Derivative netting
(1)
|
—
|
(
|
(
|
—
|
(
|
(
|
|
|
Total derivatives
|
|
|
|
|
|
|
|
(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
£
489
m
(
2023
:
£
472
m
) and the amount of cash collateral paid that had been offset against the gross derivative liabilities was
£
32
m
(
2023
:
£
12
m
).
At
31 December 2024
, the fair value of derivative assets included amounts due from Banco Santander group entities of
£
544
m
(
2023
:
£
762
m
) and the fair value
of derivative liabilities included amounts due to Banco Santander group entities of
£
244
m
(
2023
:
£
230
m
).
|
Annual Report 2024
|
Santander UK plc
|
148
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
For information about the impact of netting arrangements on derivative assets and liabilities in the table above, see Note
39
.
|
Notional
|
|||||
|
Traded over the counter
|
Asset
|
Liability
|
|||
|
Settled by
central
counterpartie
s
|
Not settled by
central
counterpartie
s
|
Total
|
Traded over
the counter
|
Traded over
the counter
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Exchange rate contracts
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
Inflation rate contracts
|
|
|
|
|
|
|
Equity and credit contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|||||
|
Exchange rate contracts
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
Equity and credit contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
Annual Report 2024
|
Santander UK plc
|
149
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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 inflation risk
Santander UK has exposure to inflation risk arising on UK inflation-linked gilts, that is hedged by entering into inflation swaps. Cash flow hedging is applied
whereby the inflation swap is hedging variability in cash flows of the inflation-linked gilt due to changes in GBP RPI. Effectiveness is assessed by comparing
changes in the fair value of the inflation 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.
|
Annual Report 2024
|
Santander UK plc
|
150
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Maturity profile and average price/rate of hedging instruments
|
Group
|
|||||||
|
2024
|
Hedging Instruments
|
≤1 month
|
1 and ≤3
months
|
3 and ≤12
months
|
1 and ≤5
years
|
5 years
|
Total
|
|
Fair value hedges:
|
|||||||
|
Interest rate risk
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Average fixed interest rate - GBP
|
|
|
|
|
|
||
|
Average fixed interest rate - EUR
|
|
(
|
(
|
|
|
||
|
Average fixed interest rate - USD
|
|
|
|
|
|
||
|
Interest rate/FX risk
|
Exchange rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
|
Average GBP - EUR exchange rate
|
|
|
|
|
|
||
|
Average GBP - USD exchange rate
|
|
|
|
|
|
||
|
Average fixed interest rate - EUR
|
|
|
|
|
|
||
|
Average fixed interest rate - USD
|
|
|
|
|
|
||
|
Cash flow hedges:
|
|||||||
|
Interest rate risk
|
Interest rate contracts – Nominal amount (£m)
|
|
|
|
|
|
|
|
Average fixed interest rate - GBP
|
|
|
|
|
|
||
|
FX risk
|
Exchange rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
|
Average GBP - JPY exchange rate
|
|
|
|
|
|
||
|
Average GBP - CHF exchange rate
|
|
|
|
|
|
||
|
Average GBP - CAD exchange rate
|
|
|
|
|
|
||
|
Average GBP - EUR exchange rate
|
|
|
|
|
|
||
|
Average GBP - USD exchange rate
|
|
|
|
|
|
||
|
Interest rate/FX risk
|
Exchange rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
|
Average GBP - EUR exchange rate
|
|
|
|
|
|
||
|
Average GBP - USD exchange rate
|
|
|
|
|
|
||
|
Average fixed interest rate - GBP
|
|
|
|
|
|
||
|
Inflation risk
|
Inflation derivative contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Average fixed interest rate - GBP
|
|
|
|
|
|
||
|
2023
|
|||||||
|
Fair value hedges:
|
|||||||
|
Interest rate risk
|
Interest rate contracts- Nominal amount (£m)
|
|
|
|
|
|
|
|
Average fixed interest rate - GBP
|
|
|
|
|
|
||
|
Average fixed interest rate - EUR
|
|
|
|
|
|
||
|
Average fixed interest rate - USD
|
|
|
|
|
|
||
|
Interest rate/FX risk
|
Exchange rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
|
Average GBP - EUR exchange rate
|
|
|
|
|
|
||
|
Average GBP - USD exchange rate
|
|
|
|
|
|
||
|
Average fixed interest rate - EUR
|
|
|
|
|
|
||
|
Average fixed interest rate - USD
|
|
|
|
|
|
||
|
Cash flow hedges:
|
|||||||
|
Interest rate risk
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Average fixed interest rate - GBP
|
|
|
|
|
|
||
|
FX risk
|
Exchange rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
|
Average GBP - JPY exchange rate
|
|
|
|
|
|
||
|
Average GBP - CHF exchange rate
|
|
|
|
|
|
||
|
Average GBP - EUR exchange rate
|
|
|
|
|
|
||
|
Average GBP - USD exchange rate
|
|
|
|
|
|
||
|
Interest rate/FX risk
|
Exchange rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
Interest rate contracts - Nominal amount (£m)
|
|
|
|
|
|
|
|
|
Average GBP - EUR exchange rate
|
|
|
|
|
|
||
|
Average GBP - USD exchange rate
|
|
|
|
|
|
||
|
Average fixed interest rate - GBP
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
151
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Page intentionally blank
|
Annual Report 2024
|
Santander UK plc
|
152
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Net gains or losses arising from fair value
and cash flow hedges
included in other operating income
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Fair value hedging:
|
|||
|
Gains/(Losses) on hedging instruments
|
|
(
|
|
|
(Losses)/Gains on hedged items attributable to hedged risks
|
(
|
|
(
|
|
Fair value hedging ineffectiveness
|
|
|
|
|
Cash flow hedging ineffectiveness
|
(
|
|
(
|
|
|
|
|
|
Group
|
|||||||||||
|
2024
|
2023
|
2022
|
|||||||||
|
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
|
|||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|||
|
Fair value hedges:
|
|||||||||||
|
Interest rate risk
|
|
(
|
|
(
|
|
|
|
(
|
|
||
|
Interest rate/FX risk
|
|
(
|
|
(
|
|
|
(
|
|
|
||
|
|
(
|
|
(
|
|
|
|
(
|
|
|
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
|
|||
|
£m
|
£m
|
£m
|
£m
|
||
|
Cash flow hedges:
|
|||||
|
2024
|
|||||
|
Interest rate risk
|
Net interest income
|
(
|
|
(
|
(
|
|
FX risk
|
Net interest income/other operating income
|
|
(
|
|
|
|
Interest rate/FX risk
|
Net interest income/other operating income
|
(
|
|
(
|
(
|
|
Inflation Risk
|
Net Interest Income
|
|
(
|
|
|
|
(
|
|
(
|
(
|
||
|
2023
|
|||||
|
Interest rate risk
|
Net interest income
|
|
(
|
|
(
|
|
FX risk
|
Net interest income/other operating income
|
(
|
|
(
|
(
|
|
Interest rate/FX risk
|
Net interest income/other operating income
|
(
|
|
|
(
|
|
(
|
|
|
(
|
||
|
2022
|
|||||
|
Interest rate risk
|
Net interest income
|
(
|
|
(
|
(
|
|
FX risk
|
Net interest income/other operating income
|
|
(
|
|
|
|
Interest rate/FX risk
|
Net interest income/other operating income
|
(
|
|
(
|
|
|
|
(
|
(
|
|
||
|
Annual Report 2024
|
Santander UK plc
|
153
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
In
2024
, cash flow hedge accounting of
£
nil
(
2023
:
£
nil
) had to cease due to the hedged cash flows no longer being expected to occur.
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Balance at 1 January
|
(
|
(
|
|
Effective portion of changes in fair value:
|
||
|
– Interest rate risk
|
(
|
|
|
– Foreign currency risk
|
|
(
|
|
– Interest rate/foreign currency risk
|
(
|
(
|
|
– Inflation risk
|
|
|
|
(
|
(
|
|
|
Income statement transfers:
|
||
|
– Interest rate risk
|
|
|
|
– Foreign currency risk
|
(
|
|
|
– Interest rate/foreign currency risk
|
|
|
|
– Inflation risk
|
(
|
|
|
|
|
|
|
Balance at 31 December
|
(
|
(
|
|
Annual Report 2024
|
Santander UK plc
|
154
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Hedged exposures
|
Group
|
|||||||||||
|
2024
|
2023
|
||||||||||
|
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
ineffectiven
ess
|
||||||||
|
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
|
||||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
Fair value hedges
|
|||||||||||
|
Interest rate risk:
|
|||||||||||
|
Loans and advances to customers
|
|
|
(
|
(
|
(
|
|
|
(
|
(
|
|
|
|
Other financial assets at amortised cost
|
|
(
|
(
|
(
|
(
|
|
|
(
|
(
|
|
|
|
Reverse repurchase agreements – non
trading
|
|
|
(
|
|
(
|
|
|
|
|
|
|
|
Other financial assets at FVOCI
|
|
(
|
|
(
|
(
|
|
(
|
|
(
|
|
|
|
Deposits by customers
|
(
|
|
|
|
(
|
(
|
|
(
|
|
(
|
|
|
Debt securities in issue
|
(
|
|
(
|
(
|
|
(
|
|
(
|
(
|
(
|
|
|
Subordinated liabilities
|
(
|
(
|
(
|
(
|
|
(
|
(
|
(
|
(
|
(
|
|
|
Interest rate/FX risk:
|
|||||||||||
|
Other financial assets at FVOCI
|
|
|
|
|
(
|
|
|
|
|
|
|
|
Debt securities in issue
|
(
|
(
|
|
(
|
|
(
|
(
|
|
(
|
|
|
|
Subordinated liabilities
|
|
|
|
|
|
|
|
|
|
(
|
|
|
|
(
|
(
|
(
|
(
|
|
|
(
|
(
|
|
||
|
Group
|
|||||||
|
2024
|
2023
|
||||||
|
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
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Cash flow hedges:
|
|||||||
|
Interest rate risk:
|
|||||||
|
Loans and advances to customers
|
|
(
|
|
(
|
(
|
|
|
|
Cash and balances at central banks
|
|
(
|
(
|
(
|
|
(
|
|
|
Deposits by banks
|
(
|
|
|
(
|
(
|
|
|
|
Repurchase agreements - non trading
|
(
|
|
|
|
|
|
|
|
FX risk:
|
|||||||
|
Other financial assets at FVOCI
|
(
|
|
|
(
|
|
|
|
|
Not applicable – highly probable forecast
transactions
|
|
|
|
|
|
|
|
|
Deposits by customers
|
|
|
|
(
|
|
|
|
|
Debt securities in issue
|
|
|
|
|
(
|
|
|
|
Repurchase agreements - non trading
|
|
|
|
(
|
|
|
|
|
Interest rate/FX risk:
|
|||||||
|
Debt securities in issue/loans and advances to
customers
|
|
(
|
|
|
(
|
|
|
|
Deposits by customers
|
|
(
|
|
|
(
|
|
|
|
Subordinated liabilities/loans and advances to
customers
|
|
(
|
|
|
(
|
|
|
|
Inflation risk:
|
|||||||
|
Other financial assets at amortised cost
|
(
|
|
|
|
|
|
|
|
Other financial assets at FVOCI
|
(
|
|
|
|
|
|
|
|
|
(
|
|
|
(
|
(
|
|
Annual Report 2024
|
Santander UK plc
|
155
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Page intentionally blank
|
Annual Report 2024
|
Santander UK plc
|
156
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
|
2024
|
2023
|
|
|
£m
|
£m
|
|
Loans and advances to customers:
|
||
|
Loans to housing associations
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
Other debt instruments
|
|
|
|
|
|
For the Santander UK group, other financial assets at FVTPL comprised
£
60
m
(
2023
:
£
8
m
) of financial assets designated at FVTPL and
£
76
m
(
2023
:
£
254
m
) 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.
The net loss in the year attributable to changes in credit risk for loans and advances at FVTPL was
£
nil
(
2023
:
£
nil
,
2022
:
£
1
m
). The cumulative net loss
attributable to changes in credit risk for loans and advances at FVTPL at
31 December 2024
was
£
3
m
(
2023
:
£
3
m
,
2022
:
£
3
m
).
|
Annual Report 2024
|
Santander UK plc
|
157
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
|
2024
|
2023
|
|
£m
|
£m
|
|
|
Loans secured on residential properties
|
|
|
|
Corporate loans
|
|
|
|
Finance leases
|
|
|
|
Other unsecured loans
|
|
|
|
Accrued interest and other adjustments
|
|
|
|
Amounts due from fellow Banco Santander subsidiaries and joint ventures
|
|
|
|
Amounts due from Santander UK Group Holdings plc
|
|
|
|
Loans and advances to customers
|
|
|
|
Credit impairment loss allowances on loans and advances to customers
|
(
|
(
|
|
Residual value and voluntary termination provisions on finance leases
|
(
|
(
|
|
Net loans and advances to customers
|
|
|
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.
|
Group
|
|||||||
|
2024
|
2023
|
||||||
|
Gross
investment
|
Unearned
finance
income
|
Net
investment
|
Gross
investment
|
Unearned
finance
income
|
Net
investment
|
||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
No later than one year
|
|
(
|
|
|
(
|
|
|
|
Later than one year and not later than two years
|
|
(
|
|
|
(
|
|
|
|
Later than two years and not later than three years
|
|
(
|
|
|
(
|
|
|
|
Later than three years and not later than four years
|
|
(
|
|
|
(
|
|
|
|
Later than four years and not later than five years
|
|
(
|
|
|
(
|
|
|
|
Later than five years
|
|
(
|
|
|
(
|
|
|
|
|
(
|
|
|
(
|
|
||
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
£
1,748
m
(
2023
:
£
1,830
m
) 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
(
2023
:
£
nil
,
2022
:
£
nil
) was earned
in the year, which was classified in ‘Interest and similar income’. Finance income on the net investment in finance leases was
£
308
m
(
2023
:
£
266
m
,
2022
:
£
230
m
).
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
.
under operating leases.
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
No later than one year
|
|
|
|
Later than one year and not later than two years
|
|
|
|
Later than two years and not later than three years
|
|
|
|
Later than three years and not later than four years
|
|
|
|
Later than four years and not later than five years
|
|
|
|
Later than five years
|
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
158
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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’s 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
securitisation (or for the covered bond programme assigned) and the carrying value of the notes in issue at
31 December 2024
and
2023
are listed below. The
gross assets in the Group table below were transferred from the Company to the securitisations and covered bond programme vehicles but do not qualify for
derecognition from the Company.
|
Group
|
||||||||
|
Gross assets
|
External notes in issue
|
Notes held within the Group
|
||||||
|
2024
|
2023
|
2024
|
2023
|
2024
|
2023
|
|||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|||
|
Mortgage-backed master trust structures:
|
||||||||
|
–
Holmes
|
|
|
|
|
|
|
||
|
–
Fosse
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|||
|
Other asset-backed securitisation structures:
|
||||||||
|
–
Repton
|
|
|
|
|
|
|
||
|
Total securitisation programmes
|
|
|
|
|
|
|
||
|
Covered bond programme:
|
||||||||
|
–
Euro
|
|
|
|
|
|
|
||
|
Total securitisation and covered bond programmes
|
|
|
|
|
|
|
||
|
Annual Report 2024
|
Santander UK plc
|
159
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
|||||||||||
|
Internal issuances
|
External issuances
|
Internal redemptions
|
External redemptions
|
||||||||
|
2024
|
2023
|
2024
|
2023
|
2024
|
2023
|
2024
|
2023
|
||||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||||
|
Mortgage-backed master trust structures:
|
|||||||||||
|
–
Holmes
|
|
|
|
|
|
|
|
|
|||
|
–
Fosse
|
|
|
|
|
|
|
|
|
|||
|
Other asset-backed securitisation structures:
|
|||||||||||
|
–
Motor
|
|
|
|
|
|
|
|
|
|||
|
–
Repton
|
|
|
|
|
|
|
|
|
|||
|
Covered bond programme:
|
|||||||||||
|
–
Euro
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||||
Holmes Funding Ltd has a beneficial interest of
£
3,735
m
(
2023
:
£
2,396
m
) 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
£
1,394
m
(
2023
:
£
1,393
m
) 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
£
126
m
(
2023
:
£
80
m
), 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
£
48
m
(
2023
:
£
108
m
), which have been accumulated to finance the redemption of a number of
securities issued by the Fosse securitisation companies. The share of Fosse Funding (No.1) Ltd’s beneficial interest in the assets held by Fosse Trustee (UK) Ltd
is therefore reduced by this amount.
|
Annual Report 2024
|
Santander UK plc
|
160
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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 transferred under securitisation or covered bond 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’s
recourse is not limited to the transferred assets.
The
Santander UK group
securitisation and covered bond 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 or covered bond vehicle, retaining an interest in the securitisation or covered bond 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.
following table analyses the carrying amount of other financial assets that did not qualify for derecognition and their associated financial liabilities:
|
Group
|
|||||
|
2024
|
2023
|
||||
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
||
|
Nature of transaction
|
£m
|
£m
|
£m
|
£m
|
|
|
Sale and repurchase agreements
|
|
(
|
|
(
|
|
|
Securities lending agreements
|
|
(
|
|
(
|
|
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Agreements with banks
|
|
|
|
Agreements with customers
|
|
|
|
|
|
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Asset backed securities
|
|
|
|
Debt securities
|
|
|
|
0
|
|
|
A significant portion of the debt securities are held in our eligible liquidity pool and consist mainly of government bonds and covered bonds. In
2024
, Santander UK
increased the allocation of liquid assets to longer-dated, duration-hedged UK Gilts to support ongoing HQLA requirements. Detailed disclosures can be found in
the 'Liquidity risk' section of the Risk review.
|
Annual Report 2024
|
Santander UK plc
|
161
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
|
2024
|
2023
|
|
£m
|
£m
|
|
|
Subsidiaries
|
|
|
|
Joint Ventures
|
|
|
|
0
|
|
|
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.
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
2024
, Santander UK’s share in the profit after tax of its joint ventures was
£
45
m
(
2023
:
£
43
m
) before elimination of transactions between Santander UK and the joint ventures. At
31 December 2024
, the carrying amount of Santander UK’s
interest was
£
289
m
(
2023
:
£
245
m
). At
31 December 2024
and
2023
, the joint ventures had
no
commitments and contingent liabilities.
|
Annual Report 2024
|
Santander UK plc
|
162
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
£
7,591
m
(
2023
:
£
8,551
m
) are accounted for as part of the defined benefit assets and obligations recognised on Santander UK’s
balance sheet. For more on the Fund, see Note
28
. As the Fund holds the assets of the pension scheme, it is outside the scope of IFRS 10. Santander UK’s
maximum exposure to loss is the carrying amount of the assets held.
ii) Credit protection entities
Santander UK has established
five
(
2023
:
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.
Credit linked notes, which amounted to
£
226
m
(
2023
:
£
185
m
), are all held by third party investors. Funds raised by the sale of the credit linked notes are
deposited with Santander UK as collateral for the credit protection.
Deposits and associated guarantees in respect of the credit linked notes are included in ‘Deposits by customers’ (see Note
22
).
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 are fully cash collateralised,
Santander UK’s maximum exposure to loss is equal to any unamortised fees paid to the entities in connection with the credit protection outlined above.
|
Annual Report 2024
|
Santander UK plc
|
163
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
|||
|
Cost
|
Accumulated
impairment
|
Carrying
amount
|
|
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024 and 31 December 2024
|
|
(
|
|
Impairment of goodwill
In
2024
and
2023
for the Santander UK group,
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 uncertain macroeconomic and geopolitical environment increases the risk around 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 2024
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’s 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.
|
Goodwill
|
Discount rate
|
Growth rate beyond initial cash
flow projections
|
||||||
|
2024
|
2023
|
2024
|
2023
|
2024
|
2023
|
|||
|
CGU
|
£m
|
£m
|
%
|
%
|
%
|
%
|
||
|
Personal Financial Services
|
|
|
|
|
|
|
||
|
Private Banking
|
|
|
|
|
|
|
||
|
|
|
|||||||
The CGUs do not carry on their balance sheets any other intangible assets with indefinite useful lives.
Management’s 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’s planning assumptions in light of internal capital allocations needed to support Santander UK’s strategy, current market
conditions and the macroeconomic outlook. For the goodwill impairment tests conducted at
31 December 2024
, the determination of the carrying amount of the
Personal Financial Services CGU was based on an allocation of regulatory capital and management’s cash flow projections until the end of 2027. 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’s base
case economic scenario. For more on the base case economic scenario, including our forecasting approach and the assumptions in place at
31 December 2024
,
see the Credit risk – 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
30
), 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’s transformation plans that had not yet been implemented or committed at
31 December 2024
.
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’s assessment of the economic variables and management’s
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 pre-tax equivalent rate applicable to
the Personal Financial Services CGU was
16.5
%
(
2023
:
16.7
%
) and Private Banking CGU was
15.1
%
(
2023
:
14.6
%
). 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’s 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 elevated wage growth, weak productivity, large government debt burden and fragile business and consumer
confidence.
|
Annual Report 2024
|
Santander UK plc
|
164
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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 2024
did not indicate the need for an
impairment in the Company’s 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 2024
and
31 December 2023
, 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 main
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.
|
CGU
|
Input
|
Key assumptions
|
Associated risks
|
Reasonably possible change
|
|
Personal Financial
Services
|
Cash flow projections
|
–
BoE Bank Rate
–
UK house price growth
–
UK mortgage loan market growth
–
UK unemployment rate
–
Position in the market
–
Regulatory capital levels.
|
–
Uncertain market outlook
–
Higher interest rate environment impact
on customer affordability
–
Customer remediation and regulatory
action outcomes
–
Uncertain regulatory capital requirements.
|
–
Cash flow projections
decrease by
|
|
Discount rate
|
–
Discount rate used is a reasonable
estimate of a suitable market rate
for the profile of the business.
|
–
Market rates of interest rise.
|
–
Discount rate increases by
increased by
points
)
.
|
At
31 December 2024
and
31 December 2023
, 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 decrease/increase in headroom as follows.
|
Decrease in headroom
|
|||
|
2024
|
2023
|
||
|
CGU
|
Reasonably possible change
|
£m
|
£m
|
|
Personal Financial Services
|
Cash flow projections decrease by
|
|
|
|
Discount rate increases by
|
|
|
|
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 2024
, 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
2024
, there was a decrease in headroom arising from a decline in cash flow forecasts, partially offset by a decrease to RWAs which led to a reduction in the
required CET1 capital requirement.
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.
|
2024
|
Carrying
value
|
Value in use
|
Headroom
|
Increase in
discount rate
|
Decrease in
cash flows
|
|
CGU
|
£m
|
£m
|
£m
|
bps
|
%
|
|
Personal Financial Services
|
|
|
|
|
|
|
2023
|
|||||
|
Personal Financial Services
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
165
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
b) Other intangibles
|
Group
|
|||
|
Cost
|
Accumulated
amortisation /
impairment
|
Carrying
amount
|
|
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
|
(
|
|
|
Additions
|
|
|
|
|
Disposals
|
(
|
|
(
|
|
Charge
|
|
(
|
(
|
|
At 31 December 2024
|
|
(
|
|
|
At 1 January 2023
|
|
(
|
|
|
Additions
|
|
|
|
|
Disposals
|
(
|
|
|
|
Charge
|
|
(
|
(
|
|
At 31 December 2023
|
|
(
|
|
Other intangibles which consist of computer software, include computer software under development of
£
99
m
(
2023
:
£
157
m
), of which
£
20
m
is internally
generated (
2023
:
£
35
m
).
|
Group
|
||||||
|
Property
|
Office fixtures and
equipment
|
Computer
software
|
Operating lease
assets
|
Right-of-use
assets
|
Total
(1)
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Cost:
|
||||||
|
At 1 January 2024
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Disposals
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Other
|
|
|
|
|
|
|
|
At 31 December 2024
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
||||||
|
At 1 January 2024
|
|
|
|
|
|
|
|
Charge for the year
|
|
|
|
|
|
|
|
Impairment during the year
|
(
|
(
|
|
|
|
(
|
|
Disposals
|
(
|
(
|
(
|
(
|
|
(
|
|
Other
|
|
|
|
|
|
|
|
At 31 December 2024
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
Cost:
|
||||||
|
At 1 January 2023
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Reclassification from assets held for sale
|
|
|
|
|
|
|
|
Disposals
|
(
|
(
|
(
|
(
|
(
|
(
|
|
At 31 December 2023
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
||||||
|
At 1 January 2023
|
|
|
|
|
|
|
|
Charge for the year
|
|
|
|
|
|
|
|
Impairment during the year
|
|
|
|
|
(
|
(
|
|
Disposals
|
(
|
(
|
(
|
(
|
(
|
(
|
|
At 31 December 2023
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
(1)
Property, plant and equipment includes investment properties of
£
16
m
(
2023
:
£
17
m
).
In
2023
, right-of-use assets were impaired as part of our transformation. 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.
|
Annual Report 2024
|
Santander UK plc
|
166
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Items in the course of transmission
|
|
|
|
Deposits held as collateral
|
|
|
|
Other deposits
(1)
|
|
|
|
Amounts due to Santander UK subsidiaries
|
|
|
|
|
|
(1)
Includes balance drawn from the TFSME of
£
11
bn
(
2023
:
£
17
bn
).
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Demand and time deposits
(1)
|
|
|
|
Amounts due to other Santander UK Group Holdings plc subsidiaries
|
|
|
|
Amounts due to Santander UK Group Holdings plc
(2)
|
|
|
|
Amounts due to fellow Banco Santander subsidiaries and joint ventures
|
|
|
|
|
|
(1)
Includes capital amount guaranteed / protected equity index-linked deposits of
£
173
m
(
2023
:
£
304
m
).
(2)
Includes downstreamed funding from our immediate parent company Santander UK Group Holdings plc.
|
Annual Report 2024
|
Santander UK plc
|
167
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Agreements with banks
|
|
|
|
Agreements with customers
|
|
|
|
|
|
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Structured Notes Programmes
|
|
|
|
Structured deposits
|
|
|
|
Zero Amortising Guaranteed Notes
|
|
|
|
|
|
For the Santander UK group
,
all (
2023
: 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’s own credit risk on the
above securities was
£
17
m
(
2023
:
£
21
m
loss,
2022
:
£
25
m
gain). The cumulative net loss attributable to changes in the Santander UK group’s own credit risk on
the above securities at
31 December 2024
was
£
4
m
(
2023
:
£
6
m
loss,
2022
:
£
15
m
gain).
At
31 December 2024
, the amount that would be required to be contractually paid at maturity of the securities above was
£
76
m
(
2023
:
£
97
m
) higher than the
carrying value.
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Medium-term notes:
|
||
|
– US
$
|
|
|
|
– Euro
€
|
|
|
|
- US SEC-registered Debt Programme - Santander UK plc
|
|
|
|
0
|
|
|
|
Euro
€
|
|
|
|
US
$
|
|
|
|
Certificates of deposit
|
|
|
|
Credit linked notes
|
|
|
|
Securitisation programmes
|
|
|
|
|
|
|
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Lease liabilities
|
|
|
|
Other
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
168
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
|||||||||
|
Customer
remediatio
n
|
Litigation
and other
regulatory
|
Regulatory
levies and
fees
|
Bank Levy
|
Property
|
ECL on
undrawn
facilities
and
guarantees
|
Restructurin
g
|
Other
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
At 1 January 2024
|
|
|
|
|
|
|
|
|
|
|
Additional provisions (See Note 8)
|
|
|
|
|
|
|
|
|
|
|
Provisions released (See Note 8)
|
|
(
|
|
|
(
|
|
|
|
(
|
|
Utilisation and other
|
(
|
(
|
(
|
(
|
(
|
|
(
|
(
|
(
|
|
Recharge
(1)
|
|
|
|
|
|
|
|
|
|
|
Reclassification from provisions to other assets
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2024
|
|
|
|
|
|
|
|
|
|
(1)
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 2024
were
£
208
m
(
2023
:
£
217
m
).
a) Customer remediation
SCUK - Motor Finance Broker Commissions
Following the FCA’s 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.
During
2024
the FCA commenced a review of the use of DCAs between lenders and credit brokers (FCA review) which, following an extension, it stated it
anticipated to conclude by May 2025. Pending the conclusion of its review, the FCA first paused DCA related complaints and then extended this to motor finance
commission related complaints which are now paused until 4 December 2025. A claim against SCUK, Santander UK plc and others in the Competition Appeal
Tribunal, which alleges that SCUK’s historical DCAs in respect of used car financing operated in breach of the Competition Act 1998 is currently paused until the
end of July 2025 pending the outcome of the FCA’s review.
The outcome of the FCA’s review may be informed by an appeal to the Supreme Court to be heard in April 2025 of the Court of Appeal’s judgment of October
2024
relating to the use of DCAs by
two
other lenders, and by an appeal to the Court of Appeal of the High Court’s judicial review of the Financial Ombudsman
Service’s final decision relating to a complaint about the use of a DCA by another lender.
In light of the Court of Appeal’s judgment of October
2024
, the Santander UK group recognised a provision of
£
295
m
in its financial results for
2024
. This includes
estimates for operational and legal costs and potential awards, based on various scenarios using a range of assumptions, including the outcomes of the appeals
above.
There continue to be significant uncertainties as to the extent of any misconduct, if any, as well as the perimeter of commission models, and the nature,
extent and timing of any remediation action if required. As such, the ultimate financial impact could be materially higher or lower than the amount provided and it is
not practicable to quantify the extent of any remaining contingent liability.
|
Increase / (decrease) in
provision
|
||
|
2024
|
||
|
Assumption
|
Change in assumption
|
£m
|
|
Claim rate
|
5% increase
|
|
|
Claim rate
|
5% decrease
|
(
|
The claim rate represents the proportion of customers who make a request for reimbursement and is a critical accounting estimate that could materially change
the ultimate financial impact.
Our best estimate of liability is based on similar experience to PPI claim rates which peaked at up to
50
%
over the lifetime of the redress programme.
|
Annual Report 2024
|
Santander UK plc
|
169
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Mortgages
Provisions were also recognised in
2024
for customer remediation relating to our mortgage book. These 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 of 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
2024
there were net charges of
£
39
m
for legal provisions.
The balance also includes 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
30
. No further information on the best estimate is provided on the basis that it would be seriously prejudicial.
c) Regulatory levies and fees
Regulatory levies and fees are payable to regulatory bodies such as the FCA, PRA and Bank of England in the ordinary course of business. In
2024
there were
charges of
£
42
m
relating to the new Bank of England levy.
d) Bank Levy
In
2024
, a rate of
0.05
%
(
2023
:
0.05
%
) was
charged on long term chargeable equity and liabilities and
0.10
%
on short-term chargeable liabilities
(
2023
:
0.10
%
)
.
e) 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’s interest in the lease, taking into account conditions in the property market.
Property provisions include a release of
£
2
m
relating to transformation activity in
2024
(
2023
: charge of
£
4
m
). In
2024
, these charges consisted of costs
relating to leasehold head office closures, along with decommissioning costs relating to freehold head office sites which are either closing or consolidating.
f) ECL on undrawn facilities and guarantees
Provisions include expected credit losses relating to guarantees given to third parties and undrawn loan commitments.
g) Restructuring
Restructuring provisions relate to severance costs associated with transformation and organisational changes. The provision includes a charge of
£
82
m
as part of
our transformation to improve future returns, focused on simplifying, digitising and automating the bank.
h) 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
2024
, Other
provisions included charges for operational risk provisions of
£
161
m
, including fraud losses of
£
122
m
.
|
Annual Report 2024
|
Santander UK plc
|
170
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Assets/(liabilities)
|
||
|
Funded defined benefit pension scheme - surplus
|
|
|
|
Funded defined benefit pension scheme - deficit
|
|
(
|
|
Unfunded pension and post-retirement medical benefits
|
(
|
(
|
|
Total net assets
|
|
|
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
£
79
m
(
2023
:
£
71
m
) was recognised for defined contribution plans in the year 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
6
%
(
2023
:
7
%
) of the Santander UK group’s 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
(
2023
:
six
) Directors selected by Santander UK Group Holdings plc, plus
four
(
2023
:
four
) member-nominated Directors selected
from eligible members who apply for the role.
The assets of the Scheme are held independently of the Santander UK group’s 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
£
183
m
. 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.
