PRA accepts Nationwide’s capital plan

12 July 2013

The PRA announced adjusted capital targets for financial institutions in its statement dated 20 June 2013. The PRA established two targets for each firm; an adjusted risk weighted capital ratio on the Basel III end-point definition of at least 7% and an adjusted Common Equity Tier 1 (CET1) leverage ratio of at least 3%, in each case after allowing for certain additional adjustments to capital and risk weighted assets beyond those required by Basel III (1).

Nationwide has consulted with the PRA in order to clarify its requirements and submitted its capital plan in accordance with the agreed timetable. The PRA required Nationwide to meet a leverage ratio, after PRA adjustments, as published in its statement of 20 June and measured on an end-point Basel III basis, of 3% by the end of 2015.

Nationwide’s Capital Plan (Plan) which is based on a continuation of the Society’s organic growth strategy and strong track record in lending shows Nationwide achieving an adjusted CET1 leverage ratio of 3% by the end of 2015. This is significantly ahead of the CRD IV/CRR expected implementation date of 1 January 2018 and the PRA has accepted it. It also shows that as at 30 June 2013, Nationwide’s adjusted CET1 capital ratio was above 7% (2) and it indicates that it will be maintained at or above the threshold level.

Nationwide’s Plan does not require capital issuance and is consistent with the Society’s current business model and strategy.

Nationwide’s balance sheet comprises 87% of assets secured against UK residential property (mortgage loans) – significantly above the legal requirement for building societies of 75%. It is a high quality, low risk balance sheet which typically has a lower leverage ratio than a more diversified but higher risk balance sheet.

Nationwide has previously indicated its intention to issue Core Capital Deferred Shares (CCDS). This new capital instrument is designed for mutual building societies and will enable Nationwide to raise common equity tier one capital to supplement retained earnings and to diversify its capital base. It remains the Society’s intention to establish and access this form of capital during the current or next financial year. Any such capital issuance remains at the discretion of the Nationwide Board and will have the effect of enhancing the ratios and timetable set out above.

Nationwide is committed to remaining a mutual building society and to providing a comprehensive range of attractive financial services to its 15 million members, including on-going support of the housing market through the provision of mortgages and at the same time diversifying and strengthening its capital base.

  1. The adjustments to capital resource and risk weighted assets are recommended by the FPC as set out in the PRA statement of 20 June 2013. They comprise an increase to Risk Weighted Assets (RWAs) of £10.6 billion representing, in the main, an increase to the RWA floor for mortgage assets from 5% to 15% and a £0.4 billion deduction to our capital resource to reflect expected future losses and an assessment of future costs of conduct redress.

  2. Includes the audited valuation of the pension fund liability as at 4 April 2013 and unaudited interim profits for the period to 30 June.

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