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Net interest income
|
(
|
(
|
(
|
|
Current service cost
|
|
|
|
|
Past service and GMP costs
|
|
|
|
|
Administration costs
|
|
|
|
|
(
|
(
|
|
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Return on plan assets (excluding amounts included in net interest expense)
|
|
|
|
|
Actuarial gains arising from changes in demographic assumptions
|
(
|
(
|
(
|
|
Actuarial losses arising from experience adjustments
|
|
|
|
|
Actuarial (gains)/losses arising from changes in financial assumptions
|
(
|
|
(
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
171
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
At 1 January
|
(
|
(
|
|
Current service cost paid by Santander UK plc
|
(
|
(
|
|
Interest cost
|
(
|
(
|
|
Employer salary sacrifice contributions
|
(
|
(
|
|
Past service cost
|
|
(
|
|
Remeasurement due to actuarial movements arising from:
|
||
|
–
Changes in demographic assumptions
|
|
|
|
– Experience adjustments
|
(
|
(
|
|
–
Changes in financial assumptions
|
|
(
|
|
Benefits paid
|
|
|
|
At 31 December
|
(
|
(
|
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
At 1 January
|
|
|
|
Interest income
|
|
|
|
Contributions paid by employer and scheme members
|
|
|
|
Administration costs paid
|
(
|
(
|
|
Return on plan assets (excluding amounts included in net interest expense)
|
(
|
(
|
|
Benefits paid
|
(
|
(
|
|
At 31 December
|
|
|
|
Group
|
||||||||||
|
Quoted prices in active markets
|
Prices not quoted in active markets
|
Total
|
Valuation
|
|||||||
|
2024
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
technique
|
|||
|
Overseas equities
|
|
|
|
|
|
|
A,C
|
|||
|
Corporate bonds
|
|
|
|
|
|
|
A,C
|
|||
|
Government fixed interest bonds
|
|
|
|
|
|
|
A
|
|||
|
Government index-linked bonds
|
|
|
|
|
|
|
A
|
|||
|
Property
|
|
|
|
|
|
|
B
|
|||
|
Derivatives
|
|
|
(
|
|
(
|
|
A
|
|||
|
Cash
|
|
|
|
|
|
|
A
|
|||
|
Repurchase agreements
(1)
|
|
|
(
|
(
|
(
|
(
|
A
|
|||
|
Infrastructure
|
|
|
|
|
|
|
B,C
|
|||
|
Annuities
|
|
|
|
|
|
|
D
|
|||
|
Longevity swap
|
|
|
(
|
(
|
(
|
(
|
D
|
|||
|
Other
|
|
|
|
|
|
|
C
|
|||
|
|
|
(
|
(
|
|
|
|||||
|
2023
|
||||||||||
|
Overseas equities
|
|
|
|
|
|
|
A,C
|
|||
|
Corporate bonds
|
|
|
|
|
|
|
A,C
|
|||
|
Government fixed interest bonds
|
|
|
|
|
|
|
A
|
|||
|
Government index-linked bonds
|
|
|
|
|
|
|
A
|
|||
|
Property
|
|
|
|
|
|
|
B
|
|||
|
Derivatives
|
|
|
(
|
|
(
|
|
A
|
|||
|
Cash
|
|
|
|
|
|
|
A
|
|||
|
Repurchase agreements
(1)
|
|
|
(
|
(
|
(
|
(
|
A
|
|||
|
Infrastructure
|
|
|
|
|
|
|
B,C
|
|||
|
Annuities
|
|
|
|
|
|
|
D
|
|||
|
Longevity swap
|
|
|
(
|
|
(
|
|
D
|
|||
|
Other
|
|
|
|
|
|
|
C
|
|||
|
|
|
|
|
|
|
|||||
(1)
Sale and repurchase agreements net of purchase and resale agreements.
|
Annual Report 2024
|
Santander UK plc
|
172
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Valuation techniques
The main methods for measuring the fair value of the Scheme’s assets at 31 December 2024 and 2023 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 'Other' category includes cash receivables in 2025 from secondary market sales in 2024.
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:
–
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.
–
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.
–
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.
–
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 2024
and
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 and infrastructure. 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 2024
the currency forwards had a notional value of
£
709
m
(
2023
:
£
859
m
). In
2024
, we increased our allocation to
corporate bonds, and reduced our investments in infrastructure and private equity.
The Santander UK group’s pension schemes did not directly hold any equity securities of the Company or any of its related parties at
31 December 2024
and
2023
. The Santander UK group’s 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
£
150
m
in
2024
(
2023
:
£
195
m
) to the Scheme, of which
£
119
m
(
2023
:
£
164
m
) was in respect
of agreed deficit repair contributions. The agreed schedule of the Santander UK group’s contributions to the Scheme covers the period up to
31 March 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
|
Group
|
|||
|
2024
|
2023
|
2022
|
|
|
%
|
%
|
%
|
|
|
To determine benefit obligations
(1)
:
|
|||
|
–
Discount rate for scheme liabilities
|
|
|
|
|
–
General price inflation
|
|
|
|
|
–
General salary increase
|
|
|
|
|
–
Expected rate of pension increase
|
|
|
|
|
Years
|
Years
|
Years
|
|
|
Longevity at 60 for current pensioners, on the valuation date:
|
|||
|
–
Males
|
|
|
|
|
–
Females
|
|
|
|
|
Longevity at 60 for future pensioners currently aged 40, on the valuation date:
|
|||
|
–
Males
|
|
|
|
|
–
Females
|
|
|
|
(1)
The discount rate and inflation related assumptions set out in the table above reflect the assumptions calculated based on the Scheme’s duration and cash flow profile as a whole. The actual assumptions used
were determined for each section independently based on each section’s duration and cash flow profile.
The majority of the liability movement in
2024
was due to increased fixed interest gilt yields.
|
Annual Report 2024
|
Santander UK plc
|
173
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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.
In
2024
, we adopted a new version of the model that we currently use to set the discount rate. The updated model is based on an expanded data set which
improves the stability of the model.
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’s 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’s 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 2024 the assumption for future improvements was updated and the CMI 2023
projection model adopted, with an initial addition to improvements of
0.25
%
per annum, and 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. This review resulted in changes in the assumptions for family statistics, early retirement and the withdrawal
assumption, which were retained at
31 December 2024
.
Actuarial assumption sensitivities
period, while holding all other assumptions constant.
|
Group
|
|||
|
(Decrease)/increase
|
|||
|
2024
|
2023
|
||
|
Assumption
|
Change in pension obligation at period end from
|
£m
|
£m
|
|
Discount rate
|
|
(
|
(
|
|
General price inflation
|
|
|
|
|
Mortality
|
|
|
|
The
50
bps 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.
|
Year ending 31 December
|
£m
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
Five years ending 2034
|
|
The average duration of the defined benefit obligation at
31 December 2024
was
12.7
years
(
2023
:
13.8
years
).
|
Annual Report 2024
|
Santander UK plc
|
174
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Emerging risks
In 2024, we focused on the risks arising from the Scheme’s 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 an independent cybersecurity advisor to
review the cybersecurity arrangements of its most critical suppliers and provide recommendations on potential improvements.
The Trustee Sustainability Committee is responsible for overseeing the Scheme’s 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 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 an ambition to achieve net zero by 2050, showing their full support for Banco Santander's vision and ambition to be a responsible and
sustainable bank.
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
£
|
|
|
|
Undated subordinated liabilities
|
|
|
|
Dated subordinated liabilities
|
|
|
|
|
|
|
In
2024
,
no
subordinated liabilities were repurchased as part of ongoing liability management exercises
(
2023
: profit of
£
4
m
).
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
2024
and
2023
, 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
|
|||
|
2024
|
2023
|
||
|
First call date
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
In common with other debt securities issued by Santander UK group companies and notwithstanding the issuer’s 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
10.0625
%
Exchangeable capital securities are
redeemable on any interest payment date – 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
£
1
each,
at the option of Santander UK, on the business day immediately following any interest payment date.
Dated subordinated liabilities
|
Group
|
|||
|
2024
|
2023
|
||
|
Maturity
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
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.
|
Annual Report 2024
|
Santander UK plc
|
175
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Guarantees given to third parties
|
|
|
|
Formal standby facilities, credit lines and other commitments
|
|
|
|
|
|
At
31 December 2024
, the Santander UK group had
credit impairment loss provisions relating to guarantees given to third parties and undrawn loan
commitments.
See Note
27
for more details.
Where the items set out below can be reliably estimated, they are disclosed in the table above.
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’s 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’s 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, as of the date of the sale of the loans into the
applicable portfolio. These representations and warranties cover, among other things, the relevant Santander UK group entity's ownership of the loan, the
absence of a material breach or default by the relevant borrower, the loan’s compliance with applicable laws, and absence of material disputes with respect to the
relevant borrower, asset or 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 programme included in Note
14
, or if such representations and warranties prove to be materially untrue at the date
when they were given, 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 programme 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.
|
Annual Report 2024
|
Santander UK plc
|
176
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Other legal, regulatory or tax 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,
Santander UK is subject to audits,
reviews, challenges and tax
, regulatory
or law 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
£
552
m
(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
£
670
m
(plus interest) to
£
552
m
(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 11 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
27
includes
our best estimate of the Santander Entities’ liability to the specific portfolio. Further information has not been provided on the basis that it would be seriously
prejudicial to the Santander Entities’ 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’s 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
27
includes our best estimate of Santander UK’s 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
2024
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’s perspective, t
he 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
As set out in Note
27
, Santander UK has recognised a provision for historical motor finance commission payments.
There continue to be significant uncertainties
as to the extent of any misconduct, if any, as well as the perimeter of commission models, and the nature, extent and timing of any remediation action if required.
As such, the ultimate financial impact could be materially higher or lower than the amount provided and it is not practicable to quantify the extent of any remaining
contingent liability.
Other
In 2016, Visa Europe Ltd was sold to Visa Inc. As a member and shareholder of Visa Europe Ltd, Santander UK
received upfront consideration made up of cash
and convertible preferred stoc
k.
The convertible preferred stock is now held by Santander Equity Investments Limited (SEIL), outside the ring-fenced bank.
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 (UKI MIFs).
In addition, Santander UK
and certain other UKI 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
€
1
bn
of losses relating to UKI MIFs have arisen or once the total value of the preferred
stock issued on closing has been reduced to
nil
. Santander
UK's
liability under this indemnity is capped at
€
40
m
. At this stage, it is unclear whether the litigation
will give rise to more than
€
1
bn
of losses relating to UKI MIFs, which means it is difficult to predict whether the indemnity would be called upon, or the timing or
significance of any potential impact.
As part of the sale of subsidiaries, businesses and other entities, and as is normal in such circumstances,
Santander UK
plc (and/or, where relevant, its
subsidiaries) has
given warranties and/or indemnities to the purchasers.
|
Annual Report 2024
|
Santander UK plc
|
177
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
34
.
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 further information, see the Risk review.
Capital support arrangements
At
31 December 2024
, 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 dated 3 December 2024 which was effective from 3 December 2024 (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 3 December 2027. 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
entities to any of the regulated entities in the event that one of the regulated entities breached or was at risk of breaching its capital resources or risk
concentrations requirements.
Liquidity support arrangement
Under
the PRA’s liquidity rules, Santander UK plc and its subsidiary Cater Allen Limited form the RFB Domestic Liquidity Sub-group (the RFB DoLSub), which
allows them to collectively meet regulatory requirements to manage liquidity risk. Each member of the RFB DoLSub will support the other by transferring surplus
liquidity in times of stress.
|
Group
|
||||
|
Ordinary shares of
£
|
Total
|
|||
|
Issued and fully paid share capital
|
No.
|
£m
|
£m
|
|
|
At 31 December 2023, 1 January 2024 and 31 December 2024
|
|
|
|
|
|
Group
|
||
|
2024
|
2023
|
|
|
Share premium
|
£m
|
£m
|
|
At 1 January and 31 December
|
|
|
|
Group
|
||||
|
Interest rate
|
2024
|
2023
|
||
|
%
|
Next call date
|
£m
|
£m
|
|
|
AT1 securities:
|
||||
|
-
£
|
|
|
|
|
|
-
£
|
|
|
|
|
|
-
£
|
|
|
|
|
|
-
£
|
|
|
|
|
|
-
£
|
|
|
|
|
|
|
|
|||
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
%
.
|
Annual Report 2024
|
Santander UK plc
|
178
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Changes in liabilities and equity arising from financing activities
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
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
At 1 January
|
|
|
|
|
|
|
|
Proceeds from issue of debt securities
|
|
—
|
—
|
—
|
—
|
|
|
Repayment of debt securities
|
(
|
—
|
—
|
—
|
—
|
(
|
|
Issue of other equity instruments
|
—
|
—
|
|
—
|
—
|
|
|
Repurchase of other equity instruments
|
—
|
—
|
(
|
—
|
—
|
(
|
|
Principal elements of lease payments
|
—
|
—
|
—
|
(
|
—
|
(
|
|
Dividends paid
|
—
|
—
|
—
|
—
|
(
|
(
|
|
Liability-related other changes
|
|
|
—
|
|
—
|
|
|
Non-cash changes:
|
||||||
|
– Unrealised foreign exchange
|
(
|
|
—
|
—
|
—
|
(
|
|
– Other changes
|
|
(
|
|
—
|
—
|
|
|
At 31 December
|
|
|
|
|
(
|
|
|
2023
|
||||||
|
At 1 January
|
|
|
|
|
|
|
|
Proceeds from issue of debt securities
|
|
—
|
—
|
—
|
—
|
|
|
Repayment of debt securities
|
(
|
—
|
—
|
—
|
—
|
(
|
|
Proceeds from issue of subordinated liabilities
|
—
|
|
—
|
—
|
—
|
|
|
Repayment of subordinated liabilities
|
—
|
(
|
—
|
—
|
—
|
(
|
|
Principal elements of lease payments
|
—
|
—
|
—
|
(
|
—
|
(
|
|
Dividends paid
|
—
|
—
|
—
|
—
|
(
|
(
|
|
Liability-related other changes
|
|
|
—
|
|
—
|
|
|
Non-cash changes:
|
||||||
|
– Unrealised foreign exchange
|
(
|
(
|
—
|
—
|
—
|
(
|
|
– Other changes
|
|
(
|
—
|
—
|
|
|
|
At 31 December
|
|
|
|
|
|
|
|
2022
|
||||||
|
At 1 January
|
|
|
|
|
|
|
|
Proceeds from issue of debt securities
|
|
—
|
—
|
—
|
—
|
|
|
Repayment of debt securities
|
(
|
—
|
—
|
—
|
—
|
(
|
|
Repayment of subordinated liabilities
|
—
|
(
|
—
|
—
|
—
|
(
|
|
Issue of other equity instruments
|
—
|
—
|
|
—
|
—
|
|
|
Repurchase of other equity instruments
|
—
|
—
|
(
|
—
|
—
|
(
|
|
Principal elements of lease payments
|
—
|
—
|
—
|
(
|
—
|
(
|
|
Dividends paid
|
—
|
—
|
—
|
—
|
(
|
(
|
|
Liability-related other changes
|
|
|
—
|
|
—
|
|
|
Non-cash changes:
|
||||||
|
– Unrealised foreign exchange
|
|
|
—
|
—
|
—
|
|
|
– Other changes
|
(
|
|
—
|
—
|
|
|
|
At 31 December
|
|
|
|
|
|
|
|
Annual Report 2024
|
Santander UK plc
|
179
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Footnotes to the consolidated cash flow statement
Net cash flows from operating activities includes interest received of
£
12,370
m
(
2023
:
£
11,395
m
,
2022
:
£
6,508
m
), interest paid of
£
8,033
m
(
2023
:
£
6,326
m
,
2022
:
£
2,089
m
) and dividends received of
£
nil
(
2023
:
£
nil
,
2022
:
£
nil
).
|
Annual Report 2024
|
Santander UK plc
|
180
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
On-balance sheet:
|
||
|
Cash and balances at central banks
|
|
|
|
Loans and advances to banks
|
|
|
|
Loans and advances to customers - securitisations and covered bonds (See Note 14)
|
|
|
|
Loans and advances to customers - other
|
|
|
|
Other financial assets at amortised cost
|
|
|
|
Financial assets at fair value through other comprehensive income
|
|
|
|
Total on-balance sheet
|
|
|
|
Total off-balance sheet
|
|
|
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 2024
was
£
16,987
m
(
2023
:
£
13,291
m
), of which
£
2,472
m
(
2023
:
£
909
m
) was classified in ‘Loans and advances to customers – securitisations and covered bonds’ 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 through or involving structured entities. At
31
December 2024
, there were
£
33,905
m
(
2023
:
£
27,927
m
) of gross assets in these secured programmes and
£
1,184
m
(
2023
:
£
839
m
) of these related to internally
retained issuances that were available for use as collateral for liquidity purposes in the future.
At
31 December 2024
,
£
3,003
m
(
2023
:
£
2,928
m
) 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
£
1,500
m
at
31 December 2024
(
2023
:
£
1,500
m
), 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
£
15,860
m
at
31 December
2024
(
2023
:
£
23,644
m
) and are offset by contractual commitments to return stock borrowed or cash received.
Derivatives and other business
In addition to the arrangements described above, collateral is also provided in the normal course of derivative business to counterparties. At
31 December 2024
,
£
1,787
m
(
2023
:
£
1,726
m
) 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
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
On-balance sheet:
|
||
|
Deposits by banks
|
|
|
|
Total on-balance sheet
|
|
|
|
Total off-balance sheet
|
|
|
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 2024
, the fair value of such collateral received was
£
13,221
m
(
2023
:
£
12,982
m
). 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 the Santander UK group amounted to
£
1,171
m
at
31 December 2024
(
2023
:
£
2,010
m
) 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 2024
,
£
682
m
(
2023
:
£
860
m
) of such collateral in the form of cash had been received by Santander UK and is included in the table.
Lending activities
|
Annual Report 2024
|
Santander UK plc
|
181
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
In addition to the collateral held as security for assets, the
Santander UK
group may obtain a charge over a customer’s property in connection with its lending
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 2024
, the carrying amount of liabilities arising from share-based payment transactions, excluding any cash element was
£
24
m
(
2023
:
£
15
m
), of
which
£
1
m
had vested at
31 December 2024
(
2023
:
£
1
m
).
a) Sharesave Schemes
The Santander UK group launched its
sixteen
th
HM Revenue Customs approved Sharesave invitation under Banco Santander SA sponsorship in September
2024
. Sharesave invitations have been offered since 2008 under broadly similar terms. Under the Sharesave Scheme’s HMRC-approved savings limits, eligible
employees may enter into contracts to save between
£
5
and
£
500
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, for schemes up to
and including 2023, 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.
|
2024
|
2023
|
||||
|
Number of
options
|
Weighted average
exercise price
|
Number of options
|
Weighted average
exercise price
|
||
|
‘000
|
£
|
‘000
|
£
|
||
|
Outstanding at 1 January
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
Exercised
|
(
|
|
(
|
|
|
|
Forfeited/expired
|
(
|
|
(
|
|
|
|
Outstanding at 31 December
|
|
|
|
|
|
|
Exercisable at 31 December
|
|
|
|
|
The weighted average share price at the date the options were exercised was
£
3.64
(
2023
:
£
3.22
).
|
2024
|
2023
|
||||
|
Range of exercise prices
|
Weighted average
remaining
contractual life
|
Weighted average
exercise price
|
Weighted average
remaining
contractual life
|
Weighted average
exercise price
|
|
|
Years
|
£
|
Years
|
£
|
||
|
£
|
|
|
|
|
|
|
£
|
|
|
|
|
|
|
£
|
|
|
|
|
|
|
£
|
|
|
|
|
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
£
0.23
(
2023
:
£
0.33
).
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
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
£
1,800
per tax year (or no more than
10
%
of an employee’s 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.
At
31 December 2024
,
3,662,718
shares were
outstanding (
2023
:
3,937,473
shares).
d)
Transformation Incentive Plan
Awards under this one-off long-term incentive 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 liability arising from share-based payment transactions
, excluding any cash element was
£
5.2
m
(
2023
:
£
3.8
m
).
|
Annual Report 2024
|
Santander UK plc
|
182
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
PERSONNEL
a) Remuneration of Directors and Other Key Management Personnel
|
2024
|
2023
|
2022
|
|
|
Directors’ remuneration
|
£
|
£
|
£
|
|
Salaries and fees
|
|
|
|
|
Performance-related payments
|
|
|
|
|
Other fixed remuneration (pension and other allowances non-cash benefits)
(2)
|
|
|
|
|
Expenses
|
|
|
|
|
Total remuneration
|
|
|
|
|
Compensation for loss of office
(1)
|
|
|
|
|
2024
|
2023
|
2022
|
|
|
Directors' and Other Key Management Personnel compensation
|
£
|
£
|
£
|
|
Short-term employee benefits
|
|
|
|
|
Post-employment benefits
|
|
|
|
|
Compensation for loss of office
(1)
|
|
|
|
|
Total compensation
|
|
|
|
(1) During
2024
and
2023
,
no
compensation for loss of office was
paid to Directors or Other KMPs
(
2022
:
two
Directors,
£
172,856
and
three
Other KMPs,
£
1,540,400
).
(2) Included in Other fixed remuneration is an employer pension contribution to a defined contribution scheme of
£
122,915
(
2023
:
£
nil
).
In
2024
, the remuneration, excluding pension contributions
, of the highest paid Director
,
was
£
3,160,709
(
2023
:
£
2,640,491
,
2022
:
£
3,510,441
) of which
£
1,431,612
(
2023
:
£
1,002,607
,
2022
:
£
1,900,506
) was performance related. In
2024
, the accrued defined benefit pension relating to the highest paid director was
£
nil
(
2023
:
£
nil
,
2022
:
£
nil
for a different individual) per annum.
b) Retirement benefits
Defined benefit pension schemes are provided to certain employees. See Note
28
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
2024
, which have
been provided for previously, amounted to
£
430,904
(
2023
:
£
327,462
;
2022
:
£
379,945
). 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.
|
2024
|
2023
|
||||
|
No.
|
£000
|
No.
|
£000
|
||
|
Secured loans, unsecured loans and overdrafts
|
|||||
|
At 1 January
|
|
|
|
|
|
|
Net movements
|
|
(
|
(
|
|
|
|
At 31 December
|
|
|
|
|
|
|
Deposit, bank and instant access accounts and investments
|
|||||
|
At 1 January
|
|
|
|
|
|
|
Net movements
|
|
|
(
|
(
|
|
|
At 31 December
|
|
|
|
|
In
2024
and
2023
,
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
2024
and
2023
,
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
2024
two
Directors had loans (
2023
:
two
Directors
), with a principal amount of
£
180,000
outstanding at
31 December 2024
(
2023
:
£
495,281
). In
2024
,
two
Other
KMPs had loans
(
2023
:
six
), with a principal amount of
£
781,285
outstanding at
31 December 2024
(
2023
:
£
579,383
).
In
2024
and
2023
, 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
2024
and
2023
,
no
Director had a material interest in any contract of significance with
Santander UK
other than a service
|
Annual Report 2024
|
Santander UK plc
|
183
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
a) Parent undertaking and controlling party
The Company’s 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’s
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’s Place, London NW1 3AN.
b) Transactions with related parties
|
Group
|
|||||||||||||
|
Interest, fees and
other income received
|
Interest, fees and
other expenses paid
|
Amounts owed by
related parties
|
Amounts owed to
related parties
|
||||||||||
|
2024
|
2023
|
2022
|
2024
|
2023
|
2022
|
2024
|
2023
|
2024
|
2023
|
||||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||||
|
Ultimate parent
|
(
|
(
|
(
|
|
|
|
|
|
(
|
(
|
|||
|
Immediate parent
|
(
|
(
|
(
|
|
|
|
|
|
(
|
(
|
|||
|
Fellow subsidiaries
|
(
|
(
|
(
|
|
|
|
|
|
(
|
(
|
|||
|
Joint ventures
|
(
|
(
|
(
|
|
|
|
|
|
(
|
(
|
|||
|
(
|
(
|
(
|
|
|
|
|
|
(
|
(
|
||||
For more on this, see ‘Balances with other Banco Santander group members’ in the Risk review, Note
13
. Loans and advances to customers, Note
22
. Deposits
by customers and Note
32
. Other Equity Instruments. In addition, transactions with pension schemes operated by the Santander UK group are described in Note
28
.
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 November 2022, Santander (UK) Group Pension Scheme Trustees Limited entered into an unsecured committed liquidity facility with Santander UK plc for
£
600
m
for a two year period.
On expiry, a new liquidity facility agreement was entered into for
£
300
m
with a maturity date of 4 November 2026.
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.
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|
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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 exit 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 1
Unadjusted 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 2
Quoted 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 3
Significant 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.
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|
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b) Valuation techniques
The main valuation techniques employed in internal models to measure the fair value of the financial instruments at
31 December 2024
and
2023
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
2024
,
2023
and
2022
.
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 ‘present value’ 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’s 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 swaps, caps and
floors), the present value method (swaps), and Black’s model (caps/floors) 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’s
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, and volatility.
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’s 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:
–
The extent to which prices may be expected to represent genuine traded or tradeable prices
–
The degree of similarity between financial instruments
–
The degree of consistency between different sources
–
The process followed by the pricing provider to derive the data
–
The elapsed time between the date to which the market data relates and the balance sheet date
–
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
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.
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|
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|
Group
|
|||||||||||
|
2024
|
2023
|
||||||||||
|
Fair value
|
Fair
|
Carrying
|
Fair value
|
Fair
|
Carrying
|
||||||
|
Level 1
|
Level 2
|
Level 3
|
value
|
value
|
Level 1
|
Level 2
|
Level 3
|
value
|
value
|
||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
Assets
|
|||||||||||
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to banks
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse repurchase agreements -
non-trading
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial assets at amortised
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Liabilities
|
|||||||||||
|
Deposits by customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements - non-trading
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities in issue
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
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.
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|
||||||
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.
|
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|
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|
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|
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|
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|
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|
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|
Risk review
|
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|
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|
||||||
e) Fair values of financial instruments measured at fair value
analysed by their levels in the fair value hierarchy - Level 1, Level 2 and Level 3.
|
Group
|
|||||||||||
|
2024
|
2023
|
||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Valuation
|
|||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
techniqu
e
|
|||
|
Assets
|
|||||||||||
|
Derivative financial instruments
|
Exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
||
|
Inflation rate contracts
|
|
|
|
|
|
|
|
|
|
||
|
Equity and credit contracts
|
|
|
|
|
|
|
|
|
|
||
|
Netting
|
|
(
|
|
(
|
|
(
|
|
(
|
|||
|
|
|
|
|
|
|
|
|
||||
|
Other financial assets at FVTPL
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||||
|
Financial assets at FVOCI
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total assets at fair value
|
|
|
|
|
|
|
|
|
|||
|
Liabilities
|
|||||||||||
|
Derivative financial instruments
|
Exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
||
|
Equity and credit contracts
|
|
|
|
|
|
|
|
|
|
||
|
Netting
|
|
(
|
|
(
|
|
(
|
|
(
|
|||
|
|
|
|
|
|
|
|
|
||||
|
Other financial liabilities at FVTPL
|
Debt securities in issue
|
|
|
|
|
|
|
|
|
|
|
|
Structured deposits
|
|
|
|
|
|
|
|
|
|
||
|
Zero Amortising Guaranteed Notes
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||||
|
Total liabilities at fair value
|
|
|
|
|
|
|
|
|
|||
Transfers between levels of the fair value hierarchy
In
2024
there were
no
significant (
2023
:
£
22
m
) 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 ‘risk-related’ or ‘model-related’. The fair value adjustments form part of the portfolio fair value and are
included in the balance sheet values of the product types to which they have been applied.
|
Group
|
||
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Risk-related:
|
||
|
- Bid-offer and trade specific adjustments
|
|
(
|
|
- Uncertainty
|
|
|
|
- Credit risk adjustment
|
|
|
|
- Funding fair value adjustment
|
|
|
|
|
|
|
|
Day One profit
|
|
|
|
|
|
|
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|
||||||
Risk-related adjustments
Risk-related adjustments are driven, in part, by the magnitude of
Santander UK’s
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.
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’s 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.
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|
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|
||||||
g) Internal models based on information other than market data (Level 3)
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)
|
|||||||
|
2024
|
2023
|
2024
|
2023
|
2022
|
||||
|
Balance sheet line item
|
Category
|
Financial instrument product type
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
1. Derivative assets
|
Equity and credit contracts
|
Reversionary property interests
|
|
|
|
|
(
|
|
|
2. FVTPL assets
|
Loans and advances to customers
|
Roll-up mortgage portfolio
|
|
|
(
|
(
|
(
|
|
|
3. FVTPL assets
|
Loans and advances to customers
|
Other loans
|
|
|
|
|
(
|
|
|
4. FVTPL assets
|
Debt securities
|
Reversionary property securities
|
|
|
|
(
|
|
|
|
5. FVOCI assets
|
Debt instruments
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
(
|
||||
|
Other Level 3 assets
|
|
|
|
(
|
|
|||
|
Other Level 3 liabilities
|
(
|
(
|
(
|
(
|
|
|||
|
Total net assets
|
|
|
|
|
|
|||
|
Total income/(expense)
|
|
|
(
|
|||||
Valuation techniques
(Group)
1. Derivative assets – 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’s 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 – Loans and advances to customers – 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’s vacation of the property and the value of the loan is only
repaid from the value of the property. This is known as a ‘no negative equity guarantee’. 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’s estate or beneficiaries for the shortfall.
The value of the mortgage ‘rolls up’ 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 ‘no negative equity guarantee’ 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 – Loans and advances to customers – other loans
These relate to loans to transport and education companies. The fair value of these loans is estimated using the ‘present value’ 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 – 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’s 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.
5
. FVOCI assets – Debt instruments
These consist of asset-back securities where third-party prices are not available or reliable. The fair value is estimated using market standard cash flow models
with input parameter assumptions which include prepayment speeds, default rates, discount margins derived from comparable securities with similar vintage,
collateral type, and credit ratings.
|
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|
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|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Reconciliation of fair value measurement in Level 3 of the fair value hierarchy
|
Group
|
||||||||
|
Assets
|
Liabilities
|
|||||||
|
Derivative
s
|
Other
financial
assets at
FVTPL
|
Financial
assets at
FVOCI
|
Total
|
Derivative
s
|
Other
financial
liabilities
at FVTPL
|
Total
|
||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
At 1 January 2024
|
|
|
|
|
(
|
|
(
|
|
|
Total gains/(losses) recognised:
|
||||||||
|
Fair value movements
(1)
|
|
|
|
|
(
|
|
(
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
Settlements
|
(
|
(
|
|
(
|
|
|
|
|
|
At 31 December 2024
|
|
|
|
|
(
|
|
(
|
|
|
Gains/(losses) recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year
(1)
|
|
|
|
|
(
|
|
(
|
|
|
At 1 January 2023
|
|
|
|
|
(
|
(
|
(
|
|
|
Total gains/(losses) recognised:
|
||||||||
|
Fair value movements
(1)
|
|
|
|
|
(
|
|
(
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
Netting
(2)
|
|
(
|
|
(
|
|
|
|
|
|
Settlements
|
(
|
(
|
|
(
|
|
|
|
|
|
At 31 December 2023
|
|
|
|
|
(
|
|
(
|
|
|
(Losses)/gains recognised in profit or loss/other comprehensive income relating to assets
and liabilities held at the end of the year
(1)
|
|
|
|
|
(
|
|
(
|
(1)
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
‘ii) Credit protection entities’ in Note
18
.
(2)
Fair value movements relating to derivatives and other financial assets at FVTPL are recognised in other operating income in the income statement.
|
Annual Report 2024
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|
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|
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|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
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|
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|
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|
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|
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|
Sustainability
|
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|
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|
Financial statements
|
Shareholder information
|
||||||
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|
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|
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|
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|
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|
Sustainability
|
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|
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|
Financial statements
|
Shareholder information
|
||||||
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.
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|
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|
||
|
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|
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|
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|
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|
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|
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|
||||||
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
|
|
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Financial liabilities
|
||||||
|
Derivative financial instruments
|
|
|
|
|
|
|
|
Other financial liabilities at fair value through profit or loss
|
|
|
|
|
|
|
|
Deposits by customers
|
|
|
|
|
|
|
|
Deposits by banks
|
|
|
|
|
|
|
|
Repurchase agreements – non trading
|
|
|
|
|
|
|
|
Debt securities in issue
|
|
|
|
|
|
|
|
Subordinated liabilities
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
|
|
|
|
|
|
Off-balance sheet commitments given
|
|
|
|
|
|
|
|
2023
|
||||||
|
Financial liabilities
|
||||||
|
Derivative financial instruments
|
|
|
|
|
|
|
|
Other financial liabilities at fair value through profit or loss
|
|
|
|
|
|
|
|
Deposits by customers
|
|
|
|
|
|
|
|
Deposits by banks
|
|
|
|
|
|
|
|
Repurchase agreements – non trading
|
|
|
|
|
|
|
|
Debt securities in issue
|
|
|
|
|
|
|
|
Subordinated liabilities
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
|
|
|
|
|
|
Off-balance sheet commitments given
|
|
|
|
|
|
|
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’s 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.
|
Annual Report 2024
|
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|
196
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
The following table shows the impact of netting arrangements on:
–
All financial assets and liabilities that are reported net on the balance sheet
–
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 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 ‘Financial instruments’ 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 ‘Financial instruments’ 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 represent
Santander UK’s
total 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)
|
|||
|
2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Assets
|
|||||||||
|
Derivative financial assets
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Reverse repurchase, securities borrowing similar
agreements:
|
|||||||||
|
–
Amortised cost
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Loans and advances to customers and banks⁽⁴⁾
|
|
(
|
|
|
|
|
|
|
|
|
|
(
|
|
(
|
(
|
|
|
|
||
|
Liabilities
|
|||||||||
|
Derivative financial liabilities
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Repurchase, securities lending similar agreements:
|
|||||||||
|
–
Amortised cost
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Deposits by customers and banks⁽⁴⁾
|
|
(
|
|
|
|
|
|
|
|
|
|
(
|
|
(
|
(
|
|
|
|
||
|
2023
|
|||||||||
|
Assets
|
|||||||||
|
Derivative financial assets
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Reverse repurchase, securities borrowing similar
agreements:
|
|||||||||
|
–
Amortised cost
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Loans and advances to customers and banks⁽⁴⁾
|
|
(
|
|
|
|
|
|
|
|
|
|
(
|
|
(
|
(
|
|
|
|
||
|
Liabilities
|
|||||||||
|
Derivative financial liabilities
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Repurchase, securities lending similar agreements:
|
|||||||||
|
–
Amortised cost
|
|
(
|
|
(
|
(
|
|
|
|
|
|
Deposits by customers and banks⁽⁴⁾
|
|
(
|
|
|
|
|
|
|
|
|
|
(
|
|
(
|
(
|
|
|
|
||
(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 ‘Net amounts reported on the balance sheet’ that are subject to enforceable netting arrangements and ‘Amounts not subject to enforceable netting arrangements’.
(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.
|
Annual Report 2024
|
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|
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|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Buckingham House, Bletchley, was sold in 2024 with a gain of
£
1
m
. The sale of Santander House, Milton Keynes is expected to complete in 2025. As such, the
Santander UK group classified Santander House, which is included in the Corporate Centre segment and carried at the sales price, as held for sale.
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Assets
|
||
|
Property, plant and equipment
|
|
|
|
0
|
|
|
There have been
no
significant events between
31 December 2024
and the date of approval of these financial statements which would require a change to or
additional disclosure in the financial statements.
|
Annual Report 2024
|
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|
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|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Shareholder information
|
In this section
|
|
|
|
|
|
Subsidiaries and related undertakings
|
|
|
Forward-looking statements
|
|
|
Risk factors
|
|
|
Regulation of the Santander UK group
|
|
|
Articles of Association
|
|
|
Board of Directors
|
|
|
New York Stock Exchange (NYSE) Corporate Governance
|
|
|
Additional balance sheet and cash flow analysis
|
|
|
Other information
|
|
|
Glossary of financial services industry terms
|
|
|
Iran Threat Reduction and Syria Human Rights Act (ITRA)
|
|
|
Cross-reference to Form 20-F
|
|
|
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|
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|
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|
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|
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|
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|
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|
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|
Financial statements
|
Shareholder information
|
||||||
Subsidiaries and related undertakings
In accordance with Section 409 of the Companies Act 2006, details of the Company’s subsidiaries and related undertakings at
31 December 2024
are set out
below.
Subsidiaries
All subsidiaries are owned 100% and consolidated by Santander UK.
Incorporated and registered in England and Wales:
|
Registered
office
(1)
|
Direct/Indirect
ownership
|
Share class
through which
ownership is held
|
Proportion of
ownership
interest
|
|
|
Name of subsidiary
|
%
|
|||
|
2 3 Triton Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
A L CF June (3) Limited (In Liquidation)
|
E
|
Indirect
|
Ordinary £1
|
—
|
|
A L CF September (4) Limited (In Liquidation)
|
E
|
Indirect
|
Ordinary £1
|
—
|
|
Abbey National Nominees Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Abbey National Property Investments
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Alliance Leicester Personal Finance Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Cater Allen Limited
|
A
|
Indirect
|
Ordinary £1
|
—
|
|
First National Tricity Finance Limited
|
A
|
Indirect
|
Ordinary £1
|
—
|
|
Santander Asset Finance (December) Limited
|
A
|
Indirect
|
Ordinary £1
|
—
|
|
Santander Asset Finance plc
|
A
|
Direct
|
Ordinary £0.10
|
100
|
|
Santander Cards Limited
|
A
|
Indirect
|
Ordinary £1
|
—
|
|
Santander Cards UK Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Santander Consumer (UK) plc
|
B
|
Direct
|
Ordinary £1
|
100
|
|
Santander Consumer Credit Services Limited
|
A
|
Indirect
|
Ordinary £1
|
—
|
|
Santander Estates Limited
|
F
|
Direct
|
Ordinary £1
|
100
|
|
Santander Global Consumer Finance Limited
|
A
|
Indirect
|
Ordinary £0.0001
|
—
|
|
Santander Guarantee Company
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Santander Lending Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Santander Private Banking UK Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Santander UK Operations Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
Santander UK (Structured Solutions) Limited
|
A
|
Direct
|
Ordinary £0.01
|
100
|
|
Preference £0.01
|
100
|
|||
|
Santander UK Technology Limited
|
A
|
Direct
|
Ordinary £1
|
100
|
|
The Alliance Leicester Corporation Limited (In Liquidation)
|
E
|
Direct
|
Ordinary £1
|
100
|
|
Time Retail Finance Limited (In Liquidation)
|
E
|
Indirect
|
Ordinary £1
|
—
|
|
Ordinary £0.0001
|
—
|
(1)
Refer to the key at the end of this section for the registered office address.
Incorporated and registered outside England and Wales:
|
Registered
office
(1)
|
Share class
through which
ownership is held
|
Proportion of
ownership
interest
|
||
|
Name of subsidiary
|
||||
|
Santander Cards Ireland Limited
|
H
|
Indirect
|
Ordinary €1
|
100
|
|
Ordinary €1.27
|
100
|
|||
|
Santander ISA Managers Limited
|
G
|
Direct
|
Ordinary £1
|
100
|
(1)
Refer to the key at the end of this section for the registered office address, including the country.
Subsidiaries benefitting from an audit exemption according to section 479A of the Companies Act 2006
|
Name of subsidiary
|
Company number
|
|
2 3 Triton Limited
|
06024916
|
|
Santander Asset Finance (December) Limited
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01562865
|
|
Santander Estates Limited
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02304569
|
|
Santander Global Consumer Finance Limited
|
00048468
|
|
Santander UK Operations Limited
|
04137550
|
|
Santander UK Technology Limited
|
05212726
|
|
Santander Private Banking UK Limited
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02582000
|
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Other subsidiary undertakings
All entities are registered in England and Wales except for Motor Securities 2018-1 Designated Activity Company which is registered in Ireland.
The Company and its subsidiaries do not own directly, or indirectly, any of the share capital of any of the entities, however they are consolidated by the Santander
UK group because the substance of the relationship indicates control, as described in Note
1
to the Consolidated Financial Statements.
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Registered
|
Registered
|
||
|
Name of entity
|
office
(1)
|
Name of entity
|
office
(1)
|
|
Abbey Covered Bonds (Holdings) Limited
|
D
|
Holmes Master Issuer plc
|
A
|
|
Abbey Covered Bonds (LM) Limited
|
D
|
Holmes Trustees Limited
|
A
|
|
Abbey Covered Bonds LLP
|
A
|
MAC No.1 Limited
|
A
|
|
Fosse (Master Issuer) Holdings Limited
|
C
|
Motor 2016-1 Holdings Limited
|
C
|
|
Fosse Funding (No.1) Limited
|
C
|
Motor Securities 2018-1 Designated Activity Company (in liquidation)
|
J
|
|
Fosse Master Issuer plc
|
C
|
Repton 2023-1 Limited
|
C
|
|
Fosse Trustee (UK) Limited
|
A
|
||
|
Holmes Funding Limited
|
A
|
||
|
Holmes Holdings Limited
|
A
|
(1)
Refer to the key at the end of this section for the registered office address.
Related undertakings
All of these entities, which are registered in England and Wales, are accounted for by the equity method of accounting, with 50% ownership being held.
|
Registered
office
(1)
|
Direct/
Indirect
ownership
|
Share
class
through
which
ownership
is held
|
Proportion
of
ownership
interest
|
|
|
Name of entity
|
%
|
|||
|
Hyundai Capital UK Limited
|
I
|
Indirect
|
Ordinary
£1
|
—
|
|
Volvo Car Financial Services UK Limited
|
K
|
Indirect
|
Ordinary
£1
|
—
|
(1)
Refer to the key at the end of this section for the registered office address.
Overseas branches
The Company has no overseas branches.
Key of registered office addresses
|
A
|
2 Triton Square, Regent’s Place, London NW1 3AN
|
||
|
B
|
Santander House, 86 Station Road, Redhill RH1 1SR
|
||
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C
|
1 Bartholomew Lane, London EC2V 2AX
|
||
|
D
|
Wilmington Trust SP Services (London) Limited, 1 Kings Arms Yard, London EC2R 7AF
|
||
|
E
|
Griffins Tavistock House North, Tavistock Square, London, WC1H 9HR
|
||
|
F
|
Carlton Park, Narborough, Leicester LE19 0AL
|
||
|
G
|
287 St. Vincent Street, Glasgow, Scotland G2 5NB
|
||
|
H
|
3 Dublin Landings, North Wall Quay, Dublin 1, Ireland
|
||
|
I
|
London Court, 39 London Road, Reigate RH2 9AQ
|
||
|
J
|
Trinity House, Charleston Road, Ranelagh, Dublin 6, Dublin, Ireland
|
||
|
K
|
Scandinavia House, Norreys Drive, Maidenhead, Berkshire SL6 4FL
|
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Forward-looking statements
The Company and its subsidiaries (together Santander UK) may from time to time make written or oral forward-looking statements. The Company makes written
forward-looking statements in this Annual Report and may also make forward-looking statements in its periodic reports to the SEC on Forms 20-F and 6-K, in its
offering circulars and prospectuses, in press releases and other written materials and in oral statements made by its officers, directors or employees to third
parties. Examples of such forward-looking statements include, but are not limited to:
–
projections or expectations of revenues, costs, profit or (loss), earnings or (loss) per share, dividends, capital structure or other financial items or ratios
–
statements of plans, objectives or goals of Santander UK or its management, including those related to products or services
–
statements of future economic performance, and
–
statements of assumptions underlying such statements
Words such as ‘believes’, ‘anticipates’, ‘expects’, ‘intends’, ‘aims’, ‘plans’, ‘targets’ and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements.
By their very nature, forward-looking statements are not statements of historical or current facts; they cannot be objectively verified, are speculative and involve
inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not
be achieved. Santander UK cautions readers that a number of important factors could cause actual results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking statements made by Santander UK or on its behalf. Some of these factors, which could
affect Santander UK’s business, financial condition and/or results of operations, are considered in detail in the Risk review, and include:
–
the effects of geopolitical tensions, regional conflicts and wars
–
the effects of UK economic conditions and disruptions in the global economy and global financial markets
–
the effects of the UK’s withdrawal from the European Union
–
the effects of climate change
–
the effects of competition from other financial institutions, including new entrants into the financial services sector
–
Santander UK’s ability to maintain its competitive position depending, in part, on competition from new entrants and other financial institutions in the sector, the
success of new products and services Santander UK offers its customers and its ability to continue offering products and services from third parties
–
t
he extent to which Santander UK’s loan portfolio is subject to risk of prepayment
–
the risk of damage to Santander UK's reputation
–
the risk that Santander UK is unable to manage the growth of its operations
–
the extent to which regulatory capital, liquidity and leverage requirements, and any changes to these requirements may affect Santander UK
–
liquidity constraints and Santander UK’s ability to access funding on acceptable financial terms
–
the effects of an adverse movement in external credit ratings assigned to Santander UK or any of its debt securities
–
the effects of any changes in the pension liabilities and obligations of Santander UK
–
the effects of fluctuations in interest rates and other market risks
–
the extent to which Santander UK may be required to record negative changes in positions recorded at fair value for its financial assets due to changes in
market conditions
–
Santander UK’s ability to control the level of non-performing or poor credit quality loans and whether Santander UK’s loan loss reserves are sufficient to cover
loan losses
–
the risk that the value of the collateral, including real estate, securing Santander UK’s loans may not be sufficient and that Santander UK may be unable to
realise the full value of the collateral securing its loan portfolio
–
the effects of the financial services laws, regulations, government oversight, administrative actions and policies and any changes thereto in each location or
market in which Santander UK operates
–
the risk that Santander UK may become subject to the provisions of the Banking Act 2009, including the bail-in and write-down powers thereunder
–
the effects of any failure to comply with laws and regulations relating to anti-money laundering, anti-terrorism, anti-bribery and corruption, sanctions and
preventing the facilitation of tax evasion, or the risk of any failure to prevent, detect or deter any illegal or improper activities
–
the effects of taxation (and any changes to tax) in each location in which Santander UK operates
–
Santander UK’s exposure to any risk of loss and damage from civil litigation and/or criminal legal and regulatory proceedings
–
the risk of failing to successfully apply or to improve Santander UK’s credit risk management systems
–
the risk that Santander UK’s data management policies and procedures are not sufficiently robust
–
the effect of cybersecurity on Santander UK’s business
–
the risks related to the developing fields of artificial intelligence and machine learning
–
the risks arising from any non-compliance with Santander UK’s regulations, policies, from any employee misconduct, human error, negligence and deliberate
acts of harm or dishonesty, including fraud
–
the risk of failing to effectively manage changes in Santander UK’s information technology infrastructure and management information systems in a timely
manner
–
Santander UK’s exposure to unidentified or unanticipated risks despite its risk management policies, procedures and methods and Santander UK’s exposure to
risks related to errors in its risk modelling
–
the risks arising from Santander UK’s reliance on third parties for important infrastructure support, products and services
–
the ability of Santander UK to recruit, retain and develop appropriate senior management and skilled personnel
–
the effects of any inaccuracy within the judgements and accounting estimates which underpin aspects of the financial statements, and the consequent risk of
any material misstatement of Santander UK’s financial results
–
the effect of any change in accounting standards
Please refer to our latest filings with the SEC (including, without limitation, the Risk Factors section in this Annual Report on Form 20-F for the year ended
31
December 2024
) for a discussion of certain risk factors and forward-looking statements. Undue reliance should not be placed on forward-looking statements when
making decisions with respect to any Santander UK member and/or its securities. Investors and others should take into account the inherent risks and
uncertainties of forward-looking statements and should carefully consider the foregoing non-exhaustive list of important factors. Forward-looking statements speak
only as of the date on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; such
knowledge, information and views may change at any time. Santander UK does not undertake any obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
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Risk factors
An investment in Santander UK
plc (the Company) and its subsidiaries (us, we or Santander UK) involves a number of risks, the material ones of which are set
out below.
Geopolitical and macroeconomic risks
Santander UK’s operations, financial condition and prospects are materially impacted by economic conditions in the UK and disruptions in the
global economy and global financial markets
Santander UK’s business activities are concentrated in the UK, where it offers a range of banking and financial products and services to UK retail and corporate
customers. As a consequence, Santander UK’s operations, financial condition and prospects are significantly affected by general economic and political conditions
in the UK.
The UK economy had a strong start to 2024 with quarterly growth above pre-pandemic levels for the first and second quarters. However, growth slowed in the
second half of 2024 due, in part, to uncertainty around the UK Government’s Autumn Budget which reduced confidence. As such, there remains a risk that the UK
economy will see lower growth in 2025 with interest rates falling less quickly than expected, Brexit continuing to impact exports and geopolitical events disrupting
markets and lowering business and household confidence. Interest rates have risen sharply since 2022 and although interest rates have started to decrease,
there remains a risk that increases will be needed in the future. In particular there remains a risk that increases will be needed if rising inflation returns. This would
put further pressure on household finances for some of Santander UK's customers due to a sharp rise of the costs, or a continuation of higher costs for refinancing
their mortgage or a continuation of these higher costs and significantly higher costs of borrowing overall. Continued higher mortgage rates could also dampen
demand in the housing market, leading to further drops in new business or steeper falls in house prices, reducing the value of the collateral Santander UK holds
against mortgages. These risks could create further downward pressure on the economy; for example: a large surge in business failures with knock-on effects for
the labour market resulting in high rates of unemployment that affect the ability of customers to pay their debts, which could also contribute to negative multiplier
effects through delayed investment and spending; and a stronger push towards protectionism as governments look to protect home industries. This could also
lead to a longer-term turn in the credit cycle with a broader contraction of credit as lenders attempt to protect themselves from increased losses. In addition, the
UK economy and banking sector are impacted by the political environment and related government policy. For example, there will be increased business cost as a
result of increased employer's National Insurance, which will impact Santander UK's customers and the wider economy.
In particular, Santander UK faces, among others, the following risks in any period of economic uncertainty (including the effect of those risks on gross domestic
product, inflation, unemployment and house prices):
–
Reduced demand for Santander UK’s products and services - particularly the potential for reduced mortgage market volumes.
–
Inability of Santander UK’s borrowers to make payments on their loans in full or on time.
–
The degree of uncertainty concerning economic conditions may adversely affect the accuracy of Santander UK’s estimates, which may, in turn, impact the
reliability of the IFRS 9 model and process to determine the sufficiency of Santander UK’s loan loss allowances.
–
Lower house or other asset prices, reducing the value of collateral Santander UK holds on mortgage and other lending.
–
Higher and more persistent inflation, reducing Santander UK’s profitability and increasing the cost of living for Santander UK's borrowers.
–
The value and liquidity of the portfolio of investment securities that Santander UK holds may be adversely affected.
Santander UK is also exposed to:
–
Broader geopolitical issues, which remain heightened with the potential for a further pushback against globalism. Further moves towards unilateralism may also
cause increased tension and/or hostilities between nations, which could negatively impact the global economy and financial markets;
–
The continuation or escalation of conflicts between Russia and Ukraine, and in Israel and the Middle East, including the spread of these conflicts to other
countries in these regions, and/or the emergence of future regional conflicts and wars with global impact, which could lead to further increases in energy prices
(in particular, gas prices, if supplies to Europe remain interrupted) and heightened inflationary pressure;
–
US political risks and possible impacts of the new administration, including increased deregulation, leading to increased investor focus on UK banking sector
profitability and increased competitive pressures on non-US banks such as Santander UK;
–
Climate change risks which could result in material damage to Santander UK's customers’ property or businesses or have a material impact on Santander UK's
customers' business models under a transition to a low carbon economy; and
–
Social unrest as a result of severe economic disruption.
Adverse changes in the credit quality of Santander UK’s borrowers or counterparties or a general deterioration in UK economic conditions could reduce the
recoverability and value of Santander UK’s assets and require an increase in its level of provisions for expected credit losses. There can be no assurance that
Santander UK will not have to increase its provisions for loan losses in the future as a result of increases in non-performing loans or for other reasons beyond its
control. Material increases in Santander UK’s provision for loan losses and write-off or charge-offs have had and could again have a material adverse effect on its
operations, financial condition and prospects. Any significant reduction in the demand for Santander UK products and services, a sustained downturn in the UK
economy or changes in central bank interest rates could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Economic instability and downturns beyond the UK may also impact the UK economy as a whole. Europe’s manufacturing base is heavily dependent upon natural
gas, and any further restriction in supply and significantly increased costs are expected to have a material adverse impact on the Eurozone economy, which could
lead to disruption and volatility in the global financial markets, as a result of debt sustainability concerns. This could have a material adverse impact on Santander
UK, including Santander UK’s ability to access capital and liquidity on financial terms acceptable to Santander UK, which could have a material adverse effect on
Santander UK’s operations, financial condition and prospects.
A recessionary economic environment could also lead to rating downgrades affecting the UK, Santander UK or its customers, investments and/or instruments,
causing capital impacts due to increased RWAs, an increase in the volatility of wholesale markets and the cost of funding.
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The UK’s withdrawal from the European Union (Brexit) could continue to have a material adverse effect on Santander UK’s operations, financial
condition and prospects
The UK ceased to be a member of the EU in 2020 and a limited trade deal was agreed between the UK and the EU with the relevant new regulations coming into
force on 1 January 2021. The trade deal, however, did not include agreements on certain areas such as financial services and data adequacy.
The Financial Services and Markets Act 2023 (FSMA 2023) established a framework for HM Treasury (HMT) to revoke EU-derived financial services legislation
and for it to be replaced by Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) rules. This process of revoking and replacing retained
EU law may result in material changes to the UK regulatory regime and the impact of these regulatory developments and changes on Santander UK is difficult to
predict.
In 2021, the EU Commission adopted an adequacy decision for the UK, allowing for the continued flow of personal data between the EU and the UK without
additional safeguards or permissions. However, this decision came with an expiry date of 27 June 2025, if not renewed. If the EU Commission’s adequacy
decision for the UK is not renewed, this could impact personal data flows from entities in the EU to Santander UK in the UK. In the event this occurs, it may result
in additional costs to Santander UK in order to facilitate those data flows, to the extent those data flows are impacted, with the UK being subject to EU transfer
rules as a non-adequate jurisdiction.
The continuing impact of Brexit on the wider UK economy may have a material adverse effect on Santander UK’s customers and counterparties and have a
material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK faces risks from the impact of climate change, which could materially affect Santander UK’s business operations, reputation, clients
and customers, as well as the creditworthiness of its counterparties
Climate risk is a risk that manifests through other principal risks. Climate change could expose Santander UK to financial risk either through its physical or
transitional effects. Transition risks could be further accelerated by the occurrence of changes in the physical climate.
Physical risks from climate change arise from climate and weather-related events, such as heatwaves, droughts, floods, landslides, storms, sea level rise, coastal
erosion and subsidence. These risks could impact Santander UK's customers in the form of lower revenues due to transport problems, supply chain disruption
and other impacts that strain production and lower revenues and higher costs for its customers owing to workers' health, safety, absenteeism and other workforce-
related problems. These risks could also lead to damage to Santander UK's customers’ property or operations, which could impair asset values and the
creditworthiness of customers leading to increased default rates, delinquencies, write-offs and impairment charges in Santander UK’s portfolios. In addition,
Santander UK’s premises and resilience may also suffer physical damage due to weather-related events leading to increased costs for Santander UK.
Transition risks arise from the process of adjustment towards a low-carbon economy. Santander UK may face significant and rapid developments in stakeholder
expectations, policy, law and regulation which could impact the lending activities Santander UK undertakes, as well as the risks associated with its lending
portfolios, and the value of Santander UK’s financial assets. Reputation risk could arise from a failure to meet changing societal, investor or regulatory demands,
including contagion risk from the wider Banco Santander SA Group. In particular, the last few years have seen an increase in upcoming climate-related disclosure
requirements that Santander UK and Banco Santander SA (as the ultimate parent of Santander UK) will need to comply with (for example, the IFRS Sustainability
Disclosure Standards as developed by the International Sustainability Standards Board (ISSB), the European Banking Authority's (EBA) Environmental, Social,
and Governance (ESG) Pillar 3 disclosures rules and the EU Corporate Sustainability Reporting Directive (CSRD) and the FCA’s Sustainability Disclosure
Requirements regime.
Banco Santander SA has an ambition to become a net zero bank by 2050. As such, Santander UK Group Holdings plc is implementing and reporting at a group
level (including Santander UK plc) against the TCFD recommendations and has disclosed targets to manage climate-related risks and opportunities. Santander
UK continues to enhance its disclosures to meet future requirements such as the IFRS Sustainability Disclosure Standards. Santander UK continues to embed
climate considerations into its strategy, business model, the products and services it provides to customers and its financial and non-financial risk management
processes (including processes to measure and manage the various financial and non-financial risks Santander UK faces as a result of climate change).
Santander UK does this primarily through its internal transition plan, which is aligned to the UK Government's Transition Plan Taskforce guidelines. Within this
Santander UK assesses the internal and external factors that will impact the alignment of its lending portfolios to the UN Paris Agreement, including the
acceleration of the UK Government’s clean power 2030 action plan. Failure to adequately embed risks associated with climate change into its risk framework to
appropriately measure, manage and disclose the various financial and operational risks it faces as a result of climate change, or failure to adapt Santander UK’s
strategy and business model to the changing regulatory requirements and market expectations on a timely basis, may have a material and adverse impact on
Santander UK’s level of business growth, competitiveness, profitability, capital requirements, cost of funding, and financial condition. Achieving Santander UK’s
climate-related ambitions will also depend on a number of factors outside its control, including (among other things) availability of data to measure and assess the
climate impact on Santander UK’s customers, advancements of low-carbon transition technologies and public policies to support the energy transition in the
markets where Santander UK operates. Santander UK continues to assess this as part of its transition planning process. If these external factors and other
changes do not occur, or do not occur on a timely basis, Santander UK may fail to achieve its climate-related ambitions and this could have a material adverse
effect on Santander UK’s business growth, competitiveness, profitability, financial condition and reputation.
For further details on Santander UK’s approach to climate change see “Sustainability – Taskforce on Climate-related Financial Disclosures (TCFD)" in the
Santander UK Group Holdings plc Annual Report on Form 20-F.
Business model risks
Santander UK is exposed to competition from other financial institutions, including new entrants into the financial services sector
The markets for UK financial services are very competitive and Santander UK has seen strong competition from banks, building societies and other established
financial service providers. In addition, Santander UK faces competition from a number of new entrants, non-banks and other providers, including technology
companies and large retail companies with strong brand recognition, particularly in payments.
The UK Government and regulators are actively supporting the emergence of new entrants into the UK financial services market. In addition, the UK Government
is mandating new developments in Open Banking (as described below) which is a data sharing initiative making certain customer account balance and transaction
data available to third parties through use of application programming interfaces and is expected to mandate other developments in the payments landscape via
the “National Payments Vision”. The internet and mobile technologies are also changing customer behaviour and the competitive environment. There has been a
steep rise in customer use of mobile banking in recent years and the Covid-19 pandemic accelerated the strong trends towards customer digital adoption,
commercial and customer uptake of Open Banking, and regulatory and industry initiatives to develop commercial variable recurring payments, Open Finance
which extends the Open Banking ecosystem to enable data sharing related to additional financial services products and services and Smart Data which will
establish data sharing initiatives in various sectors outside of financial services, are likely to significantly change the technological and competitive landscape.
Commercial propositions based upon Open Banking are now beginning to gain traction. The UK Government has confirmed, through the publication of its
National Payments Vision, that it is committed to developing the necessary regulatory framework and infrastructure needed to develop these new ecosystems.
Due to Santander UK’s concentration in mortgages, it has a structural balance sheet disadvantage compared to larger peers with more diversified assets and
lower costs of deposits. This results in a lower NIM and fee income for Santander UK. However, Santander UK has an ambitious plan to transform its business
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and deliver structural profitability throughout the lending cycle. In particular, Santander UK is investing in a multi-year transformation, which includes targets to
diversify its revenue streams, digitalise product channels and automate physical channels, to meet customer preferences and protect its competitive position.
However, Santander UK's asset mix will continue to remain weighted towards mortgages and as a result its NIM is expected to be lower than that of its larger
peers. Santander UK has made inroads in its transformation, and management expects to consider other ways to accelerate the shift in its business mix, including
acquisitions and partnership opportunities. However, there can be no assurance that the transformation will deliver the benefits sought from it or that the
transformation will progress on the timescale and trajectory currently anticipated. Management expects competition to remain strong, with larger peers investing
heavily in growth, diversification (including bolt-on acquisitions) and efficiency programmes, and with smaller players looking to build scale through acquisitions.
The recent consolidation drive via acquisitions is creating larger and more diversified competitors and further exacerbates competitive threats. Furthermore, digital
banks continue to build their customer base and expand product offerings, diversifying and increasing the competitiveness within the banking sector. Any of these
competition-related factors or a combination thereof could result in a significant reduction in the profit of Santander UK. Santander UK gives consideration to the
competitive position in its management actions, such as pricing, product decisions and its business model. Increasing competition could mean that Santander UK
increases rates offered on deposits or lowers the rates it charges on loans, or changes its cost base, any of which could have a material adverse effect on its
operations, financial condition and prospects.
The changing interest rate environment and higher cost of living may result in competitors reacting quite differently in relation to, amongst other factors, loan
pricing, availability, deposit pricing and investment decisions. This has already had, and will continue to have, an impact on the competitive environment and future
decisions of Santander UK.
Santander UK’s ability to maintain its competitive position depends, in part, on the success of new products and services it offers its customers
and its ability to continue offering products and services from third parties
The success of Santander UK’s operations and its profitability depends, in part, on the success of new products and services it offers to customers and the way in
which it offers and provides its existing products and services. The increasing availability of a wide range of digital/online products and services for customers
within the market, requires banks like Santander UK to enhance their offerings in order to both retain and attract new customers. However, Santander UK cannot
guarantee that its products and services or the way in which it offers or provides its products and services, will continue to meet the needs or preferences of
customers as these may change over time.
Santander UK may not develop new products, or amend the key features of existing products, in a way that meet its customers’ changing needs in a timely
manner. As Santander UK expands the range of its products and services, some of which may be at an early stage of development in the UK market, it will be
exposed to known, new and potentially increasingly complex risks, including conduct, reputational and operational risk as well as development costs. Equally,
Santander UK may not take appropriate action to change or withdraw products when they become obsolete, outdated or unattractive reducing their
competitiveness and potentially increasing risks in relation to legacy customer journeys and systems.
The use of third parties by Santander UK to offer products or services or to support part of the customer journey presents additional risks to its business,
particularly in terms of data management and security. However, if Santander UK were not to engage with third parties to offer specialist services in this way,
strategic and competitive opportunities and advantages may be missed.
Any or all of the above factors, individually or collectively, could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK’s loan portfolio is subject to risk of prepayment
Santander UK’s loan portfolio is subject to prepayment risk resulting from the ability of a borrower or issuer to prepay a debt obligation prior to maturity. As a
result, Santander UK could be required to amortise net premiums into income over a shorter period of time, thereby reducing the corresponding asset yield and
net interest income and there is a risk that Santander UK is not able to accurately forecast amortisation schedules for these purposes which may affect its
profitability. Prepayment risk also has a significant adverse impact on credit card and mortgage loans, since prepayments could shorten the weighted average life
of these assets, which may result in a mismatch with Santander UK’s funding obligations and reinvestment at lower yields. The risk of prepayment and its impact
on Santander UK's ability to accurately forecast amortisation schedules is inherent in Santander UK’s commercial activity and an increase in prepayments or a
failure to accurately forecast amortisation schedules could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Damage to Santander UK’s reputation could cause harm to its business prospects
Maintaining a positive reputation is critical to attracting and retaining customers, investors and employees and conducting business transactions with
counterparties. Damage to Santander UK’s reputation could materially and adversely affect Santander UK’s perception among current and potential clients,
investors, vendors, partners, regulators and other third parties, which in turn could have a material adverse effect on Santander UK’s operating results, financial
condition, and prospects as well as damage Santander UK’s customers' and investors' confidence and the market price of Santander UK’s securities. Damage to
the reputation of Santander UK or Banco Santander SA (as the ultimate parent of Santander UK), the reputation of affiliates operating under the ‘Santander’ brand
or any of its other brands could therefore cause significant harm to Santander UK’s business and prospects. Harm to Santander UK’s reputation can arise directly
or indirectly from numerous sources, including, among others, employee misconduct (including the possibility of employee fraud), litigation, regulatory
interventions and enforcement action, negative political coverage, failure to deliver minimum standards of service and quality, loss or compromise of customer
data, disruption to service due to a cyberattack, wider IT failures, compliance failures, third-party fraud, financial crime, breach of legal or regulatory requirements,
unethical behaviour (including adopting inappropriate sales and trading practices), and the activities of customers, suppliers and counterparties and the perception
of the financial services industry as a whole. Further, negative publicity regarding Santander UK, whether true or not, may result in harm to Santander UK’s
operations, financial condition and prospects. Santander UK’s reputation could also suffer if Santander UK is the subject of negative coverage in the media or from
political stakeholders, whether it has merit or not.
If Santander UK is unable to manage the growth of its operations, this could have a material adverse impact on its profitability
Santander UK allocates management and planning resources to develop strategic plans for organic growth, and to identify possible acquisitions and disposals
and areas for restructuring its businesses when necessary. From time to time, Santander UK evaluates acquisition, disposal, and partnership opportunities that it
believes could offer additional value to its shareholders and customers and are consistent with its business strategy. However, Santander UK may not be able to
identify suitable acquisition targets or partnerships and may not be able to execute transactions or form partnerships on favourable terms, or at all. Furthermore,
participating in those that do not complete can be disruptive. Santander UK bases its assessment of potential acquisitions and partnerships on limited and
potentially inexact information and on assumptions with respect to future performance, valuation, operations, profitability and other matters that may prove to be
incorrect. Santander UK’s ability to benefit from any such acquisitions and partnerships will depend in part on its successful integration of those businesses. Such
integration entails significant risks such as challenges in retaining the customers and employees of the acquired businesses, unforeseen difficulties in integrating
operations and systems and unexpected liabilities or contingencies relating to the acquired businesses, including legal claims and regulatory investigations.
Moreover, the success of the acquisition or venture will at least in part be subject to a number of political, economic and other factors that are beyond Santander
UK’s control. Santander UK can give no assurances that its expectations with regard to integration and synergies will materialise.
Santander UK cannot provide assurance that it will, in all cases, be able to manage its growth effectively or to implement its strategic growth decisions, including
its ability to:
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Manage efficiently the operations and employees of the businesses
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Maintain or grow its existing customer base
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Successfully execute its strategic priorities (i.e. deliver on time in full)
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Carry out due diligence and assess the value, strengths and weaknesses of investment or acquisition candidates
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Finance strategic opportunities, investments or acquisitions
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Fully integrate strategic investments, or newly-established entities or acquisitions, in line with its strategy
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Align its current information technology systems adequately with those of an enlarged group
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Apply its risk management policy effectively to an enlarged group
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Pursue opportunities due to capital constraints at the Santander UK Group level, which may limit opportunities to deploy capital to Santander UK, and the
current returns of Santander UK’s business
Any or all of these factors, individually or collectively, could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Capital and liquidity risk
Santander UK is subject to regulatory capital, liquidity and leverage requirements that could limit its operations, and changes to these
requirements may further limit and could have a material adverse effect on Santander UK’s operations, financial condition and prospects
Capital Requirements Regulation and Capital Requirements Directive IV
Santander UK is subject to capital adequacy requirements applicable to banks and banking groups under assimilated (retained EU) law and is supervised in this
respect by the PRA. Santander UK is required to maintain a minimum ratio of Common Equity Tier 1 (CET1) capital to risk-weighted assets, Tier 1 capital to risk-
weighted assets, total capital to risk-weighted assets and Tier 1 capital (leverage) to total adjusted assets for leverage purposes. Any failure by Santander UK to
maintain such ratios above prescribed regulatory minimum levels may result in administrative actions or sanctions. These could potentially include requirements
on Santander UK to cease all or certain lines of new business, to raise new capital resources or, in certain circumstances, a requirement for Santander UK's
existing capital instruments (potentially including Santander UK’s debt securities) to be subjected to bail-in or write-down (for more information, see the risk factor
entitled ‘Santander UK may become subject to the provisions of the Banking Act 2009 (the Banking Act), including bail-in and write-down powers’).
The EU Capital Requirements Directive IV (CRD IV Directive) and the Capital Requirements Regulation (the CRR and together with the CRD IV Directive, CRD
IV) implemented changes proposed by the Basel Committee on Banking Supervision (the Basel Committee) to the capital adequacy framework, known as ‘Basel
III’ in the EU. The CRR has been amended through a series of EU regulations, including the Capital Requirements Regulation 2 (CRR 2) and the CRD IV
Directive has been amended by the Capital Requirements Directive V (CRD V Directive). The European Union (Withdrawal) Act 2018 converted the directly
applicable elements of CRD IV into UK law on 31 December 2020 and preserved existing UK law implementing the CRD IV directive. Certain elements of the
CRR which were ‘onshored’ in this way have now been transposed into the PRA rules.
In implementing CRD IV and the revised versions of CRD IV, the PRA has required the capital resources of UK banks to be maintained at levels which exceed the
base capital requirements prescribed by CRD IV and to cover relevant risks in their business. In addition, a series of capital buffers have been established under
CRD IV and PRA rules to ensure a bank can withstand a period of stress. As a result of Bank of England (BoE) stress testing exercises and as part of its exercise
of UK macro-prudential capital regulation tools, or through supervisory actions by the PRA, Santander UK could be required to increase its capital resources
further, which could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
The LCR is intended to ensure that a bank maintains an adequate level of unencumbered, high quality liquid assets which can be used to offset the net cash
outflows the bank could encounter under a short-term significant liquidity stress scenario. The current minimum requirement for LCR is set at 100%. Santander
UK is also required to maintain available stable funding equal to at least 100% of its required stable funding under the NSFR. Santander UK’s current liquidity
position is in excess of the minimum requirements set by the PRA, but there can be no assurance that future changes to the applicable liquidity requirements
would not have an adverse effect on Santander UK’s financial performance.
Leverage ratios
The Financial Services Act 2012 provides the Financial Policy Committee (FPC) of the BoE with certain macro-prudential tools for the management of systemic
risk including quarterly setting of the countercyclical capital buffer rate and powers of direction relating to leverage ratios. All major UK banks and banking
groups (including Santander UK) are required to hold enough Tier 1 capital (75% of which must be CET1 capital) to satisfy a minimum leverage ratio requirement
of 3.25% and enough CET1 capital to satisfy a countercyclical leverage ratio buffer of 35% of each bank’s institution-specific countercyclical capital buffer rate.
The PRA requires UK globally systemically important banks (G-SIBs) and Ring Fenced Bodies (as defined in the Financial Services and Markets Act 2000
(FSMA)) to hold enough CET1 capital to meet an Additional Leverage Ratio Buffer (ALRB) of 35% of the institution-specific G-SIB buffer rate or Other
Systemically Important Institutions (O-SII) buffer rate following the implementation of the CRD V Directive on 28 December 2020 (previously the Systemic Risk
Buffer rate) and for consolidated groups which include a Ring Fenced Body to hold enough CET1 capital to meet the ALRB. The FPC can also direct the PRA to
adjust capital requirements in relation to particular sectors through the imposition of sectoral capital requirements. Action taken in the future by the FPC in exercise
of any of its powers could result in the regulatory capital requirements applied to Santander UK being further increased, which could have a material adverse
effect on Santander UK’s operations, financial condition and prospects.
Further regulatory changes
Regulators in the UK and worldwide have proposed that additional loss absorbency requirements should be applied to systemically important institutions to ensure
that there is sufficient loss absorbing and recapitalisation capacity available in resolution. The BoE is required to set the Minimum Requirement for Eligible
Liabilities (MREL) for all institutions. The BoE required most major banks, since 1 January 2022, to comply with end-state MREL requirements, including
Santander UK plc and Santander UK Group Holdings plc.
Regulators and legislators in the UK have produced a range of proposals for future legislative and regulatory reform which could force Santander UK to comply
with certain operational restrictions or take steps to raise further capital or increase Santander UK’s expenses and could therefore have a material adverse effect
on Santander UK’s operations, financial condition and prospects. These changes, which could affect Santander UK as a whole, include the UK's implementation
of the remaining Basel III standards. The Basel Committee on Banking Supervision has approved a series of significant changes to the Basel regulatory capital
framework subsequent to Basel III from 7 December 2017, colloquially known as Basel IV or Basel 3.1 which revise the process for determining capital
requirements. On 30 November 2022, the PRA published a consultation paper (CP 16/22) on the implementation of the Basel 3.1 standards in the UK, which was
followed in December 2023 and September 2024 by two policy statements (PS17/23 and PS9/24 respectively) containing near-final rules. On 17 January 2025,
the PRA announced that it was delaying the implementation of the Basel 3.1 rules by a year until 1 January 2027, with the transitional period reduced from four to
three years so that it will continue to end on 31 December 2029. CRD IV requirements adopted in the UK may change further and there may be changes to the
way in which the PRA continues to interpret and apply these requirements to UK banks (including with regard to individual model approvals or otherwise).
There is a risk that changes to the UK’s capital adequacy regime (including any increase to minimum leverage ratios and/or as a result of the PRA’s Basel 3.1
reforms) may result in increased minimum capital requirements, which could reduce available capital for new business purposes and adversely affect Santander
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UK’s cost of funding, profitability and ability to pay dividends, or other discretionary payments on its capital instruments, continued organic growth (including
increased lending), or pursue acquisitions or other strategic opportunities. Santander UK could be required to restructure its balance sheet to reduce capital
charges incurred pursuant to the PRA’s rules or raise additional capital, but at increased cost and subject to prevailing market conditions. In addition, any changes
to the eligibility criteria for Tier 1 and Tier 2 capital may affect Santander UK’s ability to raise Tier 1 and Tier 2 capital and impact the recognition of existing Tier 1
and Tier 2 capital resources in the calculation of Santander UK’s capital position. Furthermore, increased capital requirements may negatively affect Santander
UK’s return on equity and other financial performance indicators.
Santander UK’s business could be affected if its capital is not managed effectively or if these measures limit Santander UK’s ability to manage its balance sheet
and capital resources effectively or to access funding on commercially acceptable terms. Effective management of Santander UK’s capital position is important to
Santander UK’s ability to operate its business, to continue to grow organically and to pursue its business strategy. There is a risk that implementing and
maintaining existing and new liquidity requirements, such as through enhanced liquidity risk management systems, may incur significant costs, and more stringent
requirements to hold liquid assets may materially affect Santander UK’s lending business as more funds may be required to acquire or maintain a liquidity buffer,
thereby reducing future profitability. This could in turn adversely impact Santander UK’s operations, financial condition and prospects.
Liquidity and funding risks are inherent in Santander UK’s business and could have a material adverse effect on Santander UK’s operations,
financial condition and prospects
Liquidity risk is the risk that Santander UK either does not have available sufficient financial resources to meet its obligations as they fall due or can secure them
only at excessive cost. This risk is inherent in any retail and commercial banking business and can be heightened by a number of factors such as over-reliance on
a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation. Santander UK performs comprehensive internal
stress testing in order to ensure that it maintains funding profiles and holds a liquid asset buffer in order to manage this risk. However, unforeseen systemic market
factors like those experienced during the last financial crisis make it difficult to eliminate these risks completely. There can be no assurance that such
circumstances will not reoccur or that they will occur in the same way, but past experience and comprehensive stress testing regimes help Santander UK to
consider and manage the potential impacts on its liquidity position. Liquidity constraints may affect Santander UK’s operations and its ability to meet regulatory
liquidity requirements or may limit growth possibilities. Disruption and volatility in the global financial markets could have a material adverse effect on Santander
UK’s ability to access capital and liquidity on financial terms acceptable to it and in addition to increased funding costs, may result in a shortening in the term of
funding it raises.
Santander UK’s cost of funding is related to prevailing interest rates and to its credit spreads. Increases in interest rates and Santander UK’s credit spreads can
significantly increase the cost of its funding. Changes in Santander UK’s credit spreads can be market-driven or idiosyncratic in nature and may be influenced by
perceptions of its creditworthiness rather than any underlying change in Santander UK’s financial position. Changes to interest rates and Santander UK’s credit
spreads occur continuously and may be unpredictable and highly volatile. Market predictions of future central bank policy rate paths may impact Santander UK’s
cost of funding, even if central bank actions do not ultimately follow market predictions.
If wholesale markets financing ceases to be available, or becomes excessively expensive, Santander UK may be forced to raise the rates it pays on deposits, with
a view to attracting more customers and/or to sell assets, potentially at depressed prices or to reduce growth plans. Santander UK’s cost of funding might also be
impacted by increased competition for retail and corporate deposits.
In response to the Covid-19 pandemic, the BoE introduced the Term Funding Scheme with additional incentives for Small and Medium-Sized Enterprises
(TFSME). Santander UK is continuing to repay drawings ahead of contractual maturities in 2025, 2027 and 2031 and as at 31 December 2024, Santander UK
had £11bn of drawings outstanding (£7.1bn in 2025, £2.5bn in 2027 and subject to approval by the BoE, £1.4bn in 2031), having repaid £6bn in 2024. (£8.0bn in
2023, £6.9bn in 2022).
Santander UK will have to replace these remaining drawings via wholesale market issuance, other BoE liquidity facilities or through
management of the customer funding gap
.
Each of the factors described above could have a material adverse effect on Santander UK, including its ability to access capital and liquidity on financial terms
acceptable to it and, more generally, on its operations, financial condition and prospects.
Further, Santander UK aims for a funding structure that is consistent with its assets, avoids excessive reliance on short-term wholesale funding, attracts enduring
retail and commercial deposits and provides diversification in products and tenor. Santander UK therefore relies, and will continue to rely, on retail and commercial
deposits to fund a significant proportion of lending activities. The on-going availability of this type of funding is sensitive to a variety of factors outside Santander
UK’s control, such as general economic conditions and the confidence of depositors in the economy and in the financial services industry in general, confidence in
Santander UK specifically, Santander UK’s credit rating and the availability and extent of deposit guarantees, as well as competition between banks for deposits or
competition with other products, such as mutual funds or, if launched, central bank digital currency. A change in any of these factors could significantly increase the
amount of commercial deposit withdrawals in a short period of time, thereby reducing its ability to access deposit funding on appropriate terms, or at all, in the
future, and therefore have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK’s liquidity planning assumes that customers will continue to make a volume of deposits with Santander UK (particularly demand deposits and short-
term time deposits), and Santander UK intends to maintain its emphasis on the use of deposits as a source of funds. The short-term nature of some deposits
could cause liquidity problems for Santander UK in the future if deposits are not made in the volumes anticipated or are withdrawn at short notice or are not
renewed. If a substantial number of depositors withdraw their demand deposits or do not roll over their time deposits upon maturity, there may be a material
adverse effect on Santander UK’s operations, financial condition and prospects. This might increase Santander UK’s requirements for wholesale funding or
require the execution of contingent options to raise additional liquidity, including the potential curtailing of growth plans.
An adverse movement in Santander UK’s external credit rating would likely increase its cost of funding, require Santander UK to post additional
collateral or take other actions under some of its derivative contracts and adversely affect Santander UK’s operations, financial condition and
prospects
Credit ratings affect the cost and other terms upon which Santander UK is able to obtain funding. Credit rating agencies regularly evaluate Santander UK, and
their credit ratings of Santander UK and Santander UK’s issued debt are based on a number of factors, including Santander UK’s financial strength, the strength of
the UK economy and conditions affecting the financial services industry generally.
Any downgrade in the external credit ratings assigned to Santander UK or any of Santander UK’s debt securities could have an adverse impact on Santander UK.
In particular, a downgrade in Santander UK’s credit ratings could increase its borrowing costs and could require it to post additional collateral or take other actions
under some of its derivatives, loan facilities or other financial contracts, and could limit its access to capital markets and have a material adverse effect on its
operations, financial condition and prospects. For example, a credit rating downgrade could have a material adverse effect on Santander UK’s ability to sell or
market certain products, engage in certain longer-term or derivatives transactions and retain its customers or investors, particularly those who need a minimum
rating threshold in order to transact or invest.
Any of these effects of a credit rating downgrade could, in turn, result in outflows and reduce Santander UK’s liquidity and have an adverse effect on Santander
UK, including its operations, financial condition and prospects. For example, Santander UK estimates that at 31 December 2024, if Fitch, Moody’s and Standard
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Poor’s were concurrently to downgrade the long-term credit ratings of Santander UK plc by one notch, and thereby trigger a short-term credit rating downgrade,
this could result in an outflow of £2.4bn of cash and collateral. A hypothetical two notch downgrade would result in a further outflow of £0.7bn of cash and collateral
at 31 December 2024. Under the LCR Santander UK holds sufficient liquidity to cover these potential outflows. However, while certain potential impacts are
contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend upon numerous dynamic, complex and
inter-related factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of a firm’s long-term credit rating
precipitates downgrades to its short-term credit rating, whether any downgrade precipitates changes to the way that the financial institutions sector is rated, and
assumptions about the ratings of other financial institutions and the potential behaviours of various customers, investors and counterparties. Actual outflows will
also depend upon certain other factors including any management or restructuring actions that could be taken to reduce cash outflows and the potential liquidity
impact from a loss of unsecured funding (such as from money market funds) or loss of secured funding capacity.
There can be no assurance that the credit rating agencies will maintain Santander UK’s current credit ratings or outlooks. A failure to maintain favourable
credit ratings or outlooks could increase Santander UK’s cost of funding, adversely affect Santander UK’s interest margins, and reduce its ability to secure
both long-term and short-term funding. If a downgrade of a Santander UK member’s long-term credit ratings were to occur, it could also impact the short-
term credit ratings of other members of Santander UK. The occurrence of any of these events could have a material adverse effect on Santander UK’s
operations, financial condition and prospects.
Negative changes to the UK sovereign credit rating, or the perception that further negative changes may occur, could have a material adverse effect on
Santander UK’s operations, financial condition, prospects and the marketability and trading value of its securities. This might also have an impact on
Santander UK’s own credit rating, borrowing costs and ability to secure funding. Negative changes to the UK sovereign credit rating, or the perception that
further negative changes may occur, could also have a material effect in depressing consumer confidence, restricting the availability, and increasing the cost,
of funding for individuals and companies, further depressing economic activity, increasing unemployment and reducing asset prices, which could in turn have
a material adverse effect on Santander UK’s operations, financial condition and prospects.
Changes in Santander UK’s pension liabilities and obligations could have a materially adverse effect on Santander UK’s operations, financial
condition and prospects
The majority of current employees are provided with pension benefits through defined contribution arrangements. Under these arrangements Santander
UK’s obligation is limited to the cash contributions paid. Santander UK provides retirement benefits for many of its former and current employees in the
UK through a defined benefit pension scheme established under trust. Santander UK plc is the principal employer under this scheme, but it has only
limited control over the rate at which it pays into the scheme. Under the UK statutory pension funding requirements employers are usually required to
contribute to the schemes at the rate they agree with the scheme trustees although, if they cannot agree, the rate can be set by the Pensions Regulator.
The scheme trustees may, in the course of discussions about future valuations, seek higher employer contributions. The scheme trustees’ power in
relation to the payment of pension contributions depends on the terms of the trust deed and rules governing the scheme, but, in some cases, the trustees
may have the unilateral right to set the employer’s relevant contribution.
The Pensions Regulator has the power to issue a financial support direction to companies within a group in respect of the liability of employers
participating in UK defined benefit pension schemes where, amongst other things, that employer is ‘insufficiently resourced’ (as defined for the purposes
of the relevant legislation). Such a financial support direction could require the companies to guarantee or provide security for the pension liabilities of
those employers or could require additional amounts to be paid into the relevant pension schemes in respect of them
.
The Pensions Regulator can also issue contribution notices if it is of the opinion that an employer has taken actions, or failed to take actions, deliberately designed
to avoid meeting its pension promises or which are materially detrimental to the scheme’s ability to meet its pension promises. A contribution notice can be issued
to any company or individual that is connected with or an associate of such employer in circumstances where the Pensions Regulator considers it reasonable to
issue it and multiple notices could be issued to connected companies or individuals for the full amount of the debt. The risk of a contribution notice being imposed
may inhibit Santander UK’s freedom to restructure or to undertake certain corporate activities. There is a risk that Santander UK could incur an obligation to make
a contribution to the scheme by virtue of section 75 or 75A of the Pensions Act 1995 as a result of a reorganisation or disposal of Santander UK’s businesses.
Should the value of assets to liabilities in respect of the defined benefit schemes operated by Santander UK record a deficit or an increased deficit (as
appropriate), due to either a reduction in the value of the pension scheme assets (depending on the performance of financial markets) not matched by a fall in the
pension scheme liabilities and/or an increase in the pension scheme liabilities (for example due to changes in legislation, mortality assumptions, discount rate
assumptions, inflation, or other factors) not matched by an increase in the pension scheme assets, this could result in Santander UK having to make increased
contributions to reduce or satisfy the deficits which would divert resources from other areas of Santander UK's business and reduce its capital resources. Changes
in inflation and interest rates in particular pose significant risks to the pension scheme as liabilities would be adversely impacted by an increase in long-term
inflation or reduction in interest rates, and it is inherently problematic to find assets that exactly match inflation and interest rate movements in the liabilities. The
pension scheme assets are also invested in illiquid assets consisting primarily of unlisted credit, private equity and property. The value of these investments can
only be known when they are realised. The value in the accounts is an estimate of the fair value of these investments but the final realised value could be
materially different. Although the trustee of the scheme is obliged to consult with Santander UK before changing the pension scheme's investment strategy, the
trustee has the final say and the ultimate responsibility for investment strategy rests with the trustee. A change in the actual or perceived strength of the employer’s
covenant could also result in Santander UK having to make increased contributions to the scheme. While Santander UK can control a number of the above
factors, there are some over which Santander UK has no or limited control.
Changes in UK legislation and regulation may also affect Santander UK’s position, Specific areas where concerns have been raised are levels of dividends where
there is a pension scheme with a deficit and the length of time taken to address deficits. Changes in legislation or regulation could result in Santander UK having
to make increased contributions to reduce or satisfy the deficits which would divert resources from use in other areas of its business and reduce its capital
resources.
Any increase in Santander UK’s pension liabilities and obligations as a result of the foregoing factors could have a material adverse effect on Santander UK’s
operations, financial conditions and prospects. There is also a risk of reputational damage if the scheme fails to comply with legislation or if there are any issues
with members or the trustee being dissatisfied.
Market risks
Santander UK is subject to fluctuations in interest rates and other market risks, which could have a material adverse effect on Santander UK’s
operations, financial condition and prospects
Market risk refers to the probability of variations in Santander UK’s net interest income or in the market value of its assets and liabilities due to volatility of interest
rates, credit spreads, exchange rates or equity prices.
Changes in interest rates would affect the following areas, among others, of Santander UK’s business:
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Net interest income
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The value of Santander UK’s derivatives transactions
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The value of Santander UK’s securities holdings
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The value of Santander UK’s loans and deposits
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The volume of loans originated
Interest rates are highly sensitive to many factors beyond Santander UK’s control, including increased regulation of the financial sector, inflation, monetary policies,
domestic and international economic and political conditions. For example, the UK’s Monetary Policy Committee has been selling assets to unwind quantitative
easing; as this balance sheet ’normalisation’ unfolds, there could be unintended consequences for markets and financial stability. Variations in interest rates could
affect the interest earned on Santander UK’s assets and the interest paid on its borrowings, thereby affecting its net interest income, which comprises the majority
of its revenue, reducing its growth rate and profitability and potentially resulting in losses. In addition, costs Santander UK incurs putting into place strategies to
reduce interest rate exposure could increase in the future, which could have a material adverse effect on Santander UK’s operations, financial condition and
prospects.
Increases in interest rates may reduce the volume of loans originated by Santander UK. Sustained high interest rates have historically discouraged customers
from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets.
Reductions in interest rates could lead to margin compression if such changes are passed on to customer liabilities to a lesser extent than they are passed on to
customer assets. Changes in interest rates may also affect the ability of Santander UK’s customers to prepay or refinance fixed-rate loans, affect the value of its
financial assets and reduce gains or require Santander UK to record losses on sales of Santander UK’s loans or securities, which could have a material adverse
effect on Santander UK’s operations, financial condition and prospects.
In addition, although Santander UK is a UK-centric bank, it has a direct link to the Eurozone through its parent company, which exposes Santander UK to
Eurozone sovereign debt risks, as market concerns over sovereign debt sustainability could drive changes in interest rates and credit spreads. Any significant
impact on interest rates could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Negative changes in positions recorded at fair value could have a material adverse effect on Santander UK’s operations, financial condition and
prospects
Santander UK has material exposures to securities, derivatives and other investments that are recorded at fair value and are therefore exposed to potential
negative market changes. A widening of market credit spreads, reflecting the prevailing market conditions would negatively impact asset valuations in future
periods and may result in negative changes in the fair values of Santander UK's financial assets. A tightening of Santander UK’s own credit spreads would
increase the magnitude of liabilities, thereby reducing net assets.
In addition, the value ultimately realised by Santander UK on disposal of assets and liabilities recorded at fair value may be lower than their current fair value; for
example, during the last global financial crisis, financial markets were subject to periods of significant stress resulting in steep falls in perceived or actual financial
asset values, particularly due to volatility in global financial markets and the resulting widening of credit spreads.
Santander UK is also exposed to changes in the market value of credit and funding spreads for the valuation of certain derivative contracts, the estimated value of
which is negatively exposed to increases in the Credit Valuation Adjustment (CVA) spread and the Funding Fair Valuation Adjustment (FVA) spread over the
lifetime of the transaction.
Any of these factors could require Santander UK to record negative changes in fair value which could have a material adverse effect on its operations, financial
condition and prospects.
Santander UK is also exposed to changes in UK residential house price index levels, future index growth assumptions and house price index volatility. These
impact the valuations of the portfolios of home reversion plans, lifetime mortgages and associated hedges held by Santander UK. In addition, the home reversion
assets and mortgages are exposed to any changes in underlying mortality assumptions as maturity dates on these are not fixed and are driven by the vacation of
the underlying property on a permanent basis by the plan holder. Specific property risk exists for each individual asset versus the indexed growth assumption at
the point of maturity. Lifetime mortgages additionally have prepayment risk which is managed via a FVA based on historic data.
In addition, to the extent that fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by
such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets and in times of economic
instability. In such circumstances, Santander UK’s valuation methodologies require it to make assumptions, judgements and estimates in order to establish fair
value.
Reliable assumptions are difficult to make and are inherently uncertain. Moreover, valuation models are complex, making them inherently imperfect predictors of
actual results. Any consequential impairments or write-downs could have a material adverse effect on Santander UK’s operations, financial condition and
prospects.
Santander UK invests in debt securities of the UK Government largely for liquidity management purposes. At 31 December 2024, approximately 7% of Santander
UK’s total assets and 33% of Santander UK’s securities portfolio comprised debt securities issued by the UK Government. Any failure by the UK Government to
make timely payments under the terms of these securities, or a significant decrease in their market value, could have a material adverse effect on Santander UK’s
operations, financial condition and prospects.
Credit risks
If the level of non-performing loans increases or the credit quality of Santander UK’s loans deteriorates in the future, or if Santander UK’s loan loss
reserves are insufficient to cover loan losses, this could have a material adverse effect on Santander UK’s operations, financial condition and
prospects
Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of Santander UK’s
businesses. Non-performing or low credit quality loans have in the past, had and could continue to have a material adverse effect on Santander UK’s operations,
financial condition and prospects.
In particular, the amount of Santander UK’s reported non-performing loans may increase in the future as a result of growth in Santander UK’s total loan portfolio,
including as a result of loan portfolios that Santander UK may acquire in the future (the credit quality of which may turn out to be worse than Santander UK had
anticipated), or factors beyond Santander UK’s control, such as adverse changes in the credit quality of Santander UK’s borrowers and counterparties, a general
deterioration in the UK or global economic conditions, the impact of political events, events affecting certain industries or events affecting financial markets and
global economies. Broader inflationary pressures or higher interest rates that impact a customer's ability to service debt payments could also lead to increased
arrears in both unsecured and secured products.
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There can be no assurance that Santander UK will be able to effectively control the level of impaired loans in, or the credit quality of, its total loan portfolio, which
could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Interest rates payable on a significant portion of Santander UK’s outstanding mortgage loan products fluctuate over time due to, among other factors, changes in
the BoE base rate. As a result, borrowers with variable interest rate mortgage loans are exposed to increased monthly payments when the related mortgage
interest rate adjusts upward. Similarly, borrowers of mortgage loans with fixed or introductory rates adjusting to new interest rates after an initial period are
exposed to the risk of increased monthly payments at the end of this period. Between 2021 and 2023, interest rates attached to both variable and fixed rate
mortgages increased from historic lows and they remain higher than 2020 levels. Customers with variable rates or those whose fixed rate terms ended during this
time period have faced increased monthly payments. These events, alone or in combination, may contribute to higher delinquency rates and losses for Santander
UK, which could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK’s current loan loss reserves may not be adequate to cover an increase in the amount of non-performing loans or any future deterioration in the
overall credit quality of Santander UK’s total loan portfolio. Santander UK’s loan loss reserves are based on Santander UK’s current assessment of various factors
affecting the quality of its loan portfolio, including its borrowers’ financial condition, repayment abilities, the realisable value of any collateral, the prospects for
support from any guarantor, government macroeconomic policies, interest rates and the legal and regulatory environment. Many of these factors are beyond
Santander UK’s control. As a result, there is no precise method for predicting loan and credit losses, and no assurance can be provided that Santander UK’s
current or future loan loss reserves will be sufficient to cover actual losses.
If Santander UK’s assessment of and expectations concerning the above-mentioned factors differ from actual developments Santander UK may need to increase
its loan loss reserves, which may adversely affect Santander UK’s operations, financial condition and prospects. Additionally, in calculating its loan loss reserves,
Santander UK employs qualitative tools and statistical models which may not be reliable in all circumstances, and which are dependent upon data that may not be
complete. If Santander UK is unable to control or reduce the level of its non-performing or poor credit quality loans, this could have a material adverse effect on
Santander UK’s operations, financial condition and prospects.
The value of the collateral, including real estate, securing Santander UK’s loans may not be sufficient, and Santander UK may be unable to realise
the full value of the collateral securing Santander UK’s loan portfolio
The value of the collateral securing Santander UK’s loan portfolio may significantly fluctuate or decline due to factors beyond Santander UK’s control, including
macroeconomic factors affecting the UK’s economy. Santander UK’s residential mortgage loan portfolio is one of its principal assets, comprising 84% of
Santander UK’s loan portfolio at 31 December 2024. As a result, Santander UK is highly exposed to developments in the residential property market in the UK.
Following the peak in aggregate UK house prices in 2022, these fell slightly in 2023 but recovered in 2024. Continued growth in house prices is expected in 2025.
The value of the collateral securing Santander UK’s loan portfolio may also be adversely affected by force majeure events such as natural disasters like floods or
landslides exacerbated by climate change trends. Any force majeure event may cause widespread damage and could have an adverse impact on the economy of
the affected region and may therefore impair the asset quality of Santander UK’s loan portfolio in that area.
Santander UK may also not have sufficiently up-to-date information on the value of collateral, which may result in an inaccurate assessment for impairment losses
on loans secured by such collateral.
If any of the above events were to occur, Santander UK may need to make additional provisions to cover actual impairment losses of its loans, which could have a
material adverse effect on Santander UK’s operations, financial condition and prospects.
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Legal and regulatory risks
Santander UK is subject to substantial and evolving regulation and governmental oversight
As a financial services group, Santander UK is subject to extensive financial services laws, regulations, administrative actions and policies in the UK, and in each
other location in which Santander UK operates. For a discussion of the principal laws and regulations to which Santander UK is subject, see 'Regulation of the
Santander UK group'. The sector continues to face unprecedented levels of government and regulatory intervention and scrutiny, and changes to the regulations
governing financial institutions and the conduct of business. In addition, regulatory and governmental authorities have continued to consider further enhanced or
new legal or regulatory requirements intended to reduce the probability and impact of future crises (or otherwise assure the stability and operational resilience of
institutions under their supervision), enhance consumer protection, address climate change risks, the risk of greenwashing and environmental, social and
governance risks generally, and improve controls in relation to financial crime-related risks. Santander UK expects regulatory and government intervention in the
banking sector to remain high for the foreseeable future. An intensive approach to supervision is maintained in the UK by the BoE as resolution authority, the PRA,
the FCA, the Competition and Markets Authority (CMA), the Payment Systems Regulator (PSR), the Information Commissioner’s Office (ICO) and the Serious
Fraud Office (SFO).
As well as being subject to UK regulation, as part of the Banco Santander group, Santander UK is also affected by other regulators such as the Banco de España
(the Bank of Spain) and the European Central Bank (ECB), as well as various legal and regulatory regimes (including the US) that have extra-territorial effect.
Extensive legislation and implementing regulations affecting the financial services industry have recently been adopted in regions that directly or indirectly affect
Santander UK’s business, including Spain, the US, the EU and other jurisdictions. Because Santander UK is subject to oversight by multiple regulators or
government bodies related to the same conduct or activity, this can increase business uncertainty and the amount of resources needed to ensure Santander UK’s
compliance with the different legal and regulatory regimes.
The manner in which financial services laws, regulations and policies are applied to the operations of financial institutions has gone through great change which is
still being implemented and reviewed. Recent proposals and measures taken by governmental, tax and regulatory authorities and further future changes in
supervision and regulation (in particular in the UK), are beyond Santander UK’s control and could materially affect Santander UK’s business.
Changes in UK legislation and regulation applicable to the financial sector may also affect Santander UK’s competitive position, particularly if such changes are
implemented before international consensus is reached on key issues affecting the industry. There has been a recognition from the UK government that changes
need to be made to the UK’s regulatory architecture in order to ensure that the sector remains internationally competitive and is able to grow. This has resulted in
each of the financial services regulators setting out how they plan to improve growth in the sector. For example, the UK has delayed the implementation of Basel
3.1 in order to assess how it is implemented internationally. HMT also issued a call for evidence in November 2024 on a new “Financial Services Growth
Competitiveness Strategy” that could result in changes to UK regulation.
Further, Santander UK may face higher compliance costs and the need to carefully manage capacity to readily respond to multiple regulatory or government
policy changes simultaneously. Any legislative or regulatory actions and any required changes to Santander UK’s business operations resulting from such laws,
regulations and policies as well as any deficiencies in Santander UK’s compliance with them could result in significant loss of revenue, could have an impact on
Santander UK’s strategy, limit its ability to pursue business opportunities in which Santander UK might otherwise consider engaging, limit Santander UK’s ability to
provide certain products and services and/or result in enforcement action (including the imposition of financial and other penalties). They may also affect the value
of assets that Santander UK holds, requiring Santander UK to increase its prices thereby reducing demand for Santander UK’s products or otherwise have a
material adverse effect on its operations, financial condition and prospects. Accordingly, there can be no assurance that future changes in laws, regulations and
policies or in their interpretation or application by Santander UK or by regulatory authorities will not adversely affect Santander UK.
Specific examples of areas where regulatory changes and increased regulatory scrutiny could have a material adverse effect on Santander UK’s operations,
financial condition and prospects include, but are not limited to, the following:
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Banking Reform:
In accordance with the provisions of the Financial Services (Banking Reform) Act 2013 UK banking groups that hold significant retail
deposits (originally more than £25 billion of “core deposits”), including Santander UK, were required to separate or ‘ring-fence’ their retail banking activities from
their wholesale banking activities by 1 January 2019. Santander UK completed its ring-fencing plans in advance of the legislative deadline of 1 January 2019.
However, given the complexity of the ring-fencing regulatory regime and the material impact on the way Santander UK conducts its business operations in the
UK, there is a risk that Santander UK and/or Santander UK plc may be found to be in breach of one or more ring-fencing requirements. This might occur, for
example, if prohibited business activities are found to be taking place within the ring-fence, mandated retail banking activities are found being carried on in a UK
entity outside the ring-fenced part of the group or Santander UK breached a PRA ring-fencing rule. If Santander UK were found to be in breach of any of the
ring-fencing requirements placed upon it under the ring-fencing regime, it could be subject to supervisory or enforcement action by the PRA, the consequences
of which might include substantial financial penalties, imposition of a suspension or restriction on Santander UK’s UK activities or, in the most serious of cases,
the forced restructuring of the UK group, entitling the PRA (subject to the consent of the UK Government) to require the sale of a Santander ring-fenced bank or
other parts of the UK group. Following the publication of the final report of the Independent Panel on Ring-Fencing and Proprietary Trading on 15 March 2022,
HMT announced its intention to implement certain limited reforms to the ring-fencing regime, including (i) increasing the ring-fencing core deposit threshold from
£25 billion to £35 billion, (ii) adding a new secondary ‘trading assets’ condition (exempting from the regime banks with trading assets which do not exceed 10%
of Tier 1 capital), (iii) introducing a de minimis threshold to allow ring-fenced banks to incur an exposure to relevant financial institutions (RFIs) of up to £100,000
per RFI at any one time, and (iv) allowing ring-fenced banks to establish operations outside of the UK or the European Economic Area, have exposure to RFIs
that qualify as small and medium sized enterprises (SMEs) and undertake a wider range of activities such as market standard trade finance activities or inflation
swaps. These reforms entered into force on 4 February 2025 and may lead to further review or amendment of Santander UK’s operational and compliance
arrangements in relation to the regime.
–
Competition:
Competition authorities (which in the UK include the CMA, the FCA and the PSR) can run reviews and investigations into any aspect of
Santander UK’s operations or the functioning of any markets in which Santander UK operates, which could lead to Santander UK being required to change the
markets in which it operates. In addition, the CMA’s widening focus on market outcomes may also result in increased reviews by the CMA of the markets in
which Santander UK operates. The recently passed Digital Markets, Competition and Consumers Bill (DMCC) will introduce significant reforms to the powers of
competition authorities in relation to the aforementioned investigations, including substantial new fining powers. The DMCC also introduces other wide-ranging
reforms to the UK’s competition, consumer protection and digital markets regulatory landscape some of which could impact Santander UK’s business. For
instance, the DMCC grants the CMA the power to directly determine whether certain consumer protection laws have been infringed without needing to go
through the courts.
Payments:
Santander UK has been required to make systems changes and update processes to comply with a number of new payment regulations. Within the
UK, the PSR has mandated Santander UK to work on the extension of Confirmation of Payee for all payment service providers (PSPs) in the UK and has
introduced a new APP mandatory reimbursement requirement which aims to reduce the level of customer fraud. Under these standards, Santander UK assumes
responsibility for certain categories of customer losses and any inherent failings in system design may lead to fines from regulators and/or compensation being
paid to customers. Santander UK also expects to see significant developments in the key UK payment systems architecture, with a systems update of the high
value Clearing House Automated Payment System (CHAPS) through the Real Time Gross Settlement (RTGS), BACS, the potential development of a UK central
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bank digital currency or similar system, and the development of Open Banking payments and other lower value retail payment schemes. In November 2024, the
UK Government published its report on the “National Payments Vision”, which sets out its ambitions for the payments sector and is expected to generate a wider
industry review of the UK payments landscape in 2025. As demonstrated by other payments initiatives, such as Open Banking and the second Payment Services
Directive (PSD2), reforms in this space have the potential to exacerbate a number of existing risks including data loss/data protection, cybersecurity, fraud and
wider financial crime risk, which in turn could give rise to increased costs, litigation risk and risk of regulatory investigation and enforcement activity.
–
Data Privacy:
In connection with its processing of personal data, Santander UK is subject to data protection laws and regulations – in particular, the UK GDPR
(as defined and interpreted in accordance with the Data Protection Act 2018) and the Data Protection Act 2018 (DPA). In the event Santander UK breaches any
such data protection laws, it could face significant enforcement action and/or financial penalties as well as reputational damage, which could ultimately have a
material adverse effect on Santander UK’s operations, financial condition and prospects.
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Cybersecurity:
Santander UK is subject to cybersecurity regulations and cybersecurity incident reporting requirements. Cybersecurity incident reporting often
require short timeframes and there is a risk that Santander UK will fail to meet the reporting deadlines for any given cybersecurity incident. There will be legal,
reputational and regulatory risks in the event Santander UK, or the third-party providers Santander UK works with, are found to be out of compliance with these
regulations and reporting requirements.
–
Consumer Duty:
The FCA’s rules and guidance on a broad consumer duty that firms undertaking regulated activities with retail clients must observe (the
Consumer Duty) have been in force for open products and services since 31 July 2023 and for closed products and services since 31 July 2024. The Consumer
Duty has three elements: (i) a "Consumer Principle", which reflects the overall standards of behaviour the FCA expects from firms (a firm must act to deliver
good outcomes for retail customers), (ii) three cross-cutting rules that articulate the standards of conduct expected under the Consumer Principle (firms must act
in good faith towards retail customers, avoid causing foreseeable harm to retail customers and enable and support retail customers to pursue their financial
objectives), and (iii) four outcomes that build on the Consumer Principle and cross-cutting rules, comprising a suite of rules and guidance setting more detailed
expectations for a firm's conduct in four areas that represent the key elements of the firm-consumer relationship (product design and governance, price and
value, consumer understanding and consumer support). The Consumer Duty requires firms to end unfair charges and fees, make it as easy to switch or cancel
products as it was to take them out in the first place, provide helpful and accessible customer support, act quickly to respond to customer queries, provide timely,
clear and easily understandable information to customers regarding products and services, provide products and services that are appropriate for their
customers, and focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction. The
Consumer Duty also requires firms to monitor, evidence and report against many of the requirements. Santander UK has fully implemented the Consumer Duty,
which required a review of, and changes to, Santander UK’s products, services, policies, systems and procedures against the FCA requirements. The
Consumer Duty affects elements of Santander UK’s business model and strategy, the products and services it offers and the pricing or costs of those products
and services, which may in turn affect the revenue and profits that Santander UK is able to generate. It may result in an increase in claims to the Financial
Ombudsman Service (FOS) by customers alleging a breach of the standards of the Consumer Duty or in regulatory action by the FCA.
–
Consumer redress:
The FOS is the statutory body responsible for handling complaints by retail customers against regulated financial services firms. The FOS
is not bound to follow law or regulation when issuing decisions but rather must decide each complaint based on what is ‘fair and reasonable’ in the
circumstances. As a result, there can be a lack of clarity as to how the FOS will rule on a particular complaint, even where a firm believes that it has been
operating within legal and regulatory requirements. Further, while the FOS is not formally a precedent-setting body, in practice its decisions can set a precedent,
requiring firms to apply the reasoning given in one complaint to similar historic and future complaints. This means that the ramifications of a particular complaint
can extend well beyond the circumstances of the original complainant. However, the FOS will rule on a particular case, even where the bank believes that it is
operating within the legal and regulatory requirements. The FOS is not bound by its past decisions and has the ability to change its approach to cases, which
can make it harder for firms to consistently address complaints. Together, these factors mean that Santander faces legal and regulatory risk and uncertainty as a
result of FOS decisions. The UK Government has acknowledged that there is a need to review the UK’s redress system particularly with respect to so-called
‘mass redress events’ where there are large numbers of complaints about the same issue and the FCA and FOS launched a joint call for input to this effect in
November 2024.
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Outsourcing and Third-Party Risk Management:
In March 2021, the PRA published Supervisory Statement 2/21 on outsourcing and third-party risk
management (SS2/21). SS2/21 is the primary source of reference for Santander UK when interpreting and complying with its requirements on outsourcing and
third-party risk management, although it should be read alongside the EBA guidelines on outsourcing arrangements, and PRA and FCA rules and guidance on
outsourcing. The scope of contracts required to meet the PRA requirements on outsourcing and third-party risk management extends beyond that set out in the
EBA guidelines on outsourcing and also captures material non-outsourcing. SS2/21 also requires that intragroup outsourcing be subject to the same
requirements and expectations as external outsourcing and should not be treated as being inherently less risky. If Santander UK is unable to meet the PRA or
FCA requirements on outsourcing and third-party risk management, it may face supervisory measures, which could in turn have a material adverse effect on
Santander UK’s operations, financial condition and prospects. In November 2024, the PRA and FCA published a joint Policy Statement setting out their final
rules for critical third parties. While Santander UK is not captured by the regime, Santander UK does outsource services to companies that will be captured
which may have an impact on Santander UK’s operations and financial condition.
–
Operational Resilience:
In March 2021, the PRA and the FCA published Supervisory Statement 1/21 (SS1/21) and Policy Statement 21/3 (PS21/3), which set
out their final rules and guidance intended to strengthen operational resilience in the financial services sector. The operational resilience rules require Santander
UK to identify its ‘important business services’, being those services which, if disrupted, could cause intolerable harm to clients or pose a risk to that firm’s safety
and soundness or to the stability of the UK financial system. Once Santander UK has identified these, it must set impact tolerances for all important business
services and ensure it is able to remain within these tolerances in severe but plausible disruption scenarios. Santander UK must comply with these requirements
by no later than the end of a three-year transitional period on 31 March 2025. If Santander UK is unable to meet the PRA and FCA requirements relating to
operational resilience, it may face supervisory measures, which could in turn have a material adverse effect on Santander UK’s operations, financial condition
and prospects.
–
Climate Change:
The UK Government has announced its intention to roll out new sustainability disclosure requirements, which will expand on those required
under the TCFD framework, including transition plans to align to net-zero, as well as a new UK green taxonomy. Santander UK Group Holdings plc is
implementing the recommendations of TCFD on a group level: further reporting will require additional gathering of data and digitalisation of reporting and there
will be legal, reputational and regulatory risks should Santander UK Group Holdings plc fail to adequately report, or to demonstrate appropriate capabilities to
transition and support its customers to transition to a low carbon economy.
–
Access to Cash:
FSMA 2023 grants the BoE supervisory powers to regulate the UK wholesale cash distribution market, including powers to impose fines and
empowers HMT to designate firms to be subject to FCA oversight for the purpose of ensuring the reasonable provision of cash access (including free cash
access). Santander UK has been designated by HMT for these purposes and accordingly has been subject to the FCA’s access to cash rules since September
2024. The access to cash regime is likely to have ongoing implications for Santander UK's business decisions and strategy, in particular in relation to Santander
UK's branch network and Santander UK's participation in the wholesale cash distribution market generally. In the event that the BoE imposes any fines with
respect to Santander UK’s participation in the wholesale cash distribution market or the FCA were to take enforcement action against Santander UK in relation
to retail cash access, this could result in reputational damage and have a material adverse effect on Santander UK’s operations, financial condition and
prospects.
–
Financial Crime
:
The UK financial crime legislative framework has evolved significantly in recent years and is subject to regular change. As such, Santander
UK may face higher compliance costs and must carefully manage its capacity to respond to multiple regulatory changes simultaneously. Any deficiencies in
Santander UK’s compliance with such regulatory changes could result in enforcement action including the imposition of financial or other penalties. Recent
changes to the UK financial crime legislative framework include the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA),
The Economic Crime and Corporate Transparency Act 2023 (ECCTA) and the Money Laundering and Terrorist Financing (Amendment) Regulations 2023.
Further changes to the UK financial crime legal and regulatory framework are anticipated during 2025, following multiple consultations in 2024, including HMT's
consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
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(MLRs) and the FCA’s consultation on updates to its guidance on politically exposed persons (PEPs). Responses to both consultations may follow in 2025.
Other changes have already entered into force. For instance, in November 2024, the FCA updated its Financial Crime Guide, aiming to provide clearer
expectations for firms’ financial crime controls and updated guidance on emerging risks such as sanctions compliance, proliferation finance and transaction
monitoring. Further changes to the UK financial crime framework may include potential revisions to account closure rules, and the introduction of new
information sharing powers for the Department for Work and Pensions which may impose additional operational demands. On 23 January 2025, the Fraud,
Error and Recovery Bill was also introduced to Parliament, with the Department for Work and Pensions expected to consult with the financial services industry
on a Code of Practice to support understanding of any new regulatory expectations. More changes may arrive as a result of UK Government strategic initiatives
such as the Economic Crime Plan 2 and the Fraud Strategy. There may also be a new anti-corruption strategy published by the UK government in 2025. Any
expansion of civil or criminal liability under UK financial crime reforms brings with it financial risk in the form of penalties and reputational risk, while continued
compliance with the changing UK financial crime framework may expose Santander UK to increased operational and compliance costs, each of which could in
turn have a material adverse effect on Santander UK’s operations, financial condition and prospects.
–
Challenge to commission-based lending:
Santander UK is monitoring the FCA’s review which was announced in January 2024 of discretionary commission
arrangements (DCAs) in the motor finance market and other related developments, in particular the Court of Appeal decision and Supreme Court appeal
hearing listed for April 2025, in relation to three motor finance commission cases (Hopcraft v Close Brothers, Wrench v FirstRand Bank Limited and Johnson v
FirstRand Bank Limited). The FCA’s review may also be informed by the outcome of a judicial review of a final decision by the FOS against another lender that
was heard in October 2024. Judgment in this case was handed down in December 2024 and permission for leave to appeal to the Court of Appeal has been
granted. There is significant uncertainty with regard to the implications of these judicial proceedings, the FCA review and the nature, extent and timing of any
subsequent regulatory interventions regarding commissions paid in the motor finance market. As such, the ultimate financial impact could be materially higher or
lower than the amount that Santander UK has recognised as a provision. It is also possible that the principles articulated in relation to the motor finance market
could have a broader application extending to other types of commission-based lending, although the scope and extent of any exposure or required changes to
commission-based lending arrangements is unclear. The impact cannot be accurately assessed in full until the FCA’s approach is known and the legal cases in
relation to motor finance commission disclosure are resolved. As a result, Santander UK is subject to the risk of ongoing legal and regulatory uncertainty in
relation to all commission-based lending, which may have a material adverse effect on Santander UK’s operations and financial condition.
Santander UK may become subject to the provisions of the Banking Act, including bail-in and write-down powers
The special resolution regime set out in the Banking Act provides HMT, the BoE, the PRA and the FCA with a variety of powers for dealing with UK deposit taking
institutions (and, in certain circumstances, their holding companies) that are failing or likely to fail, including: (i) to take a bank or bank holding company into
temporary public ownership; (ii) to transfer all or part of the business of a bank to a private sector purchaser; or (iii) to transfer all or part of the business of a bank
to a ‘bridge bank’. The special resolution regime also comprises a separate insolvency procedure and administration procedure each of which is of specific
application to banks. These insolvency and administration measures may be invoked prior to the point at which an application for insolvency proceedings with
respect to a relevant institution could be made.
If an instrument or order were made under the Banking Act in respect of an entity in Santander UK, such instrument or order (as the case may be) may, among
other things: (i) result in a compulsory transfer of shares or other securities or property of such entity; (ii) have an impact on the rights of the holders of shares or
other securities issued by Santander UK or such entity or result in the nullification or modification of the terms and conditions of such shares or securities; or (iii)
result in the de-listing of the shares and/or other securities of such entity. In addition, such an order may affect matters in respect of Santander UK or such entity
and/or other aspects of the shares or other securities of Santander UK or such entity, which may negatively affect the ability of Santander UK or such entity to
meet its obligations in respect of such shares or securities.
Further, amendments to the Insolvency Act 1986 and secondary legislation have introduced changes to the treatment and ranking of certain debts with the result
that certain eligible deposits will rank in priority to the claims of ordinary (i.e. non-preferred) unsecured creditors in the event of an insolvency. This may negatively
affect the ability of unsecured creditors to recover sums due to them in an insolvency scenario.
If a ‘bail-in’ order were made under the Banking Act as amended by The Financial Services (Banking Reform) Act 2013 (see further ‘Regulation of Santander UK -
The Banking Act 2009’), such an order would be based on the principle that any creditors affected by the 'bail-in' order should receive no less favourable treatment
than they would have received had the bank entered into insolvency immediately before the coming into effect of the bail-in power. The bail-in power includes the
power to cancel or write-down (in whole or in part) certain liabilities or to modify the terms of certain contracts for the purposes of reducing or deferring the liabilities
of a bank under resolution and the power to convert certain liabilities into shares (or other instruments of ownership) of the bank. The bail-in power under the
Banking Act may potentially be exercised in respect of any unsecured debt securities issued by a bank under resolution or an entity in Santander UK, regardless
of when they were issued. Accordingly, the bail-in power under the Banking Act could be exercised in respect of Santander UK’s debt securities. Public financial
support would only be used as a last resort, if at all, after having assessed and utilised, to the maximum extent practicable, the resolution tools including the bail-in
tool and the occurrence of circumstances in which bail-in powers would need to be exercised in respect of Santander UK or any entity in Santander UK would
have a material adverse effect on Santander UK’s operations, financial condition and prospects.
The PRA also has the power to make rules requiring a parent undertaking of a bank to make arrangements to facilitate the exercise of resolution powers, including
a power to require a member of a banking group to issue debt instruments. The exercise of such powers could have an impact on the liquidity of Santander UK’s
debt instruments and could materially increase Santander UK’s cost of funding.
In addition, the resolution authorities have the power to require institutions and groups to make structural changes to ensure legal and operational separation of
‘critical functions’ from other functions where necessary, or to require institutions to limit or cease existing or proposed activities in certain circumstances. As a
result, Santander UK is required to identify such ‘critical functions’ as part of its resolution and recovery planning. If used in respect of Santander UK, these ex ante
powers could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK must comply with laws and regulations relating to anti-money laundering, anti-terrorism, anti-bribery and corruption, sanctions and
preventing the facilitation of tax evasion. Failure to prevent, detect or deter any illegal or improper activities could have a material adverse effect
on Santander UK’s operations, financial condition or prospects
Santander UK is required to comply with applicable laws and regulations relating to anti-money laundering (AML), counter-terrorism financing (CTF), anti-bribery
and corruption, sanctions, preventing the facilitation of tax evasion and other laws and regulations in the jurisdictions in which Santander UK operates. These laws
and regulations require Santander UK, among other things, to conduct customer due diligence (including in respect of sanctions and politically-exposed person
screening), to ensure customer and transaction information is appropriately recorded, monitored and kept up to date and to implement effective financial crime
policies and procedures detailing what is required from those responsible in order to counter financial crime risks with the aim to prevent the facilitation of bribery,
tax evasion and fraud by its employees or associated persons. Santander UK's staff are obligated to report suspicious transactions and activity to appropriate law
enforcement. The policies and procedures require the implementation and embedding of effective controls and monitoring within the businesses of Santander UK,
which in turn requires ongoing changes to systems, technology and operational activities.
Santander UK is also required to conduct financial crime training for its staff. Comprehensive and risk based financial crime training at a group-wide and business
unit level is a key element of effective controls, with the FCA providing guidance on expectations within its Financial Crime Guide and the Joint Money Laundering
Steering Group (JMLSG) providing guidance on the practical interpretation of UK AML and CTF legislation. Financial crime is continually evolving, and this
requires proactive and adaptable responses from Santander UK so that it is able to deter, detect and disrupt threats and criminality effectively. Even known threats
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can never be fully eliminated, and there may be instances where Santander UK could be used by other parties to engage in money laundering and other illegal or
improper activities. Santander UK’s staff, whom Santander UK rely heavily upon to identify such activities and report them, have varying degrees of experience in
recognising criminal tactics, making effective, bank-wide mandatory and specialist training provided by the Santander UK Economic Crime Academy more
pertinent.
Where Santander UK outsources any of its customer due diligence or anti-financial crime operations, it remains responsible and accountable for full compliance
and any breaches. If Santander UK is unable to apply the necessary scrutiny and oversight, or if such oversight proves insufficient to detect illegal or improper
activities, there remains a risk of regulatory breach and this could have a material adverse effect on Santander UK's operations, financial condition and prospects.
Over the last decade, laws and regulations relating to financial crime have become, and may continue to become, increasingly complex and detailed.
Consequently, financial crime risk has become the subject of enhanced regulatory scrutiny and supervision by regulators globally which continues to intensify. To
manage regulatory scrutiny, Santander UK continues to improve its systems, adopt more sophisticated monitoring and enhance the skill set of its compliance
personnel. Navigating the increasing complexity of financial crime regulation is a significant challenge, involving overlapping requirements between different
legislation, and, in some instances, conflicts of laws. The divergence of policy approaches between the EU, UK and US in the area of economic sanctions and the
evolving financial and trade sanctions imposed on Russia and Belarus due to the war in Ukraine, require additional immediate and longer-term sanctions risk
management and compliance efforts for Santander UK. The scale of these sanctions is unprecedented, complex and poses operational and compliance risks to
Santander UK. The EU, UK and US are expected to continue to use sanctions to pursue their foreign policy interests and objectives, and the imposition of new,
additional, and/or enhanced sanctions is and will remain unpredictable. Current sanctions and other measures, any new, additional, and/or enhanced sanctions,
as well as the existing and potential further responses from Russia or other countries to such sanctions, tensions and military actions, have resulted in, and could
continue to result in, an increasingly fragmented macroeconomic, trade and regulatory environment. The heightened regulatory, political and media focus on
Santander UK's response to this crisis, the Israel-Hamas armed conflict or any other future regional conflicts and wars that have a global impact may also increase
Santander UK's exposure to conduct and reputational risks.
UK AML and CTF legislation continues to evolve, including implementation of the ECCTA in 2024 which has initiated reforms to Companies House, targeting
misuse of UK corporate structures, extending corporate criminal liability and introducing a new “failure to prevent” fraud offence. The Money Laundering and
Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 have resulted in direct alignment of the UK’s list of High Risk Third Countries with the
“Jurisdictions subject to a Call for Action” and the “Jurisdictions under Increased Monitoring” lists published by the Financial Action Task Force (FATF). While
legislative changes can offer opportunities to increase effectiveness and efficiency in the overall anti-financial crime system, there are also risks of divergence from
Banco Santander group, and imposition of additional legislative and regulatory requirements via Banco Santander SA and the EU. Significant change could
adversely impact Santander UK’s business by increasing its operational and compliance costs and reducing the value of its assets and operations, which would in
turn have a material adverse effect on Santander UK’s operations, financial condition and prospects.
If Santander UK is unable to fully comply with applicable laws, regulations and expectations, its regulators and relevant law enforcement agencies have the ability
and authority to pursue civil and criminal proceedings against it, to impose significant fines and other penalties on it, including requiring a complete review of
Santander UK’s business systems, day-to-day supervision by external consultants, imposing restrictions on the conduct of Santander UK’s business and
operations and ultimately the revocation of Santander UK’s banking licence. The reputational damage to its business and brand could be severe if Santander UK
was found to have materially breached AML, CTF, anti-bribery and corruption, anti-tax evasion or sanctions requirements. Santander UK’s reputation could also
suffer if it were unable to protect its customers or its business from being used by criminals for illegal or improper purposes. Criminal penalties could be imposed
upon individuals employed by Santander UK. Any of these outcomes could have a material adverse effect on Santander UK’s operations, financial condition and
prospects.
Santander UK has been, and may in the future be, subject to negative coverage in the media about Santander UK or Santander UK's clients, including with
respect to alleged conduct such as failure to detect and/or prevent any financial crime activities or comply with financial crime compliance regulations. Negative
media coverage of this type about Santander UK, whether it has merit or not, could materially and adversely affect Santander UK’s reputation and perception
among current and potential clients, investors, vendors, partners, regulators and other third parties, which in turn could have a material adverse effect on
Santander UK’s operating results, financial condition and prospects as well as damage its customers’ and investors’ confidence and the market price of Santander
UK’s securities.
At an operational level, geopolitical, economic, social and technological changes can provide opportunities to financial criminals and alter the risks posed to banks.
For example, war, bribery and corruption can be linked. Military resources can be illegally appropriated and sold, increasing illicit finance flows, and as a result
those benefiting from conflict may use bribery, corruption and coercion to gain access to the financial system. Effective intelligence and monitoring systems within
strengthened public/private partnerships supported by improved national capabilities to share knowledge on emerging risks and information pre-suspicion are
required to help manage these risks. However, there can be no guarantee that any intelligence shared by public authorities or other financial institutions will be
accurate or effective in helping Santander UK to combat financial crime, and if, despite such efforts, Santander UK fails to combat financial crime effectively then
this could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
In addition, while Santander UK reviews its relevant counterparties’ internal policies and procedures (for example, under its correspondent banking relationships)
with respect to such matters, Santander UK, to a large degree, requires relevant counterparties to maintain and properly apply their own appropriate anti-financial
crime procedures to reduce the risk of being used as a conduit for money laundering without its knowledge. There are also risks that other third parties, such as
suppliers and those considered ‘associated parties’ under the UK Bribery Act, could be involved in financial crime. If Santander UK is associated with, or even
accused of being associated with, financial crime (or a business involved in financial crime), then its reputation could suffer and it could become subject to civil or
criminal proceedings that could result in penalties, sanctions and legal enforcement (including being added to 'black lists' that would prohibit certain parties from
engaging in transactions with it), any one of which could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK is subject to tax-related risks
Santander UK is subject to the substance and interpretation of tax laws and is subject to routine review and audit by tax authorities in relation thereto. Santander
UK’s interpretation or application of these tax laws may differ from those of the relevant tax authorities. While Santander UK provides for potential tax liabilities that
may arise on the basis of the amounts expected to be paid to the tax authorities, the amounts ultimately paid may differ materially from the amounts provided
depending on the ultimate resolution of such matters. In general, changes to tax laws and tax rates, including as a result of policy changes by governments and/or
regulators, and penalties for failing to comply with such changes, could have a material adverse effect on Santander UK’s operations, financial condition and
prospects. Some of these changes may be specific to the banking/financial services sectors and therefore result in Santander UK incurring an additional tax
burden when compared to other industry sectors.
Santander UK is exposed to risk of loss and damage from civil litigation and/or criminal legal and regulatory proceedings
Santander UK faces various legal and regulatory issues that have given rise and may give rise to civil or criminal litigation, arbitration, and/or criminal, tax,
administrative and/or regulatory investigations, inquiries or proceedings. Failure to adequately manage the risks arising in connection with legal and regulatory
issues, including Santander UK’s obligations under existing applicable laws and regulations or its contractual obligations, including arrangements with its
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customers and suppliers, or failure to properly implement applicable laws and regulations could result in significant loss or damage including reputational damage,
all of which could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Additionally, the current regulatory environment, with the continuing heightened supervisory focus, combined with the forthcoming regulatory change initiatives, will
lead to material operational and compliance costs. Relevant risks include:
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Regulators, agencies and authorities with jurisdiction over Santander UK, including the BoE, the PRA and the FCA, HMT, HM Revenue Customs (HMRC), the
CMA, the Information Commissioner’s Office, the FOS, the PSR, the SFO, the National Crime Agency (NCA), the Office of Financial Sanctions Implementation
(OFSI) or the courts, may determine that certain aspects of Santander UK’s business have not been or are not being conducted in compliance with applicable
laws or regulations (or that policies and procedures are inadequate to ensure compliance), or, in the case of the FOS, with what is fair and reasonable in the
FOS’s opinion. Changes in policy, laws and regulations including in relation to SME dispute resolution and liability for APP fraud and unauthorised payment
fraud, may have significant consequences and lead to material implementation, operational and compliance costs.
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An adverse finding by a regulator, agency or authority could result in the need for extensive changes in systems and controls, business policies, and practices
coupled with suspension of sales, restrictions on conduct of business and operations, withdrawal of services, customer redress, fines and reputational damage.
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The increased focus on competition law in financial services and concurrent competition enforcement powers for the FCA and PSR may increase the likelihood
of competition law related inquiries or investigations initiated by either the CMA or these authorities. Santander UK may be liable for damages to third parties
harmed by Santander UK’s conduct of business. For competition law, there are efforts by governments across Europe to promote private enforcement as a
means of obtaining redress for harm suffered as a result of competition law breaches. Under the Consumer Rights Act 2015, there is scope for class actions to
be used to allow the claims of a whole class of claimants to be heard in a single action in both follow-on and standalone competition cases. The UK has seen a
sharp increase in recent years in the number of class action claims being issued in the Competition Appeals Tribunal on this basis. The tribunal has granted
certification for every case that has reached the certification hearing stage to date, including cases that have presented novel competition law theories of harm.
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The alleged historical or current misselling of, or misconduct in relation to, financial products, including the alleged misselling of Payment Protection Insurance
(PPI), the alleged overcharging of interest, the alleged inappropriate sale of interest-only mortgages, the alleged unfair use of the standard variable rate in
connection with mortgages, or alleged misconduct as a result of having sales practices and/or rewards structures that are deemed to have been inappropriate,
has given rise to and may in the future give rise to a risk of complaints to FOS and/or civil litigation (including claims management company driven legal or
complaints campaigns)(see Note 30 to the Consolidated Financial Statements for legal actions and regulatory matters). For example, a recent judgment of the
Court of Appeal of England and Wales (to which Santander UK was not a party) found that car dealers, when acting as credit brokers, owe certain legal duties to
their customers which were breached if the dealer received commission from motor finance lenders without the informed consent of customers. Whilst the
judgment is being appealed to the Supreme Court of England and Wales, and it remains unclear what impact the judgment will have on the FCA’s ongoing
investigation into auto-finance commission structures, in the interim there is an increased risk of complaints to FOS and / or civil litigation. Such matters have
given rise to and may in the future give rise to the risk of regulatory enforcement action requiring Santander UK to amend sales processes, withdraw products or
provide restitution to affected customers, any of which may require additional provisions to be recorded in Santander UK’s financial statements and could
adversely impact future revenues from affected products.
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Santander UK may have held and may continue to hold bank accounts for entities or have relationships with entities such as third parties that might be or are
subject to scrutiny from various regulators and authorities, including the SFO, the NCA and regulators in the US and elsewhere, which has led and could in the
future lead to Santander UK’s conduct being reviewed as part of any such scrutiny.
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Santander UK is (and will continue from time to time to be) subject to certain legal or regulatory investigations, inquiries and proceedings, both civil and criminal
including in connection with Santander UK’s lending and payment activities, treatment of customers, relationships with Santander UK’s employees, financial
crime, and other commercial or tax matters (see Note 30 to the Consolidated Financial Statements for legal actions and regulatory matters). These may be
brought against Santander UK under UK legal or regulatory processes, or under legal or regulatory processes in other jurisdictions, such as the EU and the US,
in circumstances where overseas regulators and authorities may have jurisdiction by virtue of its activities or operations.
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In view of the inherent difficulty of predicting the outcome of legal or regulatory proceedings, particularly where opportunistic claimants seek very large or
indeterminate damages, cases present novel legal theories, involve a large number of parties or are in the early stages of discovery, or where the approaches of
regulators or authorities to legal or regulatory issues and sanctions applied are subject to change, Santander UK cannot state with confidence what the eventual
outcome of any pending matters will be and any such pending matters are not disclosed by name because they are under assessment. Santander UK’s
provisions in respect of any pending legal or regulatory proceedings are made in accordance with relevant accounting requirements. These provisions are
reviewed periodically. However, in light of the uncertainties involved in such legal or regulatory proceedings, there can be no assurance that the ultimate
resolution of these matters will not exceed the provisions currently accrued by Santander UK. As a result, the outcome of a particular matter (whether currently
provided or otherwise) could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
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The developing legal and regulatory regime in which Santander UK operates requires it to be compliant across all aspects of its business, including the training,
authorisation and supervision of personnel and the development of systems, processes and documentation. If Santander UK fails to be compliant with relevant
law or regulation, there is a risk of an adverse impact on its business from more proactive regulatory intervention (including by any overseas regulator which
establishes jurisdiction), investigation and enforcement activity leading to sanctions, fines, civil or criminal penalties, or other action imposed by or agreed with
the regulatory authorities, as well as increased costs associated with responding to regulatory inquiries and defending regulatory actions. Customers of financial
services institutions, including Santander UK’s customers, may seek redress if they consider that they have suffered loss for example as a result of the
misselling of a particular product, or through incorrect application or enforcement of the terms and conditions of a particular product or in connection with a
competition law infringement and Santander UK’s rights under a contract with its customers may in certain circumstances be unenforceable or otherwise
impaired.
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The Financial Services and Markets Act 2000 (Designated Consumer Bodies) Order 2013 (the Designated Consumer Bodies Order) was made on 16
December 2013 and came into force on 1 January 2014. The Designated Consumer Bodies Order designates the National Association of Citizens Advice
Bureaux, the Consumers’ Association, the General Consumer Council for Northern Ireland and the National Federation of Self Employed and Small Businesses
as consumer bodies that may submit a ‘super-complaint’ to the FCA. A ‘super-complaint’ is a complaint made by any of these designated consumer bodies to
the FCA on behalf of consumers of financial services where it considers that a feature, or a combination of features, of the market for financial services in the UK
is seriously damaging the interests of these customers. Complaints about damage to the interests of individual consumers will continue to be dealt with by the
FOS. If a ‘super-complaint’ were to be made against a Santander UK entity by a designated consumer body under the Designated Consumer Bodies Order, any
response published, or action taken by the FCA could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Given the: (i) requirement for compliance with an increasing volume of relevant laws and regulations; (ii) more proactive regulatory intervention and enforcement
and more punitive sanctions and penalties for infringement; (iii) inherent unpredictability of litigation; (iv) evolution of the jurisdiction of FOS and CMA and related
impacts; (v) potential for the development of a voluntary dispute resolution service to oversee the resolution of complaints from SMEs that are outside the FOS’
jurisdiction; (vi) introduction of a voluntary code to enhance protection for customers who are victims of APP fraud; and (vii) high volume of new regulations or
policy changes from multiple regulators and authorities which Santander UK is mandated to implement within compressed timescales; it is possible that related
costs or liabilities could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Operational risks
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Failure to successfully apply or to improve Santander UK’s credit risk management systems could have a material adverse effect on Santander
UK’s operations, financial condition and prospects
As a commercial banking group, one of the main types of risks inherent in Santander UK’s business is credit risk. For example, an important feature of Santander
UK’s credit risk management system is to employ Santander UK’s own credit rating system to assess the particular risk profile of a customer. This system is
primarily generated internally, but, in the case of counterparties with a global presence, also builds off the credit assessment assigned by other Banco Santander
group members. As this process involves detailed analysis of the customer or credit risk, taking into account both quantitative and qualitative factors, it is subject to
human and IT systems errors. Where exercising their judgement on current or future credit risk behaviour of Santander UK’s customers, Santander UK’s
employees may not always be able to assign a correct credit rating, which may result in a larger exposure to higher credit risks than indicated by Santander UK’s
risk rating system. Santander UK may not be able to detect all possible risks before they occur, or its employees may not be able to effectively apply its credit
policies and guidelines due to limited tools available to Santander UK, which may increase its credit risk.
Any failure to effectively apply, consistently monitor and refine Santander UK’s credit risk management systems may result in an increase in the level of non-
performing loans and higher losses than expected, which could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK‘s business is subject to risks related to data and adverse impacts on operations if data management policies and procedures are
not sufficiently robust
Santander UK's operations rely on the effective use of data to manage and grow its business and deliver the overall strategy. Santander UK uses data to serve its
customers, satisfy its regulatory requirements and run its operations. If Santander UK's data is not accurate and timely, this could impact its ability to serve
customers, operate with resiliency or meet regulatory requirements. From a business perspective, accurate and detailed customer data is critical for delivering
customer expectations in terms of new and improved products and services. Lack of good quality data could also result in competitive disadvantages by
increasing costs in terms of manual interventions, adjustments, and reconciliations. Investment is being made in data tools and in maturing a strong data culture
across the organisation to address some of the data challenges and prepare a strong foundation for the future. Any such failure to effectively use data or maintain
effective data management policy and procedures could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK’s business is subject to risks related to cybersecurity
Santander UK’s systems, software and networks may be vulnerable to unauthorised access, misuse, computer viruses or other malicious code and other events
that could have a security impact. The interception, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client,
vendor, service provider, counterparty or third party could result in legal liability, regulatory action and reputational harm, and therefore have a material adverse
impact on Santander UK’s operations, financial condition and prospects.
In particular, in recent years the computer systems of companies and organisations have been targeted by cyber criminals, activists and nation-state-sponsored
groups. Like other financial institutions, Santander UK manages and holds confidential personal information of customers in the conduct of its banking operations,
as well as a large number of assets. Consequently, Santander UK has been, and continues to be, subject to a range of cybersecurity threats, such as
ransomware, malware via the supply chain, phishing and denial of service.
Cybersecurity incidents could result in the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets
(including cash). In addition, cybersecurity incidents could give rise to the disablement of Santander UK’s digital systems used to service its customers. Any
material disruption or degradation of Santander UK’s systems, software or networks could cause information, including data related to customer requests, to be
lost or to be delivered to Santander UK’s clients with delays or errors, which could reduce demand for Santander UK’s services and products. As attempted
attacks continue to evolve in both scope and sophistication, Santander UK may incur significant costs to modify or enhance its protective measures against such
attacks, or to investigate or remediate any vulnerability or resulting breach, or in communicating any cybersecurity incidents to its customers. If Santander UK fails
to effectively manage its cybersecurity risk, by, for example, failing to adhere to its cybersecurity policies, procedures or controls, the impact could be significant
and may include harm to Santander UK reputation and make Santander UK liable for the payment of customer compensation, regulatory penalties and fines.
Factors such as failing to apply critical security patches from its technology providers, to manage out obsolete technology or to update Santander UK’s processes
in response to new threats could also give rise to these consequences, which, if they occur, could have a material adverse effect on Santander UK’s operations,
financial condition and prospects. This might also include significant increases in the premiums paid on cyber insurance policies or changes to policy limits and
cover.
In addition, Santander UK may also be affected by cybersecurity incidents against national critical infrastructures in the UK or elsewhere, for example, the
telecommunications network or cloud computing service providers used by Santander UK. In common with other financial institutions Santander UK is dependent
on such networks to provide digital banking services to its customers, connect its systems to suppliers and counterparties, and allow its staff to work remotely. Any
cybersecurity incidents against these networks could negatively affect its ability to service its customers. As Santander UK does not operate these networks it has
limited ability to protect Santander UK’s business from the adverse effects of cybersecurity incidents against it or against its counterparties and key national and
financial market infrastructure. Further, the domestic and global financial services industry, including key financial market infrastructure, may be the target of
cybersecurity disruption and attack by cyber criminals, activists or geopolitical activists looking to cause economic instability.
Further, the risk of cyberattacks on companies and institutions could increase as a result of geopolitical turmoil. For example, Santander UK has faced a
heightened risk of cyberattacks as a result of Russia’s military action against Ukraine; the Israel-Hamas armed conflict and/or other future regional conflicts and
wars that have a global impact serve to further heighten such risk. Such attacks could adversely affect Santander UK's ability to maintain or enhance its
cybersecurity and data protection measures. Santander UK continues to see increasing ransomware attacks across sectors driven by supply chain tool
compromises, among other factors, and expect this trend to continue. We continue to actively monitor the situations in Ukraine, the Middle East and globally and
assess their potential impacts on its business.
Santander UK’s business is subject to risks related to the developing fields of artificial intelligence and machine learning
Artificial intelligence (AI) developments in the banking industry will test Santander UK's preparedness to safely manage and respond to the evolution of AI and
machine learning given the velocity, pace and scale of change. This includes the identification of potential use cases for responsible adoption of AI and machine
learning in Santander UK’s own operations, as well as managing the threats that third party use of AI may pose. The risks caused by AI include, among others,
data poisoning, potential bias, discrimination, misuse and increased exposure to cybersecurity, legal liability and fraud risk. Santander UK has a planned phase
approach to AI over a three-year period and, to support that, it is improving data quality to enable model development. However, any failure to evaluate, actively
manage and closely monitor risk during all phases of the development and implementation of AI into Santander UK’s operations could introduce new
vulnerabilities and security flaws and have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK is exposed to risk from potential non-compliance with regulations, policies, employee misconduct, human error, negligence and
deliberate acts of harm or dishonesty, including fraud
Santander UK is exposed to risk from potential non-compliance with policies, employee misconduct, human error, negligence and deliberate acts of harm or
dishonesty, including fraud. It is not always possible to deter or prevent employee misconduct or non-compliance with policies and such errors, acts, omissions
and failures and the precautions Santander UK takes to detect and prevent this activity may not always be effective due to employee misconduct and
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circumvention of controls. Any instances could result in regulatory sanctions and cause reputational or financial harm, and therefore have a material adverse effect
on Santander UK’s operations, financial condition and prospects.
Any failure to effectively manage changes in Santander UK’s information technology infrastructure and management information systems in a
timely manner could have a material adverse effect on Santander UK’s operations, financial condition and prospects
Santander UK’s businesses and its ability to remain competitive depends to a significant extent upon the functionality of its information technology systems,
software and networks and on its ability to upgrade, evolve and expand the capacity of its information technology infrastructure on a timely and cost-effective
basis. The proper functioning of Santander UK’s financial control, risk management, credit analysis and reporting, accounting, customer service, financial crime,
conduct and compliance and other information technology systems, as well as the communication networks between branches and main data processing centres,
are critical to its customers, businesses and its ability to compete. Investments and improvements in Santander UK’s information technology infrastructure are
regularly reviewed with a view to retain competitive advantage and to ensure that resilience remains within acceptable levels. Conversely any failure to effectively
improve, evolve, expand or upgrade its information technology systems, software infrastructure and networks or information technology infrastructure in a timely
manner could have a material adverse effect on Santander UK’s operations, financial condition and prospects, and could cause reputational damage to Santander
UK.
From time-to-time Santander UK is required to migrate information relating to its customers to new information technology systems. Any failure to manage such
migration effectively and efficiently could have a negative impact on Santander UK’s ability to provide services to its customers and could cause financial and
reputational damage to Santander UK, along with regulatory scrutiny and potential enforcement action.
Santander UK expects changes to its programmes of systems to have an impact on its risk profile, from a technology, environmental, social and corporate
governance and regulatory perspective. Whether it is the opportunities from adoption of cloud technology, systems to support important regulatory initiatives, or
the desire to identify, prioritise and remove obsolete systems from operations, the operational risk associated with changes to programmes of systems is likely to
increase and this will therefore remain an area of key focus in Santander UK’s risk management. While internal controls aim to reduce the risk to acceptable
levels, there can be no assurance that Santander UK will not suffer material losses from such operational risks in the future, which could have a material adverse
impact on Santander UK’s operations, financial condition and prospects.
Santander UK may be exposed to unidentified or unanticipated risks despite its risk management policies, procedures and methods and may be
exposed to risk related to errors in Santander UK’s risk modelling
The management of risk is an integral part of Santander UK’s activities. Santander UK seeks to monitor and manage its risk exposure through a variety of risk
reporting systems. For a further description of Santander UK's risk management framework see the ‘Risk review’. While Santander UK employs a broad and
diversified set of risk monitoring and risk mitigation techniques and strategies, they may not be fully effective in mitigating Santander UK’s risk exposure in all
economic market environments or against all types of risk, including risks that Santander UK fails to identify or anticipate.
Some of Santander UK’s tools and metrics for managing risk are based upon its use of observed historical market behaviour. Santander UK applies statistical and
other tools to these observations to arrive at quantifications of its risk exposures. These tools and metrics may fail to predict future risk exposures. These risk
exposures could, for example, arise from factors Santander UK did not anticipate or correctly evaluate in its statistical models. This would limit its ability to manage
its risks. Santander UK’s losses thus could be significantly greater than the historical measures indicate. In addition, Santander UK’s quantified modelling does not
take all risks into account. Santander UK’s more qualitative approach to managing those risks could prove insufficient, exposing it to material, unanticipated
losses. Santander UK could face adverse consequences as a result of decisions, which may lead to actions by management, based on models that include errors
or are otherwise inadequately developed, implemented or used, or as a result of the modelled outcome being misunderstood. If existing or potential customers or
counterparties believe its risk management is inadequate, they could take their business elsewhere or seek to limit their transactions with Santander UK. These
occurrences could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK relies on third parties for important infrastructure support, products and services
Third-party providers provide key components of Santander UK’s business infrastructure such as loan and deposit servicing systems, back office and business
process support, information technology production and support, internet connections and network access. Relying on these third-party providers is a source of
operational risk, including with respect to security breaches affecting Santander UK's third parties and other parties that interact with these providers. As the use
and depth of Santander UK’s relationship with third parties increases, including the use of AI and cloud-based services, Santander UK increasingly faces the risk
of operational failure with respect to its systems. Santander UK may be required to take steps to protect the integrity of its operational systems, thereby increasing
its operational costs. In addition, any problems caused by these third parties, including as a result of them not providing Santander UK their services for any
reason, or performing their services poorly, could adversely affect Santander UK’s ability to deliver products and services to customers and otherwise conduct its
business, which could lead to reputational damage, litigation and regulatory investigations and intervention. Replacing these third-party vendors or affiliates could
also entail significant delays and expense. Further, the operational and regulatory risk Santander UK faces as a result of these arrangements may be increased to
the extent that it restructures such arrangements. Any restructuring could involve significant expense to Santander UK and entail significant delivery and execution
risk which could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
Santander UK relies on recruiting, retaining and developing appropriate senior management and skilled personnel
Santander UK’s continued success depends in part on the continued service of key members of its senior executive team and other key employees. The ability to
continue to attract, develop, train, motivate and retain highly qualified and talented professionals is a key element of Santander UK’s strategy. The successful
implementation of Santander UK’s strategy depends on the availability of skilled and appropriate management, both at Santander UK’s head office and in each of
its business units. There is also an increasing demand for Santander UK to hire individuals with STEM skills. Such individuals are very sought after by all
organisations, not just the banking industry, and thus Santander UK’s ability to attract and hire this talent will determine how quickly the bank is able to respond to
technological change. In light of a shortage of skills currently being seen across the UK, it is increasingly challenging to recruit and retain talent for all roles, with
subject matter expert and technology roles offering the biggest challenges.
If Santander UK fails to staff its operations appropriately or loses one or more of its key senior executives or other key employees and fails to replace them in a
satisfactory and timely manner, it could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
In addition, the financial services industry has and may continue to experience more stringent regulation of employee compensation, which could have an adverse
effect on Santander UK’s ability to hire or retain the most qualified employees. If Santander UK fails or is unable to attract and appropriately develop, motivate and
retain qualified professionals, it could have a material adverse effect on Santander UK’s operations, financial condition and prospects.
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Financial reporting risk
Santander UK’s financial statements are based in part on judgements and accounting estimates which, if inaccurate, could cause material
misstatement of Santander UK’s future financial results and financial condition
The preparation of Santander UK's consolidated financial statements in accordance with IFRS requires management to make judgements, estimates 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. Management has 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 set out in Note
1
to the Consolidated Financial Statements in 'Critical judgements and accounting estimates'. Any material differences between
estimates and actual results reported in any given financial period, or any material adjustments to the carrying amount of assets and liabilities, could result in
reputational damage to Santander UK and could have a material adverse effect on its future financial results and financial condition.
Changes in accounting standards could affect reported earnings
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of
Santander UK’s Consolidated Financial Statements. These changes can materially affect how Santander UK records and reports its financial condition and
financial results. In some cases, Santander UK could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period
financial statements. Any change in reported earnings as a result of the foregoing could have a material adverse effect on Santander UK’s future financial results
and financial condition.
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Regulation of the Santander UK group
As a financial services group, Santander UK is subject to extensive financial services laws, regulations, administrative actions and policies in the UK and in each
other location in which Santander UK operates. This intensive approach to supervision is maintained in the UK by the PRA and the FCA. As well as being subject
to UK regulation, as a result of forming part of the Banco Santander group, Santander UK is also affected by other regulators, such as the Banco de España and
the ECB, as well as various legal and regulatory regimes (including in the US) that have extra-territorial effect. Extensive legislation and implementing regulations
affecting the financial services industry have recently been adopted in regions that directly or indirectly affect Santander UK’s business, including Spain, the US,
the EU and other jurisdictions. In the UK and elsewhere, there is continuing political, competitive and regulatory scrutiny of the banking industry. Political
involvement in the regulatory process, in the behaviour and governance of the UK banking sector and in the major financial institutions in which the UK
government has a direct financial interest is likely to continue.
Approach of the FCA
As per FSMA, the FCA's strategic objective is to ensure that the relevant markets function well. In support of this, the FCA has three operational objectives: to
secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system and to promote effective competition in
the interests of consumers. Following the entry into force of FSMA 2023, the FCA also has a secondary competitiveness and growth objective, to facilitate the
international competitiveness and medium- to long-term growth of the UK economy.
The FCA Handbook sets out rules and guidance across a range of issues with which financial institutions are required to comply including high level principles of
business and detailed conduct of business standards and reporting standards.
Approach of the PRA
As per FSMA, the PRA's general objective is to promote the safety and soundness of the firms which it regulates (with respect to insurers, the PRA also has a
second objective of contributing to the securing of an appropriate degree of protection for policyholders). The PRA also has a secondary objective to facilitate
effective competition in the markets for services provided by PRA authorised firms and, following the entry into force of FSMA 2023, is subject to the same
secondary competitiveness and growth objective as the FCA.
The PRA Rulebook includes rules relating to capital adequacy and liquidity, among several other things.
US regulation
Within the Dodd-Frank Act, the so-called Volcker Rule, prohibits ‘banking entities’, including the Santander UK group, from engaging in certain forms of proprietary
trading or from sponsoring or investing in certain covered funds, in each case subject to certain exemptions, including exemptions permitting foreign banking
entities to engage in trading and fund activities that take place solely outside of the US. The Volcker Rule also contains exclusions and certain exemptions for
market-making, hedging, underwriting, trading in US government and agency obligations as well as certain foreign government obligations and also permits
ownership interests in certain types of funds to be retained. The Santander UK group has policies, procedures and controls in place designed to achieve
compliance with the Volcker Rule.
The Banking Act 2009
The special resolution regime set out in the Banking Act 2009 provides HMT, the BoE, the PRA and the FCA with a variety of powers for dealing with UK deposit
taking institutions (and, in certain circumstances, their holding companies) that are failing or likely to fail, including: (i) to take a bank or bank holding company into
temporary public ownership; (ii) to transfer all or part of the business of a bank to a private sector purchaser; or (iii) to transfer all or part of the business of a bank
to a bridge bank. The special resolution regime also comprises a separate insolvency procedure and administration procedure each of which is of specific
application to banks. These insolvency and administration measures may be invoked prior to the point at which an application for insolvency proceedings with
respect to a relevant institution could be made.
The Financial Services (Banking Reform) Act 2013 further amended the Banking Act 2009 to introduce a UK ‘bail-in power’ to implement the EU’s Bank Recovery
and Resolution Directive (BRRD), which contains a bail-in power similar to that contained in the Banking Act and requires EU Member States to provide resolution
authorities with the power to write-down the claims of unsecured creditors of a failing institution and to convert unsecured claims to equity (subject to certain
parameters). The UK bail-in power is an additional power available to the UK resolution authorities under the special resolution regime provided for in the Banking
Act 2009. This enables them to recapitalise a failing institution by allocating losses to such institution’s shareholders and unsecured creditors, subject to the rights
of such shareholders and unsecured creditors to be compensated under a bail-in compensation order.
Competition
The CMA is the UK’s main competition authority responsible for ensuring that competition and markets work well for consumers. In addition, under the Banking
Reform Act, as of 1 April 2015, the FCA has the power to enforce against breaches of the Competition Act 1998 and to refer markets to the CMA for in-depth
investigation in the areas of financial services in the UK. As of 1 April 2015, the PSR also has an objective and powers equivalent to those of the FCA to promote
competition in the payments industry.
Payments
Santander UK has been required to make systems changes and update processes to comply with a number of new payment regulations. As of 7 October 2024,
the Payment Services Regulator (PSR) has mandated that Santander UK works on the extension of Confirmation of Payee for all payment service providers in
the UK and has introduced a mandatory authorised push payment (APP) reimbursement requirement which aims to reduce the level of customer fraud. Under
these standards, Santander UK assumes responsibility for certain categories of customer losses and any inherent failings in system design may lead to fines from
regulators and/or compensation being paid to customers.
Santander UK also expects to see significant developments in the key UK payment systems architecture, with a systems update of the high value Clearing House
Automated Payment System (CHAPS) through the Real Time Gross Settlement (RTGS), BACS, the potential development of a UK central bank digital currency
or similar system, and the development of Open Banking payments and other lower value retail payment schemes. On 14 November 2024 the UK Government
published its “National Payments Vision”, which sets out its ambitions for the payments sector and is expected to generate a wider industry review of the UK
payments landscape in 2025.
Financial crime
Santander UK is subject to UK anti-money laundering (AML)/counter-terrorism financing (CTF) legal and regulatory obligations. While the UK is no longer obliged
to follow EU AML/CTF regulations following Britain’s exit from the EU, as a wholly owned subsidiary of an EU headquartered bank, Santander UK is subject to
Santander Group policies which incorporate EU AML legal and regulatory obligations.
In the UK, Santander UK is subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs)(as
amended), which implement the Fourth Money Laundering Directive (EU) 2015/849 (MLD4) and the Fifth Money Laundering Directive (EU) 2018/843 (MLD5),
into UK law. The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 repealed the UK's list of high-risk third
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countries (HRTCs) and replaced it with a definition that implements, and is updated automatically with reference to, two lists published by FATF being the “High-
Risk Jurisdictions subject to a Call for Action” and the “Jurisdictions under Increased Monitoring”.
Aligned with the aim of reducing money laundering as set out in the Economic Crime Plan 2023-26, HM Treasury launched a consultation in March 2024 on
improving the effectiveness of the MLRs which closed on 9 June 2024. The consultation focused on four core themes, making customer due diligence more
proportionate and effective; strengthening system coordination; providing clarity on scope of the MLRs; and reforming registration requirements for the trust
register service. However, it is currently unclear whether and when any consequential amendments to the MLRs will be made following the consultation.
Further legal and regulatory changes related to financial crime took place during 2024. For example, the Economic Crime and Corporate Transparency Act
(ECCTA) has initiated reforms to Companies House to combat misuse of UK corporate structures. The ECCTA will also extend corporate criminal liability by
introducing a "failure to prevent fraud" offence, which will enter into force on 1 September 2025. This offence has extra-territorial reach, similar to the existing
"failure to prevent" offences such as "failure to prevent bribery", introduced by the Bribery Act 2010, and "failure to prevent tax evasion", introduced by the Criminal
Finances Act 2017 (both of which continue to be key areas of focus for the UK government). The new offence carries an unlimited fine. To avoid liability,
organisations within scope will need to ensure they have in place ‘reasonable prevention procedures’ to prevent fraud. Government guidance indicates that
reasonable fraud prevention procedures should be informed by six principles, including senior-level responsibility, risk assessment and due diligence.
On 18 July 2024, the FCA released a consultation on updates to their guidance on the treatment of Politically Exposed Persons (PEPs) (GC24/4), seeking to
clarify the PEP definition and enhance due diligence obligations and approval requirements. The consultation closed on 18 October 2024 and, whilst the FCA
concluded that their guidance remains appropriate, they plan to publish final amendments to the text for the purposes of providing further clarity to firms. Further,
on 29 November 2024, the FCA published a policy statement on updates to its Financial Crime Guide (FCG) in the FCA Handbook, aiming to clarify its
expectations for firms’ financial crime controls (such as firms ensuring consistency with their Consumer Duty obligations) and to provide updated guidance on
emerging risks including in relation to sanctions compliance, proliferation finance and transaction monitoring.
Consumer Duty
The FCA’s Consumer Duty has been fully in force for all products and services since 31 July 2024. The Consumer Duty aims to enhance and improve consumer
protections, requiring firms to deliver good outcomes for customers and to consider the needs, characteristics and objectives of the customer and how they
behave at every stage of the customer journey in order to deliver good outcomes. Given the Consumer Duty is a relatively new obligation, firms need to consider
and navigate updated guidance and expectations as the FCA continues to gain insights on firms' implementation of the Consumer Duty.
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Articles of Association
The following is a summary of the Articles of Association (the Articles) of the Company.
Santander UK
plc is a public limited company incorporated and registered in England and Wales under the Companies Act 2006, with registered number
2294747
.
The Articles specifically state and limit the objects of the Company which are therefore restricted.
A Director shall not vote on, or be counted in the quorum in relation to, any resolution of the Directors in respect of any contract in which he has an interest, except
if no conflict of interest could reasonably be expected to arise from that interest, or any resolution of the Directors concerning his own appointment, or the
settlement or variation of the terms or the termination of his or her appointment. Directors are entitled to such remuneration as the directors determine for their
services to the Company as directors and for any other service which they undertake for the Company. Directors may delegate to a person or committee the
determination of any fee, remuneration or other benefit which may be paid or provided to any Director. No Director is required to retire by reason of his or her age,
nor do any special formalities apply to the appointment or re-election of any Director who is over any age limit. No shareholding qualification for Directors is
required.
The Company may issue shares with such rights or restrictions as may be determined by ordinary resolution or, if no such resolution has been passed or so far as
the resolution does not make specific provision, as the Directors may decide. The Company may by ordinary resolution declare dividends, and the Directors may
decide to declare or pay interim dividends. No dividend may be declared or paid unless it is in accordance with shareholders’ respective rights. If dividends are
unclaimed for twelve years, the right to the dividend ceases. All dividends or other sums which are payable in respect of shares, and unclaimed after having been
declared or become payable, may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed.
Preference shares entitle the holder to receive a preferential dividend payment at a fixed or variable rate, such dividend to be payable on a date determined by the
Board prior to the allotment of the shares. The Board will also determine whether these dividend rights are cumulative or non-cumulative. The holders of any
series of preference shares will only be entitled to receive notice of and to attend any general meeting of the Company if the preference dividend on the
preference shares of such series has not, at the date of the notice of the general meeting, been paid in full in respect of such dividend periods as the Board may
prior to allotment determine, in which case the holders of the preference shares will be entitled to speak and/or vote upon any resolution proposed; or, if a
resolution is proposed at the general meeting for, or in relation to, the winding up of the Company, or varying, altering or abrogating any of the rights, privileges,
limitations or restrictions attached to the preference shares of such series, in which case the holders of the preference shares of such series will be entitled to
speak and/or vote only upon such resolution; or in such other circumstances, and upon and subject to such terms, as the Board may determine prior to allotment.
Unless the Board determines, prior to allotment, that the series of preference shares shall be non-redeemable, each series shall be redeemable at the option of
the Company on any date as the Board may determine prior to the date of allotment. On redemption the Company shall pay the amount due. The formula for
calculation of any relevant redemption premium is set out in the Articles of Association.
On a distribution of assets on winding up of the Company or return of capital (other than on a redemption or purchase by the Company of any of its share capital),
members holding preference shares shall in respect thereof be entitled to receive, out of the surplus assets remaining after payment of the Company’s liabilities,
an amount equal to the amount paid up or credited as paid up on the preference shares together with such premium (if any) as may be determined by the Board
prior to allotment thereof (and so that the Board may determine that such premium is payable only in specified circumstances).
Ordinary shares are transferable. Holders of ordinary shares are entitled to receive notice of and to attend any general meeting of the Company. Subject to any
special terms as to voting upon which any shares may be issued or may for the time being be held, or any suspension or any abrogation of special rights, as set
out in the Articles of Association, on a show of hands every member who is present in person at a general meeting of the Company shall have one vote and every
proxy present who has been duly appointed by a member shall have one vote. On a poll every member who is present in person or by proxy shall have one vote
for every share of which he is the holder.
Subject to the prior rights of holders of preference shares, the
Company pays dividends on its ordinary shares only out of its distributable profits and not out of
share capital. Dividends are determined by the Board.
The Company’s Articles of Association authorise it to issue redeemable shares, but the Company’s ordinary shares are not redeemable.
Where the shares are
partly paid, the Board may make further calls upon the holders in respect of any sum whether in respect of nominal value or premium that is unpaid on their
shares. There are no provisions discriminating against any existing or prospective shareholder as a result of such shareholder owning a substantial number of
shares of any class.
Subject
to the provisions of the UK Companies Act 2006, all or any of the rights attached to any class of shares (whether or not the Company
is being wound up) may be varied with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of that class or
with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. Additional quorum and voting requirements apply to
such meeting.
General meetings shall be called by at least 14 clear days’ notice (that is, excluding the day of the general meeting and the day on which the notice is given). A
general meeting may be called by shorter notice if it is so agreed, in the case of an annual general meeting, by all the shareholders having a right to attend and
vote, or in other cases, by a majority in number of the shareholders having a right to attend and vote, being a majority together holding not less than 95% in
nominal value of the shares giving the right. The notice shall specify the date, time and place of the meeting and the general nature of the business to be
transacted.
There are no restrictions on the rights to own securities for either resident or non-resident shareholders, other than those to which they may be subject as a result
of laws and regulations in their home jurisdiction.
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Board of Directors
1 William Vereker
Chair
Appointed on 1 November 2020 (Board Chair), previously Independent Non-Executive Director from 1 October 2020.
Skills and experience
William is an experienced and well-respected Banker, previously having served as Global Head of Investment Banking for UBS (2013 – 2018), and prior to that
holding a number of leadership roles at Nomura, Lehman Brothers and Morgan Stanley. From 2018 to 2019, he served as the Prime Minister’s Business Envoy.
He was a Vice Chairman at JP Morgan until October 2020.
Other principal appointments
Chair of the Board of Santander UK
Group Holdings
plc*. Non-Executive Director of the London Stock Exchange Group Plc (Chair of its Remuneration
Committee). Member and Special Advisor of the Investment Committee at Delancey Credit and Income Fund GP. William sits on the Advisory Board of Celonis
GmbH and also chairs the Advisory Board of Gonville Caius College, Cambridge.
Board Committee memberships
Board Nomination Governance Committee (Chair).
2 Mike Regnier
Executive Director and Chief Executive Officer
Appointed Chief Executive Officer on 1 April 2022.
Skills and experience
Mike joined Santander UK from Yorkshire Building Society (YBS), where he was a Board member since 2014 and Chief Executive since 2017. He previously held
the posts of Chief Commercial Officer and Chief Customer Officer, having joined YBS in 2014.
Mike began his career in strategic management consulting with a focus on Retail and Retail Financial Services. After management positions at Asda, he joined the
banking sector and held a number of senior positions at Lloyds Banking Group, including Personal Current Accounts, Credit Cards Director, and Products and
Marketing Director for TSB. He has served as a Board Director of Visa UK, and Chairman of the merchant acquirer LTSB Cardnet. He was also Chair of the
Building Societies Association from 2019 – 2021. In December 2023, Mike became a member of the British Infrastructure Council, representing Santander UK.
Other principal appointments
Chief Executive Officer and Executive Director of Santander UK
Group Holdings
plc*.
3 Angel Santodomingo
Executive Director and Chief Financial Officer
Appointed Chief Financial Officer on 5 March 2024.
Skills and experience
Angel joined Banco Santander group in 2005 as Head of International Development and Asset Management and subsequently became Head of Investor
Relations. In 2014, he moved to Brazil and became CFO and Investor Relations Officer of Banco Santander Brazil, a role he held for nine years as well as Board
Director. In 2023, Angel returned to Spain, becoming Group Head of Strategy and Chief of Staff to the Executive Chair, working directly for the Santander Group
Executive Chair. He has also been Board Director of several companies, CFA Spain President and author of a series of books and articles about Markets, Finance
Analysis and Equity Valuation.
Angel is an experienced Board Director, having held positions as a Board Director of a number of commercial entities, including Credito de la Casa, PSA Banque
Brazil (Chairman) and Getnet Brazil. He has a Bachelor’s degree in Economics Finance and is a Chartered Financial Analyst (CFA).
Other principal appointments
Chief Financial Officer and Executive Director of Santander UK
Group Holdings
plc*.
4 Enrique Alvarez Labiano
Executive Director and CEO, Retail Business Banking
Appointed on 12 February 2025.
Skills and experience
Enrique began his Banco Santander group career in 2015 as Group Head of Strategy and Head of the Group Chairman’s office. He moved to the UK in 2019 as
Head of Strategy and Corporate Development, before he took up the role of Chief People Officer in 2020 and was subsequently appointed Head of Everyday
Banking in 2021. He’s been CEO of Retail Business Banking since 2023.
Before joining Santander, Enrique was a Partner at McKinsey Company (2007-2015) leading strategic programmes and client relationships for financial
institutions in Europe, Americas and Africa. He holds a degree in Engineering from ICAI, Pontificia Comillas University, and an MBA from INSEAD.
Other principal appointments
Executive Director of Santander UK
Group Holdings
plc*
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5 Pedro Castro e Almeida
Banco Santander Nominated Non-Executive Director
Appointed on 1 September 2023.
Skills and experience
Pedro joined Santander Portugal in 1993, holding senior roles in various areas. From 2007 to 2009, he was a member of the boards of Banco Santander Totta
and Banco Santander de Negócios Portugal. Since 2009, Pedro has sat on the Santander Portugal’s Executive Committee and has been a member of its Board
since 2010. In January 2019, he was appointed CEO of Santander Portugal and Vice Chairman of the Board. He assumed the role of Regional Head of Europe
for Santander on 1 September 2023. In November 2023, Pedro was also appointed as a Non-Executive director of PagoNxt.
Pedro holds a degree in Business Management from ISEG and has studied at business schools in Europe and the US, namely INSEAD, Harvard Business
School and Kellogg School of Management.
Other principal appointments
Non-Executive Director of Santander UK
Group Holdings
plc*. Director of PagoNxt SL*.
6 Lisa Fretwell
Independent Non-Executive Director
and Employee Designated Director
Appointed Independent Non-Executive Director on 1 January 2022
and Designated NED chosen to represent the views of the workforce on 1 March 2023
.
Skills and experience
Lisa has 25 years’ experience within the financial services, technology, retail, and manufacturing industries in both business and consulting roles. She holds a first-
class honours degree in Chemical engineering from the University of Birmingham and an MBA from Cranfield Business School. She was awarded Business
Leader of the Year by Women in Credit in 2020.
Lisa joined Santander from Experian, where she was Managing Director of Experian UK’s Data Business from 2019 - 2021. Prior to this, she held various senior
roles at Cisco for over 10 years, including Vice President of Software and Operations and Managing Director of Consulting Services and Internet Business
Solutions. Lisa also held roles at Capgemini and Procter Gamble before joining Cisco.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Non-Executive Director at Restore plc since 20 April 2022 (and Chair of its Board Risk
Committee, ESG Committee and Remuneration Committee, and member of its Audit Committee and Nomination Committee). Member of the Council at the
University of Birmingham (and member of its Audit Committee), Senior Advisor at Tresmares Capital and a board advisor at Haysto Limited.
Board Committee memberships
Board Audit Committee, Board Responsible Banking Committee, and Board Remuneration Committee.
7 Ed Giera
Independent Non-Executive Director
Appointed Independent Non-Executive Director on 19 August 2015. He was the Senior Independent Non-Executive Director from 15 October 2020 to 20 February
2025.
Skills and experience
Ed Giera is an experienced Non-Executive Director, having held a number of Board roles following his career with JP Morgan Securities, the investment banking
affiliate of JP Morgan Chase Co., where he held positions as Global Head of Pension Advisory, Head of Capital Markets for the EMEA region, and other senior
roles. He provided corporate finance advisory and fiduciary services as Principal of EJ Giera LLC and was formerly a Non-Executive Director of NovaTech LLC
and the Life and Longevity Markets Association. Ed was also previously a director of Pension Insurance Corporation Holdings Ltd, where he chaired the Board
Audit Risk Committee.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Non-Executive Director (and Chair of the Risk Committee, member of the Audit
Committee, and member of the Nomination Committee) of Rothesay Life Plc. Director of Rothesay Limited. Partner of Boscobel Place Capital LLC and Founder
and Principal of E.J. Giera LLC.
Board Committee memberships
Board Audit Committee, Board Nomination Governance Committee, Board Risk Committee (Chair), and Board Remuneration Committee.
8 David Gledhill
Independent Non-Executive Director
Appointed on 1 September 2024.
Skills and experience
David has significant experience in the financial services industry, in retail banking and digital transformation. He has held various senior leadership roles, including
Group Chief Information Officer and Head of Technology and Operations at DBS Bank in Singapore, spending over a decade in that role.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Non-Executive Director of Singapore Airlines and the Institute of Systems Science,
National University of Singapore.
Board Committee memberships
Board Responsible Banking Committee, Board Audit Committee and Board Remuneration Committee.
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9 Michelle Hinchliffe
Independent Non-Executive Director and Whistleblowers' Champion
Appointed on 1 June 2023.
Skills and experience
Michelle has over 30 years’ experience in financial services audit both in the UK and internationally, with a particular focus on Banking and Capital Markets. Until
2022, she was Lead Partner at KPMG with responsibilities for a range of financial institution clients, reporting under both IFRS and US GAAP. Over the course of
her career, she has been Lead Partner for Barclays, ANZ, Standard Chartered Bank, HSBC Investment Banking Markets, and Citigroup UK. Michelle qualifies
as the Board Audit Committee financial expert as defined in item 16A of Form 20-F.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Independent Non-Executive Director of BHP Group Limited, Macquarie Group Limited
and Macquarie Bank Limited. Member of the Institute of Chartered Accountants in England and Wales Australasia Strategic Advisory group.
Board Committee memberships
Board Audit Committee (Chair), Board Risk Committee, and Board Nomination Governance Committee.
10 Mark Lewis
Independent Non-Executive Director
Appointed on
16 December 2020
.
Skills and experience
Mark brings a track record of digital transformation and growth across multiple consumer businesses and sectors. He was CEO of Moneysupermarket Group plc,
operating regulated marketplaces across financial services, travel and home services.
Prior to this, Mark sat on the John Lewis Management Board as Retail Director, responsible for sales and operations across 48 UK department stores and online
channels serving 37 countries. He previously served as Managing Director of eBay UK and CEO of Collect+.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Mark is Group Chairman of Iamproperty, Independent Non-Executive Director of
Direct Line Insurance Group plc, Non-Executive Director of Sambla Group, and Non-Executive Director of Santander Consumer (UK) plc*.
Board Committee memberships
Board Remuneration Committee (Chair), Board Responsible Banking Committee, Board Risk Committee, and Board Nomination Governance Committee.
11 Dirk Marzluf
Banco Santander Nominated Non-Executive Director
Appointed on
7 May 2019
.
Skills and experience
Dirk joined Banco Santander as Group Chief Operating and Technology Officer (COTO) in September 2018. He joined Banco Santander from AXA Group, where
he served as Group Chief Information Officer (CIO) since 2013, leading the insurance group’s technology and information security transformation, its overall
project portfolio and as co-sponsor of its digital strategy. His global technology leadership roles include previous work at Accenture, Daimler Chrysler and
Winterthur Group.
As Banco Santander Group Head of Technology and Operations, Dirk Marzluf is responsible for leading the information technology and operations function and its
strategic development.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Chairman of Santander Global Technology and Operations SL*, Director of Getnet
Payments, S.L.*, Director of PagoNxt Payments, S.L.*, Director of Ebury Partners Limited*, Director of Elevate Tech Platforms, S.L. Unipersonal* and Santander
Consumer Holding GmbH*, and Director of Gravity Cloud Technology Sl*.
12 The Rt Hon. the Baroness Morgan of Cotes (Nicola (Nicky) Morgan)
Independent Non-Executive Director
,
Senior Independent Director
and Consumer Duty Champion
Appointed on
10 August 2021
.
She was appointed Senior Independent Director on 20 February 2025.
Skills and experience
Nicky is a former MP, Cabinet Minister and Chair of the House of Commons Treasury Committee and is now a member of the House of Lords. She is a qualified
solicitor by background and before being elected to Parliament spent 16 years with City law firms, focused on mergers and acquisitions and advisory work. Nicky
possesses significant experience as a senior leader of high-profile large organisations, responsible for setting and overseeing implementation of strategy and
communicating the organisation’s narrative and capabilities. She brings a wealth of experience from both a public and private perspective of the financial services
sector, communications and media, and digital technology.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Non-Executive Director of the Financial Services Compensation Scheme, Chair of the
Careers Enterprise Company, and Chair of the Council of the Advertising Standards Authority (ASA) Limited.
Board Committee memberships
Board Responsible Banking Committee (Chair), Board Risk Committee, and Board Nomination Governance Committee.
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Strategic Report
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|
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|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
13 David Oldfield
Independent Non-Executive Director
Appointed on 1 December 2024.
Skills and experience
David retired from Lloyds Banking Group in 2023 after nearly 40 years with them, having joined on the graduate training scheme. He brings a diverse set of retail
banking, commercial banking and operational / technology leadership experiences. In the period 2014 to 2023, as a member of LBG's Group Executive
Committee, David was CEO Retail Banking Consumer Finance, CEO Commercial Banking and then most latterly Group Chief Operating Officer responsible for
technology, data, strategic transformation, IT security and 3rd party procurement and supplier management.
Prior to these David had a variety of leadership roles across all areas of Lloyds Banking Group including in Technology, Procurement, Strategy, programme and
integration delivery, SME Mid Markets Banking and Offshore banking. Over the years David chaired multiple legal entities for Lloyds Banking Group both in the
UK and internationally and, outside of the Group, was a Non Executive Director for Motability Operations Group Plc, Chair Cardnet Merchant Services Limited,
and Chair of the Wellbeing leadership team for Business in The Community (BiTC). As LBG's Executive sponsor for disability for 14 years David was awarded a
lifetime achievement award in 2023 from the Business Disability Forum, a leading business membership organisation in disability inclusion. He received an OBE
in His Majesty's New Year Honours list in 2025 for services to workplace mental health and wellbeing, as well as services to disability.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*.
Board Committee memberships
Board Risk Committee, Board Audit Committee, and Board Remuneration Committee.
14 José María Roldán
Independent Non-Executive Director
Appointed on 1 June 2023.
Skills and experience
José María has extensive depth of knowledge and expertise in banking supervision, financial stability and public policy. He was Chairman and CEO of the
Spanish Banking Association (2014-2022) and spent 13 years as Director-General at the Banking Regulation and Financial Stability department of the Bank of
Spain, and member of its Executive Board. During his tenure in office at the Bank of Spain, he was part of the Basel Committee on Banking Supervision. He also
previously served as Board Member and Vice President of the European Banking Federation.
José María founded and Chaired the Committee of European Banking Supervisors (CEBS) (the forerunner of the European Banking Authority (EBA)); was
President of the Financial Action Task Force on Money Laundering (FATF) and chaired the former Banking Advisory Committee (BAC) of the EU. He brings an in-
depth knowledge and expertise in banking supervision and public policy, as well as over 25 years’ experience in the financial sector in Europe.
Other principal appointments
Independent Non-Executive Director of Santander UK
Group Holdings
plc*. Non-Executive Director and Chair of Cater Allen Limited*. Independent Non-Executive
Director of EBN Banco de Negocios SA*.
Board Committee memberships
Board Risk Committee, Board Remuneration Committee and Board Responsible Banking Committee.
15 Pamela Walkden
Banco Santander Nominated Non-Executive Director
Appointed on 1 October 2021.
Skills and experience
Pamela is currently Independent Director of Banco Santander, S.A. (since 2019) where she is the Risk Supervision, Regulation and Compliance Committee Chair.
She is also a member of the Advisory Board at JD Haspel Limited.
Previously, Pamela has served in a number of senior management positions predominantly at Standard Chartered Bank, including as Group Head of Human
Resources, Chief Risk Officer, Group Treasurer, Group Head of Asset and Liability Management and Regional Markets, Group Head of Internal Audit, Group
Head of Corporate Affairs and Group Manager of Investor Relations. In addition, she served as an independent member of the UK Prudential Regulation Authority
(PRA) Regulatory Reform Panel and as a member of the European Banking Authority Stakeholder Group.
Other principal appointments
Non-Executive Director of Santander UK
Group Holdings
plc*. Independent Non-Executive Director and Chair of the Risk Supervision, Regulation and
Compliance Committee in Banco Santander SA*.
Board Committee memberships
Board Nomination Governance Committee.
* Part of the Banco Santander group.
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Governance
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Risk review
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|
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New York Stock Exchange (NYSE) Corporate Governance –
differences in UK and NYSE corporate governance practice
The Company issues notes in the US from time to time pursuant to a shelf registration statement filed with the SEC. As these notes are listed on the NYSE, the
Company is required to comply with NYSE corporate governance standards. Under the NYSE corporate governance standards, the Company must disclose any
significant ways in which its corporate governance practices differ from those followed by US companies under the NYSE corporate governance standards. We
believe the following to be the significant differences between our current corporate governance practices and those applicable to US companies under the NYSE
corporate governance standards.
Under the NYSE corporate governance standards, independent Directors must comprise a majority of the Board. As at 31 December 2024, our Board was
comprised of a Chair (who is also a Non-Executive Director), two Executive Directors and
eleven Non-Executive Directors. The Chair, William Vereker, and eight
of the other Non-Executive Directors, (Lisa Fretwell, Ed Giera, Michelle Hinchliffe, Mark Lewis, Nicky Morgan, José María Roldán, David Gledhill and David
Oldfield), were independent as defined in the NYSE corporate governance standards. The other three Non-Executive Directors (Pedro Castro e Almeida, Dirk
Marzluf and Pamela Walkden) were not independent according to NYSE corporate governance standards as they are representatives of the ultimate parent
company, Banco Santander SA. Angel Santodomingo was appointed as an Executive Director on 5 March 2024. David Gledhill and David Oldfield were
appointed as independent Non-Executive Directors on 1 September 2024 and 1 December 2024 respectively.
The NYSE corporate governance standards require that listed US companies have a nominating or corporate governance committee composed entirely of
independent Directors and with a written charter addressing certain corporate governance matters. Applicable UK rules do not require companies without equity
shares listed on the London Stock Exchange, such as the Company, to have a nominating committee. However, the Company has a Board Nomination
Governance Committee, which leads the process for Board appointments. This Committee has written Terms of Reference setting out its role to identify and
nominate candidates for Board and Board Committee appointments. As at 31 December 2024, the following Directors made up the Board Nomination
Governance Committee: William Vereker (Chair), Ed Giera, Michelle Hinchliffe
, Nicky Morgan, Mark Lewis and Pamela Walkden. Five of the Directors were
independent according to NYSE corporate governance standards. The other Director (Pamela Walkden) was not independent according to NYSE corporate
governance standards as she is a representative of the ultimate parent company, Banco Santander SA.
In addition, the Board is responsible for monitoring the effectiveness of the Company’s governance practices and making changes as needed to ensure the
alignment of the Company’s governance system with current best practices. The Board monitors and manages potential conflicts of interest of management,
Board members, shareholders, external advisers and other service providers, including misuse of corporate assets and abuse in related party transactions.
The NYSE corporate governance standards require that listed US companies have a compensation committee composed entirely of independent directors and
with a written charter addressing certain corporate governance matters. Under its written Terms of Reference, the Company’s Board Remuneration Committee is
primarily responsible for overseeing and supervising Santander UK’s policies and frameworks covering remuneration and reward. As at 31 December 2024, the
following Directors were on the Board Remuneration Committee:
Mark Lewis (Chair), Lisa Fretwell, Ed Giera, José María Roldán, David Gledhill and David
Oldfield. All Directors were independent according to NYSE corporate governance standards.
The NYSE corporate governance standards require that listed US companies have an audit committee that satisfies the requirements of Rule 10A-3 under the US
Securities Exchange Act of 1934, as amended (Rule 10A-3), with a written charter addressing certain corporate governance matters, and having a minimum of
three members who are all independent as defined in Rule 10A-3. As a wholly-owned subsidiary of a parent that satisfies the requirements of Rule 10A-3(c)(2),
the Company is exempt from the requirements of Rule 10A-3. However, the Company does have a Board Audit Committee. As at 31 December 2024, the Board
Audit Committee was made up of
five Non-Executive Directors: Michelle Hinchliffe (Chair), Lisa Fretwell, Ed Giera, David Gledhill and David Oldfield. All members
were independent in 2024 as defined in Rule 10A-3.
The scope of the Board Audit Committee’s Terms of Reference as well as the duties and responsibilities of such committee are more limited than that required of
audit committees under the NYSE corporate governance standards. For example, the Board Audit Committee does not provide an audit committee report as
required by the NYSE corporate governance standards to be included in the Company’s annual proxy statement.
The NYSE corporate governance standards require that listed US companies adopt and disclose corporate governance guidelines, including with respect to the
qualification, training and evaluation of their Directors. The NYSE corporate governance standards also require that the Board conducts a self-evaluation at least
annually to determine whether it and its committees are functioning effectively. The Board has undertaken regular reviews of Board effectiveness primarily through
an internal process led by the Chair. During the year the Board conducted an external evaluation with the provider, Boardroom Review, and considered their
feedback, which concluded that the performance of the Board and its Committees continues to be effective.
A CEO of a US company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate government
standards. In accordance with NYSE corporate governance standards applicable to foreign private issuers, our CEO is not required to provide the NYSE with
such an annual compliance certification.
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|
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Additional balance sheet and cash flow analysis
SECURITIES
Securities are classified in the consolidated balance sheet as other financial assets at fair value through profit or loss, other financial assets at amortised cost and
financial assets at fair value through other comprehensive income.
Debt securities at amortised cost - Yields
The following table shows the weighted average yields for debt securities not held at fair value at
31 December 2024
.
|
Not later than
one year
|
Later than one
year and not
later than five
years
|
Later than five
years and not
later than ten
years
|
Later than ten
years
|
Total
|
|
|
%
|
%
|
%
|
%
|
%
|
|
|
Weighted average yield
|
|||||
|
– Debt securities at amortised cost
|
—
|
—
|
4.25
|
1.33
|
2.25
|
Weighted average yield is calculated using Total clean price x yield for each maturity bucket / Total clean price for each maturity bucket.
LOANS AND ADVANCES TO BANKS
Loans and advances to banks in the following tables include loans and advances to banks classified as reverse repurchase agreements – non trading.
Reconciliation to classifications in the consolidated balance sheet
|
2024
|
2023
|
||
|
Note
|
£m
|
£m
|
|
|
Loans and advances to banks
|
1,032
|
1,080
|
|
|
Reverse repurchase agreements - non trading
|
16
|
1,363
|
2,397
|
|
2,395
|
3,477
|
Maturity analysis
The following table shows loans and advances to banks by maturity at
31 December 2024
.
|
Not later than one
year
|
Later than one year
and not later than
five years
|
Later than five
years and not later
than fifteen years
|
Later than fifteen
years
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Fixed interest rate
|
1,813
|
—
|
—
|
—
|
1,813
|
|
Variable interest rate
|
570
|
3
|
9
|
—
|
582
|
|
2,383
|
3
|
9
|
—
|
2,395
|
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|
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LOANS AND ADVANCES TO CUSTOMERS
Loans and advances to customers are classified in the consolidated balance sheet as other financial assets at fair value through profit or loss, loans and advances
to customers and reverse repurchase agreements – non trading. Reverse repurchase agreements represent business with professional non-bank customers as
part of the liquidity risk management function. The balance sheet reconciliation below shows Loans and advances to customers net of impairment loss allowances
and Residual Value and Voluntary Termination provisions.
Reconciliation to classifications in the consolidated balance sheet
|
2024
|
2023
|
||
|
Note
|
£m
|
£m
|
|
|
Other financial assets at fair value through profit or loss
|
12
|
44
|
46
|
|
Loans and advances to customers
|
13
|
199,408
|
207,435
|
|
Reverse repurchase agreements – non trading
|
16
|
8,975
|
10,071
|
|
208,427
|
217,552
|
Maturity analysis
The following table shows loans and advances to customers by maturity at
31 December 2024
.
Overdrafts are included as ‘on-demand’. Loans and advances are
included at their contractual maturity; no account is taken of a customer’s ability to repay early where it exists.
|
|
Not later than one
year
|
Later than one
year and not later
than five years
|
Later than five
years and not later
than fifteen years
|
Later than fifteen
years
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Loans secured on residential properties
|
11,183
|
36,184
|
66,512
|
51,335
|
165,214
|
|
Corporate loans
|
8,050
|
9,019
|
1,442
|
39
|
18,550
|
|
Finance leases
|
1,193
|
2,955
|
74
|
—
|
4,222
|
|
Other unsecured advances
|
4,486
|
2,003
|
106
|
6
|
6,601
|
|
Accrued interest and other adjustments
|
80
|
193
|
297
|
226
|
796
|
|
Amounts due from immediate parent
|
9
|
—
|
—
|
9
|
18
|
|
Amounts due from fellow subsidiaries and joint ventures
|
2,433
|
—
|
—
|
2,381
|
4,814
|
|
Loans and advances to customers
|
27,434
|
50,354
|
68,431
|
53,996
|
200,215
|
We manage our balance sheet on a behavioural basis, rather than on the basis of contractual maturity. Many loans are repaid before their legal maturity,
particularly advances secured on residential property.
Interest rate sensitivity
The following table shows the interest rate sensitivity of loans and advances to customers due after one year at
31 December 2024
.
|
Fixed rate
|
Variable rate
|
Total
|
|
|
£m
|
£m
|
£m
|
|
|
Loans secured on residential properties
|
148,196
|
17,018
|
165,214
|
|
Corporate loans
|
1,899
|
16,651
|
18,550
|
|
Finance leases
|
4,222
|
—
|
4,222
|
|
Other unsecured advances
|
3,897
|
2,704
|
6,601
|
|
Accrued interest and other adjustments
|
650
|
146
|
796
|
|
Amounts due from immediate parent
|
18
|
—
|
18
|
|
Amounts due from fellow subsidiaries and joint ventures
|
4,814
|
—
|
4,814
|
|
Loans and advances to customers
|
163,696
|
36,519
|
200,215
|
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Governance
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Risk review
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Financial statements
|
Shareholder information
|
||||||
SUMMARY OF LOAN LOSS EXPERIENCE
Loans accounted for on a non-accrual basis are credit impaired loans.
We define a loan as in default (i.e. credit impaired) for purposes of calculating ECL if it is
more than three months past due, or if we have data to make us doubt they can keep up with their payments i.e. they are unlikely to pay. We classify credit
impaired loans as Stage 3. For details of loans classified as Stage 3, see the ‘Credit risk’ section of the Risk review. Interest income on financial assets that have
become credit-impaired (or Stage 3) is calculated by applying the effective interest rate to their amortised cost (i.e. net of the ECL provision).
In
2024
,
2023
and
2022
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.
As a result, the following tables present Loans and advances to customers only.
The following tables show additional ratios and the components used in their calculation for the years ended
31 December 2024
,
2023
, and
2022
.
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Allowance for credit losses to total loans
|
0.41
%
|
0.46
%
|
|
Allowance for credit losses
|
807
|
935
|
|
Total loans outstanding
|
194,512
|
203,100
|
|
Non-accrual loans to total loans
|
1.36
%
|
1.48
%
|
|
Non-accrual loans outstanding
|
2,642
|
3,000
|
|
Total loans outstanding
|
194,512
|
203,100
|
|
Allowance for credit losses to non-accrual loans
|
30.55
%
|
31.17
%
|
|
Allowance for credit losses
|
807
|
935
|
|
Non-accrual loans outstanding
|
2,642
|
3,000
|
|
2024
|
2023
|
2022
|
|
|
£m
|
£m
|
£m
|
|
|
Loans secured on residential properties
|
0.01
%
|
0.01
%
|
—
%
|
|
Net charge-off during the period
|
9
|
11
|
3
|
|
Average amount outstanding
|
169,395
|
177,689
|
182,094
|
|
Corporate loans
|
0.32
%
|
0.36
%
|
0.13
%
|
|
Net charge-off during the period
|
59
|
68
|
24
|
|
Average amount outstanding
|
18,409
|
18,662
|
19,170
|
|
Finance leases
|
0.57
%
|
0.50
%
|
0.44
%
|
|
Net charge-off during the period
|
25
|
23
|
19
|
|
Average amount outstanding
|
4,364
|
4,612
|
4,281
|
|
Other unsecured advances
|
1.98
%
|
1.74
%
|
1.28
%
|
|
Net charge-off during the period
|
137
|
130
|
110
|
|
Average amount outstanding
|
6,934
|
7,452
|
8,573
|
|
Amounts due from immediate parent
|
—
%
|
—
%
|
—
%
|
|
Net charge-off during the period
|
—
|
—
|
—
|
|
Average amount outstanding
|
37
|
28
|
3
|
|
Amounts due from fellow subsidiaries and joint ventures
|
—
%
|
—
%
|
—
%
|
|
Net charge-off during the period
|
—
|
—
|
—
|
|
Average amount outstanding
|
4,652
|
4,355
|
3,698
|
|
Loans and advances to customers
|
0.11
%
|
0.11
%
|
0.07
%
|
|
Net charge-off during the period
|
230
|
232
|
156
|
|
Average amount outstanding
|
203,791
|
212,798
|
217,819
|
Discussion of the factors driving material changes in the ratios above or their components
The factors driving significant changes are discussed as follows:
–
Allowance for credit losses, exposures, expected credit losses, Stage 3 exposures and related ratios at a consolidated Santander UK group level can be found
in the commentary sections in 'Credit performance', 'Credit quality' 'Stage 2 analysis' in 'Santander UK group level - credit risk review' in the Risk review
–
More detailed discussion by business segment can be found in the 'Retail Business Banking: Mortgages - credit risk review', 'Retail Business Banking:
Everyday Banking - credit risk review', 'Corporate Commercial Banking - credit risk review' and 'Corporate Centre - credit risk review' sections of the Risk
review.
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|
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|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
DEPOSITS BY CUSTOMERS
The following table shows the average balances and interest rates for deposits by customers by product for the years ended
31 December 2024
,
2023
, and
2022
.
|
2024
|
2023
|
2022
|
||||||
|
Average
Balance
|
Average
Interest
Rate
(1)
|
Average
Balance
|
Average
Interest Rate
(1)
|
Average
Balance
|
Average
Interest Rate
(1)
|
|||
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
|||
|
Demand deposits (including savings and current accounts)
|
154,434
|
1.82
|
161,403
|
1.33
|
171,349
|
0.34
|
||
|
Time deposits
|
27,695
|
4.74
|
23,236
|
3.93
|
12,167
|
1.34
|
||
|
Other deposits
|
13,492
|
4.78
|
15,169
|
4.23
|
16,659
|
1.74
|
||
|
Total average balance
(1)
|
195,621
|
2.44
|
199,808
|
1.85
|
200,175
|
0.52
|
||
(1)
Calculated using monthly data.
Some deposits by customers are covered by depositor guarantee arrangements, as follows:
|
Scheme
|
Definition
|
|
Financial Services
Compensation Scheme
(FSCS)
|
The FSCS is the UK’s independent statutory compensation fund for customers of PRA authorised financial services firms and pays compensation, up
to certain limits, if a firm is unable, or likely to be unable to pay claims against it, for example by depositors. The FSCS is funded by levies on the
industry, and recoveries and borrowings where appropriate.
|
The following table shows the amounts of insured and uninsured total deposits and time deposits excluding intercompany deposits at
31 December 2024
and
2023
. The table also shows the amount of time deposits that are uninsured, either because they exceed depositor guarantee scheme compensation limits or
because they are otherwise uninsured.
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Insured deposits
|
123,729
|
130,753
|
|
Uninsured deposits
|
53,606
|
57,251
|
|
Total deposits
|
177,335
|
188,004
|
|
of which:
|
||
|
Insured time deposits
|
20,729
|
18,395
|
|
Uninsured time deposits
|
7,107
|
9,748
|
|
– Excess over guaranteed limit
|
4,164
|
4,774
|
|
– Otherwise uninsured
|
2,943
|
4,974
|
|
Total time deposits
|
27,836
|
28,143
|
For the proportion of Retail Business Banking customer deposits covered by the FSCS, see the Funding risk management section of the Risk review.
The following table shows the maturity of uninsured time deposits at
31 December 2024
.
|
Under 3
months
|
3 to 6
months
|
6 to 12
months
|
Over 12
months
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Deposits by customers
|
3,853
|
977
|
1,061
|
1,216
|
7,107
|
|
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|
Santander UK plc
|
231
|
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|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
DEPOSITS BY BANKS
Deposits by banks include repurchase agreements – non-trading.
Reconciliation to classifications in the consolidated balance sheet
|
2024
|
2023
|
||
|
Note
|
£m
|
£m
|
|
|
Deposits by banks
|
21
|
13,993
|
20,332
|
|
Repurchase agreements - non trading
|
23
|
2,336
|
551
|
|
16,329
|
20,883
|
The following table shows the average balances of and interest rates for deposits by banks for the years ended
31 December 2024
,
2023
, and
2022
.
|
2024
|
2023
|
2022
|
||||||
|
Average
Balance
|
Average
Interest
Rate
(1)
|
Average
Balance
|
Average
Interest
Rate
(1)
|
Average
Balance
|
Average
Interest
Rate
(1)
|
|||
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
|||
|
Deposits by banks
|
20,892
|
4.91
|
27,878
|
4.42
|
35,070
|
1.44
|
||
(1)
Calculated using monthly data.
At
31 December 2024
, deposits by foreign banks were
£2,085m
(
2023
:
£2,010m
,
2022
:
£2,192m
).
All bank deposits are uninsured, as depositor guarantee arrangements do not cover deposits by financial institutions.
The following table shows the maturity of uninsured deposits by banks at
31 December 2024
.
|
Under 3 months
|
3 to 6 months
|
6 to 12 months
|
Over 12 months
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Deposits by banks
|
4,395
|
779
|
7,207
|
3,948
|
16,329
|
|
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|
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|
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Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between interest rates and net interest income caused by the periodic repricing of assets and liabilities. Our largest
administered rate items are residential mortgages and retail deposits, many of which bear interest at variable rates.
We mitigate the impact of interest rate movements on net interest income by repricing our variable rate mortgages and variable rate retail deposits separately,
subject to competitive pressures. We also offer fixed-rate mortgages and savings products on which the interest rate is fixed for an agreed period at the start of the
contract. We manage the margin on fixed-rate products by using derivatives matching the fixed-rate profiles. We reduce the risk of prepayment by imposing early
termination charges if the customers end their contracts early.
We manage the risks from movements in interest rates as part of our overall non-trading position. We do this within limits as set out in the Risk review.
Changes in net interest income – volume and rate analysis
The following table shows changes in interest income, interest expense and net interest income, and is presented using asset and liability classifications in the
Consolidated Balance Sheet. It allocates the effects between changes in volume and changes in rate. Volume and rate changes have been calculated on the
movement in the average balances and the change in the interest rates on average interest-earning assets and average interest-bearing liabilities. The changes
caused by movements in both volume and rate have been allocated to rate changes.
|
2024 / 2023
|
2023 / 2022
|
||||||
|
Changes due to increase/
(decrease) in
|
Changes due to increase/
(decrease) in
|
||||||
|
Total change
|
Volume
|
Rate
|
Total change
|
Volume
|
Rate
|
||
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
||
|
Interest income
|
|||||||
|
Loans and advances to customers
|
790
|
(200)
|
990
|
3,378
|
(55)
|
3,433
|
|
|
of which reverse repurchase agreements
|
267
|
192
|
75
|
385
|
48
|
337
|
|
|
Loans and advances to banks
|
(134)
|
(299)
|
165
|
1,225
|
(41)
|
1,266
|
|
|
of which reverse repurchase agreements
|
94
|
47
|
47
|
92
|
17
|
75
|
|
|
Debt securities and other interest earning assets
|
166
|
122
|
44
|
306
|
75
|
231
|
|
|
Total interest income
|
822
|
(377)
|
1,199
|
4,909
|
(21)
|
4,930
|
|
|
Interest expense
|
|||||||
|
Deposits by customers - demand
|
657
|
(93)
|
750
|
1,570
|
(34)
|
1,604
|
|
|
Deposits by customers - time
|
401
|
175
|
226
|
750
|
148
|
602
|
|
|
Deposits by customers - other
|
2
|
(78)
|
80
|
356
|
(26)
|
382
|
|
|
of which repurchase agreements
|
14
|
(52)
|
66
|
351
|
28
|
323
|
|
|
Deposits by banks
|
(234)
|
(318)
|
84
|
736
|
(104)
|
840
|
|
|
of which repurchase agreements
|
92
|
89
|
3
|
67
|
—
|
67
|
|
|
Debt securities
|
241
|
83
|
158
|
1,065
|
110
|
955
|
|
|
Commercial paper
|
78
|
39
|
39
|
137
|
(13)
|
150
|
|
|
Subordinated liabilities
|
24
|
30
|
(6)
|
61
|
2
|
59
|
|
|
Other interest-bearing financial liabilities
|
(1)
|
—
|
(1)
|
1
|
—
|
1
|
|
|
Total interest expense
|
1,168
|
(162)
|
1,330
|
4,676
|
83
|
4,593
|
|
|
Net interest income
|
(346)
|
(215)
|
(131)
|
233
|
(104)
|
337
|
|
|
Annual Report 2024
|
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|
233
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
AVERAGE BALANCE SHEET
Year-end balances may not reflect activity throughout the year, so we present Average balance sheets below, using asset and liability classifications from the
Consolidated Balance Sheet. They show averages for our significant categories of assets and liabilities, and the related interest income and expense.
|
2024
|
2023
|
2022
|
|||||||||
|
Average
balance
(1)
|
Interest
|
Average
rate
|
Average
balance
(1)
|
Interest
|
Average
rate
|
Average
balance
(1)
|
Interest
|
Average
rate
|
|||
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
|||
|
Assets
|
|||||||||||
|
Loans and advances to customers
(2)
|
219,442
|
10,084
|
4.60
|
224,267
|
9,294
|
4.14
|
226,377
|
5,916
|
2.61
|
||
|
of which reverse repurchase agreements
|
15,651
|
794
|
5.07
|
11,469
|
527
|
4.59
|
8,558
|
142
|
1.66
|
||
|
Loans and advances to banks
|
36,078
|
1,716
|
4.76
|
43,043
|
1,850
|
4.30
|
46,051
|
625
|
1.36
|
||
|
of which reverse repurchase agreements
|
4,070
|
193
|
4.74
|
2,763
|
99
|
3.58
|
816
|
7
|
0.86
|
||
|
Debt securities and other interest earning assets
|
10,807
|
639
|
5.91
|
8,589
|
473
|
5.51
|
5,934
|
167
|
2.81
|
||
|
Total average interest-earning assets, interest income
|
266,327
|
12,439
|
4.67
|
275,899
|
11,617
|
4.21
|
278,362
|
6,708
|
2.41
|
||
|
Credit impairment loss allowances and RV VT
|
(967)
|
—
|
—
|
(1,068)
|
—
|
—
|
(1,034)
|
—
|
—
|
||
|
Derivatives and other non-interest-earning assets
|
7,690
|
—
|
—
|
7,601
|
—
|
—
|
9,819
|
—
|
—
|
||
|
Other financial assets at FVTPL
|
204
|
—
|
—
|
264
|
—
|
—
|
153
|
—
|
—
|
||
|
Total average assets
|
273,254
|
—
|
—
|
282,696
|
—
|
—
|
287,300
|
—
|
—
|
||
|
Liabilities
|
|||||||||||
|
Deposits by customers - demand
|
(154,434)
|
(2,805)
|
1.82
|
(161,403)
|
(2,148)
|
1.33
|
(171,349)
|
(578)
|
0.34
|
||
|
Deposits by customers - time
|
(27,695)
|
(1,314)
|
4.74
|
(23,236)
|
(913)
|
3.93
|
(12,167)
|
(163)
|
1.34
|
||
|
Deposits by customers - other
|
(12,977)
|
(642)
|
4.95
|
(14,787)
|
(640)
|
4.33
|
(16,309)
|
(284)
|
1.74
|
||
|
of which repurchase agreements
|
(9,408)
|
(485)
|
5.16
|
(10,567)
|
(471)
|
4.46
|
(8,568)
|
(120)
|
1.40
|
||
|
Deposits by banks
|
(20,249)
|
(998)
|
4.93
|
(27,308)
|
(1,232)
|
4.51
|
(34,533)
|
(496)
|
1.44
|
||
|
of which repurchase agreements
|
(3,365)
|
(159)
|
4.73
|
(1,445)
|
(67)
|
4.64
|
(5)
|
—
|
—
|
||
|
Debt securities
|
(30,215)
|
(1,874)
|
6.20
|
(28,762)
|
(1,633)
|
5.68
|
(24,117)
|
(568)
|
2.36
|
||
|
Commercial paper
|
(5,076)
|
(297)
|
5.85
|
(4,312)
|
(219)
|
5.08
|
(5,121)
|
(82)
|
1.60
|
||
|
Subordinated liabilities
|
(2,383)
|
(193)
|
8.10
|
(2,022)
|
(169)
|
8.36
|
(1,991)
|
(108)
|
5.42
|
||
|
Other interest-bearing liabilities
|
(133)
|
(4)
|
3.01
|
(130)
|
(5)
|
3.85
|
(141)
|
(4)
|
2.84
|
||
|
Total average interest-bearing liabilities, interest expense
|
(253,162)
|
(8,127)
|
3.21
|
(261,960)
|
(6,959)
|
2.66
|
(265,728)
|
(2,283)
|
0.86
|
||
|
Derivatives and other non interest-bearing liabilities
|
(4,633)
|
—
|
—
|
(4,609)
|
—
|
—
|
(4,578)
|
—
|
—
|
||
|
Other financial liabilities at FVTPL
|
(983)
|
—
|
—
|
(854)
|
—
|
—
|
(833)
|
—
|
—
|
||
|
Equity
|
(14,476)
|
—
|
—
|
(15,273)
|
—
|
—
|
(16,161)
|
—
|
—
|
||
|
Total average liabilities and equity
|
(273,254)
|
—
|
—
|
(282,696)
|
—
|
—
|
(287,300)
|
—
|
—
|
(1)
Average balances are based on monthly data.
(2)
Loans and advances to customers include Stage 3 assets. See the ‘Credit risk’ section of the Risk review.
Margin and average spread
|
2024
|
2023
|
2022
|
|
|
%
|
%
|
%
|
|
|
Interest spread
(1)
|
1.46
|
1.55
|
1.55
|
|
Net interest margin
(2)
|
1.62
|
1.69
|
1.59
|
|
Average spread
(3)
|
105
|
105
|
105
|
(1)
Interest spread is the difference between the rate of interest earned on average interest-earning assets and the rate of interest paid on average interest-bearing liabilities.
(2)
NIM is calculated as net interest income divided by average interest earning assets
(3)
Average spread is the ratio of average interest-earning assets to interest-bearing liabilities
|
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|
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|
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|
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|
Financial statements
|
Shareholder information
|
||||||
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
|
2024
|
2023
|
|
|
£m
|
£m
|
|
|
Net cash flows from operating activities
|
(3,331)
|
(3,304)
|
|
Net cash flows from investing activities
|
(4,540)
|
(2,747)
|
|
Net cash flows from financing activities
|
285
|
19
|
|
Change in cash and cash equivalents
|
(7,586)
|
(6,032)
|
A more detailed Consolidated Cash Flow Statement is contained in the Consolidated Financial Statements.
The major activities and transactions that affected cash flows in
2024
and
2023
were as follows:
In
2024
, the net cash outflows from operating activities of
£3,331m
resulted from outflows generated from a decrease in deposits by banks and customers partially
offset by a decrease in loans and advances to banks and customers and reverse repurchase agreements and an increase in debt securities and repurchase
agreements.
The net cash outflows from investing activities of
£4,540m
mainly reflected the net purchase of certain asset backed securities and debt securities as
part of normal liquid asset portfolio management. The net cash inflows from financing activities mainly reflected net cash flows relating to active capital
management and the ongoing repayment of TFSME. These resulted in cash and cash equivalents decreasing by
£7,586m
in the year.
In
2023
, the net cash
outflows
from operating activities of
£3,304m
resulted from
outflows
generated from an decrease in
deposits by banks and customers and
an increase in reverse repurchase agreements
, partially offset by cash inflows from a decrease in loans and advances to banks and customers, derivative assets,
and an increase in debt securities in issue and repurchase agreements.
The net cash outflows from investing activities of
£2,747m
mainly reflected the net
purchase of certain asset backed securities and debt securities as part of normal liquid asset portfolio management. The net cash
inflows
from financing activities
mainly reflected net cash flows relating to debt securities in issue. These resulted in cash and cash equivalents decreasing by
£6,032m
in the year.
Cash flow requirements
For details of our cash flow requirements over the next 12 months and in the longer term and how we plan to meet them, see the Liquidity risk section of the Risk
review.
Material cash requirements
Our material commitments under commercial contracts at
31 December 2024
were as follows:
–
For cash flows and maturities relating to Derivatives, Deposits by customers, Deposits by banks, Debt securities in issue, Subordinated liabilities and Lease
obligations, see Note
39
to the Consolidated Financial Statements. The maturities of financial liabilities and off-balance sheet commitments table analyses the
maturities of the cash flows based on the remaining period to the contractual maturity date at the balance sheet date. In practice, the behavioural profiles of
many liabilities show more stability and longer maturity than their contractual maturity. This is especially true of many types of retail and corporate deposits that,
while they may be repayable on demand or at short notice, have shown good stability even in times of stress. For further details, see the Liquidity risk section of
the Risk review.
–
For details of cash flows and maturities relating to Retirement benefit obligations including employer contributions and funding, see Note
28
to the Consolidated
Financial Statements.
–
Purchase obligations: We have entered into outsourcing contracts where, in some cases, there is no minimum specified spending requirement. In these cases,
anticipated spending volumes have been included in purchase obligations. Total purchase obligations, all of which are due within 1 year, were
£379m
.
|
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|
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|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Other information
Major shareholders
At 31 December
2024
, the Company was a subsidiary of
Santander UK Group Holdings plc. On 12 November 2004, Banco Santander SA acquired the then
entire issued ordinary share capital of 1,485,893,636 ordinary shares of 10 pence each. On 12 October 2008, a further 10 billion ordinary shares of 10 pence each
were issued to Banco Santander SA and an additional 12,631,375,230 ordinary shares of 10 pence each were issued to Banco Santander SA on 9 January 2009.
On 3 August 2010, 6,934,500,000 ordinary shares of 10 pence each were issued to Santusa Holding SL. With effect from 10 January 2014, Santander UK Group
Holdings Limited, a subsidiary of Banco Santander SA and Santusa Holding SL, became the beneficial owner of 31,051,768,866 of 10 pence each, being the
entire issued ordinary share capital of the Company, by virtue of a share exchange agreement between Santander UK Group Holdings Limited, Banco Santander
SA and Santusa Holding SL. Santander UK Group Holdings Limited became the legal owner of the entire issued ordinary share capital of the Company on 1 April
2014 and on 25 March 2015 became a public limited company and changed its name to Santander UK Group Holdings plc.
Legal proceedings
We are party to various legal proceedings in the ordinary course of business. See Notes
27
and
30
to the Consolidated Financial Statements.
Share capital
See Note
31
to the Consolidated Financial Statements.
Material contracts
We are party to various contracts in the ordinary course of business. For the two years immediately preceding publication of this annual report, there have been no
material contracts entered into outside the ordinary course of business.
Exchange controls
There are no UK laws, decrees or regulations that restrict our export or import of capital, including the availability of cash and cash equivalents for use by us, or
that affect the remittance of dividends or other shareholder payments to non-UK holders of Company shares, except as outlined in the section on Taxation for US
Investors below.
Taxation for US investors
The following is a summary, under current law, of the main UK tax considerations relating to the beneficial ownership by a US taxpayer of the shares of the
Company. This summary is provided for general guidance and does not address investors that are subject to special rules or that do not hold the shares as capital
assets. US residents should consult their local tax advisers, particularly in connection with any potential liability to pay US taxes on disposal, lifetime gift or bequest
of their shares.
UK taxation on dividends
Under UK law, income tax is not withheld from dividends paid by UK companies. Shareholders, whether resident in the UK or not, receive the full amount of the
dividend actually declared.
UK taxation on capital gains
Under UK law, when you sell shares you may be liable to pay either capital gains tax or corporation tax on chargeable gains. However, if you are either (i) an
individual who is not resident in the UK or (ii) a company which is not resident in the UK, you will not be liable to UK tax on any capital gains made on disposal of
your shares. The exception is if the shares are held in connection with a trade or business that is conducted in the UK through a branch or agency (for capital
gains tax purposes) or a permanent establishment (for corporation tax purposes).
UK inheritance tax
Under the current estate and gift tax convention between the US and the UK, shares held by an individual shareholder who is domiciled for the purposes of the
convention in the US and is not for the purposes of the convention a national of the UK will not be subject to UK inheritance tax on:
–
The individual’s death or
–
On a gift of the shares during the individual’s lifetime.
The exception is if the shares are part of the business property of a permanent establishment of the individual in the UK or, in the case of a shareholder who
performs independent personal services, pertain to a fixed base situated in the UK.
Designated agent
The designated agent for service of process on Santander UK in the United States is C T Corporation System, 111 Eighth Avenue, New York, New York.
Trustee/paying agent
The names and addresses of the Trustee/paying agent for each class of security registered with the US Securities and Exchange Commission (the SEC) are:
–
Senior: Citibank NA, 388 Greenwich Street, New York, New York 10013, United States
–
With respect to 7.95% Term Subordinated Securities due October 26, 2029 (US002920AC09): Trustee: The Bank of New York Mellon, One Canada Square,
London E14 5AL, United Kingdom and Paying Agent: Citibank NA, 13th Floor, Citigroup Centre, Canada Square, London E14 5LB, United Kingdom
Documents on display
The Company is subject to the information requirements of the US Securities Exchange Act of 1934. In accordance with these requirements, the Company files its
Annual Report and other related documents with the SEC, and which may be accessed at the SEC's website. Information on the operation of the public reference
rooms can be obtained by calling the SEC on +1-202-551-8090 or by looking at the SEC’s website. The SEC maintains an internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with it.
None of the websites referred to in this Annual Report on Form 20-F for the year ended 31 December
2024
(the Form 20-F), including where a link is provided,
nor any of the information contained on such websites is incorporated by reference in the Form 20-F.
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|
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Risk review
|
Financial statements
|
Shareholder information
|
||||||
Audit fees
See Note
7
to the Consolidated Financial Statements.
Insider trading policies
Management and employees that are designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to
Santander UK. These policies and procedures are set out in the Santander UK Policy on Market Abuse and Inside Information which is filed as Exhibit 11.1 to this
annual report on Form 20-F.
Santander UK monitors inside information as defined under the EU Market Abuse Regulation 2014/596 (EU MAR) as on shored into UK law on 31 December
2020 by the EU (Withdrawal) Act 2018. Changes to EU MAR were made by the Market Abuse Exit Regulations 2019. Santander UK, as part of its disclosure
controls and procedures, imposes restrictions on trading in its own securities when it has undisclosed inside information and also generally refrains from trading in
its own securities during its regular closed periods.
|
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Strategic Report
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|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Glossary of financial services industry terms
|
Term
|
Definition
|
|
Active customers
|
Active customers are defined as those having an open account, with more than a set minimum balance along with certain specified transactions
in the prior month.
|
|
Alternative performance
measures (APMs)
|
A financial measure of historical or future financial performance, financial position or cashflows, other than a financial measure defined or
specified under International Financial Reporting Standards.
|
|
Anti-Money Laundering (AML)
|
A set of policies and practices to ensure that financial institutions and other regulated entities prevent, detect, and report financial crime and
especially money laundering activities.
|
|
Arrears
|
Customers are said to be in arrears when they are behind in fulfilling their obligations with the result that an outstanding loan is unpaid or
overdue. Such a customer is also said to be in a state of delinquency. When a customer is in arrears, his entire outstanding balance is said to be
delinquent, meaning that delinquent balances are the total outstanding loans on which payments are overdue.
|
|
Asset Backed Securities (ABS)
|
Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can comprise any assets which attract a set
of associated cash flows but are commonly pools of residential or commercial mortgages but could also include leases, credit card receivables,
motor vehicles or student loans.
|
|
Balance weighted Loan to Value
(LTV) ratio
|
(Loan 1 balance x (Loan 1 Balance/Loan 1 latest property valuation) + (Loan 2 balance x (loan 2 balance/Loan 2 latest property valuation) + ...) /
(Loan 1 balance + Loan 2 balance+...)
|
|
UK Bank Levy
|
The government levy that applies to certain UK banks, UK building societies and the UK operations of foreign banks from 1 January 2011. The
levy is payable based on a percentage of the chargeable equity and liabilities of the bank at the balance sheet date.
|
|
Basis point (bps)
|
One hundredth of a per cent (i.e. 0.01%), so 100 basis points is 1%. Used in quoting movements in interest rates or yields on securities.
|
|
Brexit
|
The withdrawal of the United Kingdom from the European Union.
|
|
Business Banking
|
Division, managed under Retail Business Banking, serving enterprises with a turnover of up to £6.5m per annum.
|
|
Colleague engagement
|
Colleague engagement is measured on annual basis in the Group Engagement Survey (GES), conducted by Mercer for Banco Santander.
Results are benchmarked against other firms in the UK financial sector and other high performing firms.
|
|
Commercial Paper
|
An unsecured promissory note issued to finance short-term credit needs. It specifies the face amount paid to investors on the maturity date.
Commercial paper can be issued as an unsecured obligation of Santander UK and is usually issued for periods ranging from one week up to
nine months. However, the depth and reliability of some CP markets means that issuers can repeatedly roll over CP issuance and effectively
achieve longer term funding. CP can be issued in a range of denominations and can be discounted or interest-bearing.
|
|
Commercial Real Estate (CRE)
|
Lending to UK customers, primarily on tenanted property assets, with a focus on the office, retail, industrial and residential sectors.
|
|
Common Equity Tier 1
(CET1) capital
|
The called-up share capital and eligible reserves less deductions calculated in accordance with the CRD IV implementation rules as per the PRA
Policy Statement PS7/13.
|
|
CET1 capital ratio
|
CET1 capital as a percentage of risk weighted assets.
|
|
Consumer Finance
|
Provides prime auto consumer financing for individuals, businesses, and automotive distribution networks.
|
|
Contractual maturity
|
The final payment date of a loan or other financial instrument, at which point all the remaining outstanding principal will be repaid and interest is
due to be paid.
|
|
Corporate Centre
|
Provides treasury services for asset and liability management of our balance sheet, as well as management of non-core and legacy portfolios.
|
|
Corporate Commercial
Banking (CCB)
|
Provides banking products and services to SMEs, mid-sized and larger corporates, typically with annual turnovers of between £2m and £500m,
as well as to Local Authorities and Housing Associations.
|
|
Cost to income ratio
|
Total operating expenses before credit impairment losses and provisions for other liabilities and charges as a percentage of total operating
income.
|
|
Cost of risk
|
Cost of risk is credit impairment charge for the 12 month period as a percentage of average gross customer loans. This is a useful measure of
the relationship between the size of the credit impairment charge and the book size which investors use as a proxy to compare relative credit risk.
|
|
Countercyclical capital buffer
|
A capital buffer required under Basel III to ensure that capital requirements take account of the macro-financial environment in which banks
operate.
|
|
Counterparty credit risk
|
The risk that the counterparty to a transaction may default before completing the satisfactory settlement of the transaction.
|
|
Covered bonds
|
Debt securities backed by a portfolio of mortgages that is segregated from the issuer’s other assets solely for the benefit of the holders of the
covered bonds. The Santander UK group issues covered bonds as part of its funding activities.
|
|
Credit spread
|
The yield spread between securities with the same coupon rate and maturity structure but with different associated credit risks, with the yield
spread rising as the credit rating worsens. It is the premium over the benchmark or risk-free rate required by the market to accept a lower credit
quality.
|
|
Credit Valuation Adjustment
(CVA)
|
Adjustments to the fair values of derivative assets to reflect the creditworthiness of the counterparty.
|
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Term
|
Definition
|
|
Currency swap
|
An arrangement in which two parties exchange specific principal amounts of different currencies at inception and subsequently interest payments
on the principal amounts. Often, one party will pay a fixed interest rate, while the other will pay a floating exchange rate (though there are also
fixed-fixed and floating-floating arrangements). At the maturity of the swap, the principal amounts are usually re-exchanged.
|
|
Customer funding gap
|
Customer loans less customer deposits.
|
|
Debt securities
|
Transferable instruments creating or acknowledging indebtedness. They include debentures, bonds, certificates of deposit, notes and
commercial paper. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights
under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable
by the issuer at the end of that term. Debt securities can be secured or unsecured.
|
|
Debt securities in issue
|
Transferable certificates of indebtedness of the Santander UK group to the bearer of the certificates. These are liabilities of the Santander UK
group and include commercial paper, certificates of deposit, bonds, and medium-term notes.
|
|
Default
|
Financial assets in default represent those that are at least 90 days past due in respect of principal or interest and/or where the assets are
otherwise considered to be unlikely to pay, including those that are credit impaired.
|
|
Default at proxy origination
|
IFRS 9 requires us to compare lifetime probability of default at origination with our view of lifetime probability of default now. If we do not have
data at origination, then a proxy origination is defined.
|
|
Defined benefit obligation
|
The present value of expected future payments required to settle the obligations of a defined benefit plan resulting from employee service.
|
|
Defined benefit plan
|
A pension plan that defines 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. The employer's obligation can be more or less than its contributions to the fund.
|
|
Defined contribution plan
|
A pension plan under which the Santander UK group pays fixed contributions as they fall due into a separate entity (a fund) and will have no legal
or constructive obligations to pay further contributions, i.e. the employer's obligation is limited to its contributions to the fund.
|
|
Derivative
|
A contract or agreement whose value changes with changes in an underlying index such as interest rates, foreign exchange rates, share prices
or indices and which requires no initial investment or an initial investment that is smaller than would be required for other types of contracts with a
similar response to market factors. The principal types of derivatives are: swaps, forwards, futures and options.
|
|
Digital sales
|
Percentage of new contracts executed through digital channels during the period. Digital sales as % of total sales.
|
|
Economic capital
|
An internal measure of the minimum equity and preference capital required for the Santander UK group to maintain its credit rating based upon
its risk profile.
|
|
Effective tax rate
|
The tax on profit/(losses) on ordinary activities as a percentage of profit/(loss) on ordinary activities before taxation.
|
|
Energy performance certificate
(EPC)
|
A scheme to summarise the energy efficiency of buildings and apply a rating between A – G.
|
|
Expected credit loss (ECL)
|
Represents what the credit risk is likely to cost us either over 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 since origination.
|
|
Expected loss (EL)
|
The product of the probability of default, exposure at default and loss given default. We calculate each factor in accordance with CRD IV and
include direct and indirect costs. We base them on our risk models and our assessment of each customer’s credit quality.
|
|
Exposure at default (EAD)
|
The maximum loss that a financial institution might suffer if a borrower, counterparty or group defaults on their obligations or assets and off-
balance sheet positions have to be realised.
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Term
|
Definition
|
|
Fair value adjustment
|
An adjustment to the fair value of a financial instrument which is determined using a valuation technique (level 2 and level 3) to include additional
factors that would be considered by a market participant that are not incorporated within the valuation model.
|
|
Financial Conduct Authority
(FCA)
|
The Financial Conduct Authority is a financial regulatory body in the United Kingdom.
|
|
Financial Services
Compensation Scheme (FSCS)
|
The Financial Services Compensation Scheme is the UK's statutory deposit insurance and investors compensation scheme for customers of
authorised financial services firms.
|
|
First / Second Charge
|
First charge (also known as first lien): debt that places its holder first in line to collect compensation from the sale of the underlying collateral in the
event of a default on the loan. Second charge (also known as second lien): debt that is issued against the same collateral as a higher charge
debt but that is subordinate to it. In the case of default, compensation for this debt will only be received after the first charge has been repaid and
thus represents a riskier investment than the first charge.
|
|
Follow-on Rate (FoR)
|
A mortgage product that tracks and is directly linked to the Bank of England base rate.
|
|
Forbearance
|
Forbearance takes place when a concession is made on the contractual terms of a loan in response to an obligor’s financial difficulties.
|
|
Full time equivalent
|
Full time equivalent employee units are the on-job hours paid for employee services divided by the number of ordinary-time hours normally paid
for a full-time staff member when on the job (or contract employee where applicable).
|
|
Green Finance
|
In line with our internal classification system to define what investments can be considered green finance. This includes financing raised and
facilitated to renewable energy and other green energy financing; mortgages on properties with A- or B-rated EPC; and financing for electric
vehicles, hybrid, and plug-in hybrid electric vehicles (PHEV) with emissions below 50g CO2 /km
|
|
Impairment loss allowance
(Loan loss allowance)
|
An impairment loss allowance held on the balance sheet as a result of the raising of a charge against profit for an expected credit loss in the
lending book. An impairment loss allowance may be either individual or collective.
|
|
Individually assessed loan
impairment provisions
|
Impairment is measured individually for assets that are individually significant. For these assets, the Santander UK group measures the amount
of the impairment loss as the difference between the carrying amount of the asset or group of assets and the present value of the estimated
future cash flows from the asset or group of assets discounted at the original effective interest rate of the asset.
|
|
Internal Capital Adequacy
Assessment Process (ICAAP)
|
The Santander UK group’s own assessment of its regulatory capital requirements, as part of CRD IV. It takes into account the regulatory and
commercial environment in which the Santander UK group operates, the Santander UK group’s Risk Appetite, the management strategy for each
of the Santander UK group’s material risks and the impact of appropriate adverse scenarios and stresses on the Santander UK group’s capital
requirements.
|
|
Internal Liquidity Adequacy
Assessment Process (ILAAP)
|
The Santander UK group’s own assessment of the prudent level of liquidity that is consistent with the Santander UK group’s LRA. It documents
and demonstrates the Santander UK group’s overall liquidity adequacy – an appropriate level of liquid resources, a prudent funding profile and
comprehensive management and control of liquidity and funding risks.
|
|
Internal ratings-based approach
(IRB)
|
The Santander UK group's method, under the CRD IV framework, for calculating credit risk capital requirements using the Santander UK group’s
internal models
|
|
International Financial
Reporting Standards (IFRS)
|
A set of international accounting standards developed and issued by the International Accounting Standards Board, consisting of principles-
based guidance.
|
|
Investment grade
|
A debt security, treasury bill or similar instrument with a credit rating measured by external agencies of AAA to BBB.
|
|
ISDA Master agreement
|
Standardised contract developed by ISDA (International Swaps and Derivatives Association) used as an umbrella under which bilateral
derivatives contracts are entered into.
|
|
Judgemental Adjustments
|
Adjustments made to the ECL estimate outside of the ECL models to reflect management judgements.
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Term
|
Definition
|
|
Level 1
|
The fair value of these financial instruments is based on unadjusted quoted prices for identical assets or liabilities in an active market that the
Santander UK group has the ability to access at the measurement date.
|
|
Level 2
|
The fair value of these financial instruments is based on quoted prices in markets that are not active or 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 3
|
The fair value of these financial instruments is based on inputs to the pricing or valuation techniques that are significant to the overall fair value
measurement of the asset or liability are unobservable.
|
|
Liquidity Coverage Ratio (LCR)
|
The LCR is intended to ensure that a bank maintains an adequate level of unencumbered, high quality liquid assets which can be used to offset
the net cash outflows the bank could encounter under a short-term significant liquidity stress scenario.
|
|
LCR eligible liquidity pool
|
Assets eligible for inclusion in the LCR as high-quality liquid assets. The LCR eligible liquidity pool also covers both Pillar 1 and Pillar 2 risks.
|
|
Loan to value ratio (LTV)
|
The amount of a first mortgage charge as a percentage of the total appraised value of real property. The LTV ratio is used in determining the
appropriate level of risk for the loan and therefore the price of the loan to the borrower. LTV ratios may be expressed in a number of ways,
including origination LTV and indexed LTV.
|
|
Loss Given Default (LGD)
|
The fraction of Exposure at Default that will not be recovered following default. LGD comprises the actual loss (the part that is not recovered),
together with the economic costs associated with the recovery process. It is calculated as the expected loss divided by EAD for each month of
the forecast period. We base LGD on factors that impact the likelihood and 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.
|
|
Master netting agreement
|
An industry standard agreement which facilitates netting of transactions (such as financial assets and liabilities including derivatives) in
jurisdictions where netting agreements are recognised and have legal force. The 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.
|
|
Maximum Distributable Amount
(MDA)
|
The maximum distributions which a bank can make to investors when it has insufficient capital to meet its buffer requirements.
|
|
Medium-Term Funding (MTF)
|
Shown at a sterling equivalent value. Consists of senior debt issuance, asset-backed issuance (including securitisation and covered bond
issuance) and structured issuance (including firm financing repurchase agreements).
|
|
Medium-Term Notes (MTNs)
|
Corporate notes (or debt securities) continuously offered by a company to investors through a dealer. Investors can choose from differing
maturities, ranging from nine months to 30 years. They can be issued on a fixed or floating coupon basis or with an exotic coupon; with a fixed
maturity date (non-callable) or with embedded call or put options or early repayment triggers. MTNs are most generally issued as senior,
unsecured debt.
|
|
Minimum requirement for own
funds and eligible liabilities
(MREL)
|
A requirement under the Bank Recovery and Resolution Directive for EU resolution authorities to set a minimum requirement for own funds and
eligible liabilities for banks, implementing the Financial Stability Board’s Total Loss Absorbing Capacity (TLAC) standard. The purpose of MREL is
to help ensure that when banks, building societies and investment firms fail, that failure can be managed in an orderly way while minimising risks
to financial stability, disruption to critical economic functions, and risks to public funds.
|
|
Mortgages
|
Refers to residential and buy to let retail mortgages only and excludes social housing and commercial mortgage properties.
|
|
Net fee and commission income
|
Fee and commission income minus other fees paid that are not an integral part of the effective interest rate. 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’s branch and ATM networks, annual fees payable by credit card holders and fees for non-banking financial
products.
|
|
Net interest income
|
The difference between interest received on assets and interest paid on liabilities.
|
|
Net Interest Margin (NIM)
|
Net interest income as a percentage of average interest-earning assets.
|
|
Net Stable Funding Ratio (NSFR)
|
The ratio of available stable funding resources to stable funding requirements over a one-year time horizon, assuming a stressed scenario. The
Basel III rules require this ratio to be over 100%.
|
|
Over the counter (OTC)
derivatives
|
Contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. They
offer flexibility because, unlike standardised exchange-traded products, they can be tailored to fit specific needs.
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Term
|
Definition
|
|
Own credit
|
The effect of the Santander UK group’s own credit standing on the fair value of financial liabilities.
|
|
Past due
|
A financial asset such as a loan is past due when the counterparty has failed to make a payment when contractually due.
|
|
Payment holiday
|
A period in which a customer has relief from making repayments on a loan. Also known as a payment deferral.
|
|
Pillar 1
|
The first pillar of the Basel III approach which provides the approach to the calculation of the minimum capital requirements.
|
|
Pillar 2
|
The part of the CRD IV Accord which sets out the process by which a bank should review its overall capital adequacy and the processes under
which the supervisors evaluate how well financial institutions are assessing their risks and take appropriate actions in response to the
assessments.
|
|
Pillar 3
|
The part of the CRD IV Accord which sets out the disclosure requirements for firms to publish details of their risks, capital and risk management.
The aims are greater transparency and strengthening market discipline.
|
|
Prime / prime mortgage loans
|
A description for mortgages granted to the most creditworthy category of borrowers.
|
|
Probability of default (PD)
|
The likelihood of a borrower defaulting in the following year, 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.
|
|
Prudential Regulation Authority
(PRA)
|
The UK financial services regulator formed as one of the successors to the FSA. The PRA is part of the Bank of England and is responsible for
the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. It sets standards and
supervises financial institutions at the level of the individual firm.
|
|
Regulatory capital
|
The amount of capital that the Santander UK group holds, determined in accordance with rules established by the UK PRA for the consolidated
Santander UK group and by local regulators for individual Santander UK group companies.
|
|
Repurchase agreement (Repo)
|
In a sale and repurchase agreement one party, the seller, sells a financial asset to another party, the buyer, under commitments to reacquire the
asset at a later date. The buyer at the same time agrees to resell the asset at the same later date. From the seller's perspective such agreements
are securities sold under repurchase agreements (repos) and from the buyer's securities purchased under commitments to resell (reverse
repos).
|
|
Residential Mortgage-Backed
Securities (RMBS)
|
Securities that represent interests in a group of residential mortgages. Investors in these securities have the right to cash received from future
mortgage payments (interest and / or principal).
|
|
Retail Business Banking
(RBB)
|
Provides UK mortgage lending and banking services and unsecured lending to individuals and small businesses.
|
|
Risk Appetite
|
The level of risk (types and quantum) that the Santander UK group is willing to accept (or not accept) to safeguard the interests of shareholders
whilst achieving business objectives.
|
|
Risk-weighted assets (RWA)
|
A measure of a bank’s assets adjusted for their associated risks. Risk weightings are established in accordance with the Basel Capital Accord as
implemented by the PRA.
|
|
RoTE
|
Profit after tax attributable to equity holders of the parent divided by average shareholders’ equity less non-controlling interests, other equity
instruments and average goodwill and intangible assets.
|
|
Securitisation
|
A process by which a group of assets, usually loans, are aggregated into a pool, which is used to back the issuance of new securities. A
company sells assets to a structured entity which then issues securities backed by the assets, based on their value. This allows the credit quality
of the assets to be separated from the credit rating of the original company and transfers risk to external investors. Assets used in securitisations
include mortgages to create mortgage-backed securities. Santander UK has established securitisation structures as part of its funding and capital
management activities.
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Term
|
Definition
|
|
Significant increase in credit
risk (SICR)
|
Assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after considering the passage
of time).
|
|
Sovereign exposures
|
Exposures to local and central governments, and government guaranteed counterparties.
|
|
Stage 1
|
Assets have not experienced a significant increase in credit risk since origination. A loss allowance equal to a 12-month ECL is applied.
|
|
Stage 2
|
Assets have experienced a significant increase in credit risk since origination, but no credit impairment has materialised. A loss allowance equal
to the lifetime ECL is applied.
|
|
Stage 3
|
Assets that are in default and considered credit impaired. A loss allowance equal to the lifetime ECL is applied. Objective evidence of credit
impairment is required.
|
|
Standardised approach
|
In relation to credit risk, a method for calculating credit risk capital requirements under CRD IV, using External Credit Assessment Institutions
ratings and supervisory risk weights. The Standardised approach is less risk-sensitive than IRB (see 'IRB' above). In relation to operational risk, a
method of calculating the operational capital requirement under CRD IV, by the application of a supervisory defined percentage charge to the
gross income of eight specified business lines.
|
|
Stress testing
|
Stress testing is a management tool that facilitates a forward-looking perspective on risk management, strategic planning, capital, and liquidity
and funding planning.
|
|
Structured entity
|
An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any
voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
|
|
Structured finance/notes
|
A structured note is an instrument which pays a return linked to the value or level of a specified asset or index and sometimes offers capital
protection if the value declines. Structured notes can be linked to a range of underlying assets, including equities, interest rates, funds,
commodities and foreign currency.
|
|
Subordinated liabilities
|
Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the
issuer.
|
|
Sub-prime
|
Loans to borrowers typically having weakened credit histories that include payment delinquencies and potentially more severe problems such as
court judgements and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, high debt-to-income
ratios, or other criteria indicating heightened risk of default.
|
|
Supranational
|
An international organisation where member states transcend national boundaries or interests to share in decision-making and vote on issues
relating to the organisation’s geographical focus.
|
|
Standard Variable Rate (SVR)
|
A mortgage product managed by Santander and not directly linked to the Bank of England base rate.
|
|
Term Funding Scheme with
additional incentives fort SMEs
(TFSME)
|
The TFSME allows eligible banks and building societies to access four-year funding at rates very close to Bank Rate.
|
|
Tier 1 capital
|
A measure of a bank's financial strength defined by the PRA. It captures Common Equity Tier 1 capital plus other Tier 1 securities in issue but is
subject to a deduction in respect of material holdings in financial companies.
|
|
Tier 2 capital
|
Defined by the PRA. Broadly, it includes qualifying subordinated debt and other Tier 2 securities in issue, eligible collective impairment
allowances, the excess of regulatory impairment allowance over expected loss and deduction of material holdings in financial companies.
|
|
Total loss absorbing capacity
(TLAC)
|
An international standard for TLAC issued by the Financial Stability Board, which requires global systemically important banks (G-SIBs) to have
sufficient loss-absorbing and recapitalisation capacity available in resolution, to minimise impacts on financial stability, maintain the continuity of
critical functions and avoid requiring taxpayer support.
|
|
Total customers
|
Defined as those having an open account.
|
|
Total wholesale funding
|
Comprises the sum of all outstanding debt securities, structured issuance (including firm financing repurchase agreements), subordinated debt
and capital issuance, TFS and noncustomer deposits. Total wholesale funding excludes any collateral received as part of the FLS.
|
|
Trading book
|
Positions in financial instruments held either with trading intent or in order to hedge other elements of the trading book, which must be free of
restrictive covenants on their tradability or ability to be hedged.
|
|
Unencumbered assets
|
Assets on our balance sheet not used to secure liabilities or otherwise pledged.
|
|
Value at Risk (VaR)
|
An estimate of the potential loss which might arise from market movements under normal market conditions, if the current positions were to be
held unchanged for one business day, measured to a confidence level.
|
|
Write-down
|
After an advance has been identified as impaired and is subject to an impairment allowance, the stage may be reached whereby it is concluded
that there is no realistic prospect of further recovery. Write-downs will occur when, and to the extent that, the whole or part of a debt is considered
irrecoverable.
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|
Financial statements
|
Shareholder information
|
||||||
Disclosure pursuant to Section 219 of the Iran Threat Reduction and
Syria Human Rights Act
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as
amended (the Exchange Act), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged
in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally
required even where the activities, transactions or dealings were conducted in compliance with applicable law.
The following activities are disclosed in response to Section 13(r) with respect to the Santander UK group and its affiliates in the Banco Santander group. During
the period covered by this report:
(a) Santander UK holds ten blocked accounts for seven customers that are currently designated by the US under the Specially Designated Global Terrorist
(SDGT) sanctions programme. Revenues and profits generated by Santander UK on these accounts in the year ended 31 December 2024 were negligible
relative to the overall profits of Banco Santander SA.
(b) Santander Consumer Finance, SA holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by
the US under the SDGT sanctions programme. The accounts have been blocked since 2008. No revenues or profits were generated by the Belgian branch
on these accounts in the year ended 31 December 2024.
(c) Santander Brasil holds three blocked accounts for three customers with domicile in Brazil designated by the US under the SDGT sanctions programme.
Revenues and profits generated by Santander Brasil on these accounts in the year ended 31 December 2024 were negligible relative to the overall profits of
Banco Santander SA.
(d) The Banco Santander group also has certain legacy performance guarantees for the benefit of an Iranian bank that is currently designated by the US under
the SDGT sanctions programme (stand-by letters of credit to guarantee the obligations – either under tender documents or under contracting agreements of
contractors who participated in public bids in Iran) that were in place prior to 27 April 2007.
In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended 31 December 2024 which were negligible
relative to the overall revenues and profits of the Banco Santander group. The Banco Santander group has undertaken significant steps to withdraw from the
Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit taking from
Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Banco Santander group is not contractually permitted
to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding
amounts due to it (in the case of the export credits). As such, Banco Santander group intends to continue to provide the guarantees and hold these assets in
accordance with company policy and applicable laws.
|
Annual Report 2024
|
Santander UK plc
|
244
|
||
|
Strategic Report
|
Sustainability
|
Governance
|
Risk review
|
Financial statements
|
Shareholder information
|
||||||
Cross-reference to Form 20-F
|
Form 20-F Item Number and Caption
|
Page
|
||
|
PART I
|
|||
|
1
|
Identity of Directors, Senior Management and Advisers
|
*
|
|
|
2
|
Offer Statistics and Expected Timetable
|
*
|
|
|
3
|
Key Information
|
Capitalisation and indebtedness
|
*
|
|
Reasons for the offer and use of proceeds
|
*
|
||
|
Risk factors
|
203
-218
|
||
|
4
|
Information on the Company
|
History and development of the company
|
33
, 124, 130-139, 197, 235
|
|
Business overview
|
3-4, 6, 10, 34, 70, 72, 82, 84, 108-109,
140-142, 178, 211-213, 219-220, 228
|
||
|
Organisational structure
|
33, 162-163, 199-200
|
||
|
Property, plant and equipment
|
123, 133, 166
|
||
|
4A
|
Unresolved Staff Comments
|
Not applicable
|
|
|
5
|
Operating and Financial Review and Prospects
|
Operating results
|
9
, 95, 96, 99, 121, 150, 203-218
|
|
Liquidity and capital resources
|
|||
|
Research and development, patents and licenses, etc.
|
34
|
||
|
Trend information
|
3
-4, 6-10
|
||
|
Critical accounting estimates
|
|||
|
6
|
Directors, Senior Management and Employees
|
Directors and senior management
|
16-25, 222-225
|
|
Compensation
|
|
||
|
Board practices
|
16
-25, 26-28, 32, 183, 222-226
|
||
|
Employees
|
2, 33, 140-142
|
||
|
Share ownership
|
|||
|
Disclosure of a registrant’s action to recover erroneously
awarded compensation
|
Not applicable
|
||
|
7
|
Major Shareholders and Related Party Transactions
|
Major shareholders
|
|
|
Related party transactions
|
70, 182-
183
|
||
|
Interests of experts and counsel
|
*
|
||
|
8
|
Financial Information
|
Consolidated Statements and Other Financial Information
|
221, 235
|
|
Significant Changes
|
33, 197
|
||
|
9
|
The Offer and Listing
|
*
|
|
|
10
|
Additional Information
|
Share capital
|
*
|
|
Memorandum and articles of association
|
|||
|
Material contracts
|
|||
|
Exchange controls
|
|||
|
Taxation
|
|||
|
Dividends and paying agents
|
*
|
||
|
Statements by experts
|
*
|
||
|
Documents on display
|
|||
|
Subsidiary Information
|
*
|
||
|
Annual Report to Security Holders
|
Not applicable
|
||
|
11
|
Quantitative and Qualitative Disclosures about Market Risk
|
95-97
|
|
|
12
|
Description of Securities Other Than Equity Securities
|
*
|
|
|
PART II
|
|||
|
13
|
Defaults, Dividend Arrearages and Delinquencies
|
Not applicable
|
|
|
14
|
Material Modifications to the Rights of Security Holders and Use of Proceeds
|
Not applicable
|
|
|
15
|
Controls and Procedures
|
||
|
16A
|
Audit Committee financial expert
|
21, 226
|
|
|
16B
|
Code of Ethics
|
||
|
16C
|
Principal Accountant Fees and Services
|
|
|
|
16D
|
Exemptions from the Listing Standards for Audit Committees
|
Not applicable
|
|
|
16E
|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
|
Not applicable
|
|
|
16F
|
Change in Registrant’s Certifying Accountant
|
Not applicable
|
|
|
16G
|
Corporate Governance
|
226
|
|
|
16H
|
Mine Safety Disclosure
|
Not applicable
|
|
|
16I
|
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
|
Not applicable
|
|
|
16J
|
Insider Trading Policies
|
||
|
16K
|
Cybersecurity
|
6, 40, 103-105, 216
|
|
|
PART III
|
|||
|
17
|
Financial Statements
|
Not applicable
|
|
|
18
|
Financial Statements
|
121-129
|
|
|
19
|
Exhibits
|
Filed with SEC
|
|
|
* Not required for an Annual Report.
|
|||
EXHIBIT INDEX
|
Exhibits1
|
|
|
1.1
|
|
|
8.1
|
|
|
11.1
|
|
|
12.1
|
|
|
12.2
|
|
|
13.1
|
|
|
15.1
|
|
|
97.1
|
|
|
101.INS*
|
XBRL Instance Document
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
1
Documents concerning Santander UK
plc referred to in the
2024
Annual Report on Form 20-F may be inspected at 2 Triton Square, Regent’s Place, London
NW1 3AN, its principal executive offices and registered address.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf.
SANTANDER UK
plc
|
By:
|
/s/ Mike Regnier
|
|
|
Mike Regnier
|
||
|
Chief Executive Officer
|
Dated:
7 March, 2025
TABLE OF CONTENTS
Part Interest-